Case Detail

HCA 1661, 1766, 2191/2014 &
HCA 623, 939, 1564/2015 (Consolidated)
and HCA 1282/2017
(Heard together)

[2022] HKCFI 326

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 1661, 1766 & 2191 OF 2014 AND 623, 939 & 1564 OF 2015

________________________

BETWEEN

	張才奎所託管中國山水投資	第一批原告人
	有限公司股份相關員工	1^st Group of
	Relevant employees whose shares in	Plaintiffs
	CHINA SHANSHUI INVESTMENT COMPANY LIMITED
	were held by ZHANG CAIKUI on trust
	李延民所託管中國山水投資	第二批原告人
	有限公司股份相關員工	2^nd Group of
	Relevant employees whose shares in	Plaintiffs
	CHINA SHANSHUI INVESTMENT COMPANY LIMITED
	were held by LI YANMIN on trust
	and
	張才奎 (ZHANG CAIKUI)	1^st Defendant
	李延民 (LI YANMIN)	2^nd Defendant

________________________

(Consolidated pursuant to the Order of
The Honourable Mr Justice G Lam dated 20 August 2015)

AND

CA 1282/2017

ACTION NO 1282 OF 2017

________________________

BETWEEN

LI MING	(李明)	1^st Plaintiff
	WU RANTAO (吳然濤)	2^nd Plaintiff
	ZHAO DONGWEI (趙東偉)	3^rd Plaintiff
	ZHANG XIN (張信)	4^th Plaintiff
	ZHOU LI (周立)	5^th Plaintiff
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by ZHANG CAIKUI on trust Please refer to Schedule 1 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表一))	6^th to 1008^th Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by LI YANMIN on trust (Please refer to Schedule 2 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表二))	1009^th to 1084^th Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by ZHANG CAIKUI on trust (Please refer to Schedule 3 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表三))	1085^th to 1531^st Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by LI YANMIN on trust (Please refer to Schedule 4 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表四))	1532^nd to 2019^th Plaintiffs
	and
	ZHANG CAIKUI (張才奎)	1^st Defendant
	LI YANMIN (李延民)	2^nd Defendant

________________________

(Heard together)

Before:

Hon K Yeung J in Chambers

Date of Statement of Costs and Reply to Statement of Objections by SH Plaintiffs:	20 September and 26 October 2021
Date of Statement of Objections by EY Receivers (Former Receivers):	12 October 2021
Date of Decision on Costs:	28 January 2022

________________________

DECISION ON COSTS

________________________

1. I refer to the Former Receivers Lien Decision handed down on 23 June 2021. In §70 thereof, I made a costs order nisi that the SHPs shall have their costs of the applications, to be taxed if not agreed, with certificate for 2 counsel (the “Order Nisi”). Subsequently, and by consent, I varied the Order Nisi and ordered that the costs be summarily assessed. I also gave directions on the filing of statement of costs, objections and reply.

2. On 20 September 2021, Messrs Stephenson Harwood (“SH”) filed on behalf of the SHPs their Statement of Costs. They claim costs in the total sum of HK$1,048,882, the break-down of which appears as follows:

(a)  in Part B for “Manual Work” the total sum of HK$3,232;
(b)  in Part C for “Communications Including Conferences, Telephone Calls and Letters” the total sum of HK$123,400;
(c)  in Part D for “Professional Work” the total sum of HK$243,250; and
(d)  in Part E for “Counsel Fees” the total sum of 679,000 for 3 counsel.

3. On 12 October 2021, the Former Receivers filed their Statement of Objections. Part C is suggested to be excessive. In relation to Part D, it is submitted that it is unreasonable for a total of 5 fee earners to have been involved, and the time is excessive in any event. In relation to Part E, it is submitted that counsel’s fees are excessive, and that the costs of the 3^rd counsel should be disallowed in any event given the fact that certificate for only 2 counsel has been granted. Deductions in the total sum of HK$615,745 are claimed.

4. In their Reply of 26 October 2021, SH agree to some of the objections. In respect of others, even the objections are not entirely accepted, adjustments are made. The total suggested costs are reduced to HK$830,125 (a deduction of HK$218,757 off the original amount claimed).

5. I have considered that Statement of Costs, the Statement of Objections and the Reply (and in particular the concessions made therein). Despite the complicated factual background and procedural history of the matter, and the law involved, and despite the concessions, I remain of the view that:

(a) the total sum of HK$182,800 under Part D remains on the high side. There has been duplication of work. In particular, I see little justification for the attendance of 3 fee earners during the hearing;
(b) the counsel fees in the total sum of HK$550,000 remains on the high side, despite my grant of certificate for 2 counsel. I assess them down to HK$300,000 and HK$120,000 for leading and junior counsel respectively.

6. Applying a broad brush approach, I summarily assess the total fee at HK$680,000.

7. I make no further order on costs in respect of this assessment.

	(Keith Yeung)
	Judge of the Court of First Instance High Court

Statement of Costs and Reply to Statement of Objections by Stephenson Harwood, for the SH Plaintiffs

Statement of Objections by P C Woo & Co, for the EY Receivers (Former Receivers)

HCA 2648/2017
and HCA 1282/2017
(Heard together)

[2021] HKCFI 2988

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2648 OF 2017

_______________

BETWEEN
	CHEN HONGQING (陳宏慶)	Plaintiff
and
	The persons whose names are set out in the second column of the Schedule to the Re-amended Writ of Summons filed on 26 March 2018 (其姓名載於2018年3月26日存檔的再修訂的傳訊令狀附表第二欄的人士)	1st to 2265th Defendants
	JINAN INDUSTRIAL DEVELOPMENT INVESTMENT GROUP CO, LTD (濟南產業發展投資集團有限公司)	2,266th Defendant

_______________

AND	HCA 1282/2017

ACTION NO 1282 OF 2017

_______________

BETWEEN
	LI MING (李明)	1st Plaintiff
	WU RANTAO (吳然濤)	2nd Plaintiff
	ZHAO DONGWEI (趙東偉)	3rd Plaintiff
	ZHANG XIN (張信)	4th Plaintiff
	ZHOU LI (周立)	5th Plaintiff
	Relevant Employees whose shares in China Shanshui Investment Company Limited held by Zhang Caikui on trust (Please refer to Schedule 1 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳‍訊令狀中的附表一))	6th to 1008th Plaintiffs
	Relevant Employees whose shares in China Shanshui Investment Company Limited held by LI YANMIN on trust (Please refer to Schedule 2 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳‍訊令狀中的附表二))	1009th to 1084th Plaintiffs
	Relevant Employees whose shares in China Shanshui Investment Company Limited held by Zhang Caikui on trust (Please refer to Schedule 3 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳‍訊令狀中的附表三))	1085th to 1531st Plaintiffs
	Relevant Employees whose shares in China Shanshui Investment Company Limited held by LI YANMIN on trust (Please refer to Schedule 4 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳‍訊令狀中的附表四))	1532nd to 2019th Plaintiffs
	and
	ZHANG CAIKUI (張才奎)	1st Defendant
	LI YANMIN (李延民)	2nd Defendant

_______________

(Heard together)

Before: Hon K Yeung J in Chambers

Dates of Statement of Costs and Objections by the Plaintiff: 21 July and 10 August 2021

Dates of Statement of Costs, Objections and Reply by the SH Defendants: 13 September 2019, 20 July, 11 and 24 August 2021

Dates of Statement of Costs and Reply by Jinan Group: 13 September 2019, 21 July, 12 and 20 August 2021

Date of Decision on Costs: 7 October 2021

________________

D E C I S I O N
O N C O S T S
________________

A. THE LEAVE & DIRECTIONS DECISION, AND THE COSTS ORDER NISI

1. This is my decision on costs in respect of the Leave & Directions Decision I handed down on 23 June 2021 (the “Leave & Directions Decision”).

2. I refer to the costs order nisi I made at §56 of the Leave & Directions Decision.

3. Parties have filed 3 sets of submissions, one each for the NOA Summons, the SHDs Directions Summons, and the CHQ Costs Extension Summons (which set itself comprises 4 sub‑sets).

4. I will deal with them in turn.

5. Whilst I need to deal with them in turn, I say this at the outset. The various applications that have been before this Court share common factual background. They are not entirely distinct from one another. Whilst it cannot be pinpointed with total accuracy which parts of the costs incurred and spent on the preparation of one application might be useful in the preparation of another application, their inter‑related nature should be borne in mind when assessing the reasonableness or otherwise of the costs claimed.

B. THE NOA SUMMONS

B.1. THE SHDS

6. In the Statement of Costs of 20 July 2021, the SHDs claim HK$1,012,111.

7. In his Written Objection of 10 August 2021, Chen HQ proposed that HK626,685 be allowed. One of the main objections relates to the overlapping nature of the 3 Summonses being heard together, so that some of the costs and fees (and in particular counsel’s fee) should be apportioned by allowing only 66%.

8. In their Reply of 24 August 2021, SHDs in principle agree to the proposed apportionment. On that basis, together with some other agreed items, they claim HK$700,161.

9. The differences between the parties are narrow.

10. I agree that the costs claimed for some of the communications and professional work involve duplication.

11. Adopting a broad‑brush approach, I summarily assess the costs at HK$680,000.

B.2. JINAN GROUP

12. In its Statement of Costs of 21 July 2021, Jinan Group claims HK$1,424,506.87. The fee for leading counsel is HK$720,000.

13. In his Written Objection of 10 August 2021, Chen HQ proposes that HK$622,424 be allowed. He objects principally to certain duplication of work, and the amount of counsel’s fees claimed. He suggests similarly an apportionment due to the overlapping nature of the summons heard together.

14. In its Reply of 20 August 2021, Jinan Group submits that the matters are complicated, that the stake is high, and that the overall costs claimed are not disproportionate. On the issue of apportionment, Jinan Group submits that as its submissions were substantially confined to the NOA Summons, a percentage of at least 80% is suggested.

15. I agree that the overall costs of HK$1,424,506.87 are far too high.

16. I agree that there has been duplication of work.

17. I agree that there should be some apportionment given the overlapping nature of the summonses. I note on the other hand Jinan Group’s bigger involvement in the NOA Summons. I adopt the percentage of 80%.

18. I agree that leading counsel’s fee of HK$720,000 is on the high side. I allow HK$520,000 suggested by Chen HQ, at a level similar to the fees charged by leading counsel for the SHDs. After apportionment, I allow HK$416,000.

19. Chen HQ does not dispute the fee claimed by junior counsel, which I allow, after apportionment, at HK$216,000.

20. Overall, and adopting a broad‑brush approach, I summarily assess Jinan Group’s costs at HK$900,000.

C. THE SHDS DIRECTIONS SUMMONS

21. By his Statement of Costs of 21 July 2021, Chen HQ claims costs in the sum of HK$195,883, being 1/3 of HK$587,650.

22. In their Written Objection of 11 August 2021, the SHDs propose that HK$152,276 be allowed (being 1/3 of HK$456,830). It is suggested principally that the hourly rates are excessive, and that the time claimed on various items is also excessive, bearing in mind in particular that 2 counsel have been engaged.

23. No Reply has been filed.

24. Adopting a broad‑brush approach, I summarily assess 1/3 of Chen HQ’s total costs at HK$160,000.

D. CHQ COSTS EXTENSION SUMMONS

25. Four sets of submissions have been filed. I deal with them in turn.

D.1. THE ASI DISCHARGE SUMMONS

26. In the Statement of Costs of 13 September 2019, the ASI Defendants claim HK$831,360.

27. Chen HQ has filed no objection.

28. I am of the view that the costs claimed are reasonable. I summarily assess the costs at HK$831,000.

D.2. THE SHDS JURISDICTION SUMMONS

29. By their Statement of Costs of 13 September 2019, the SHDs claim HK$2,621,850.

30. By his Written Objection of 21 July 2021, Chen HQ proposes that HK$1,818,370 be allowed. The time claimed to have spent on various work is said to be excessive. Counsel’s fees are also said to be excessive.

31. SHDs filed their Reply on 11 August 2021. They do not accept that the time spent on the disputed items is excessive. They refer to and rely on the complexity of the matter, and the sheer volume of the affirmations prepared. They maintain that counsel’s fees are not excessive. They are however prepared to make some concessions. They now claim HK$2,392,250.

32. In my view, the costs claimed for perusal of documents, preparing and attending hearings, and general care and conduct are on the high side. I regard counsel’s fees as being reasonable.

33. Adopting a broad‑brush approach, I summarily assess the costs at HK$2,200,000.

D.3. THE JINAN GROUP JURISDICTION SUMMONS

34. By its Statement of Costs of 13 September 2019, Jinan Group claims costs in the total sum of HK$5,531,131.50, which includes:

(a)  Communication etc in the total sum of HK$671,750.50 (Section C);
(b)  Professional Work in the total sum of HK$2,175,993 (Section D); and
(c)  External Counsel fees in the total sum of HK$2,522,500.

35. By his Written Objection of 21 July 2021, Chen HQ proposes that HK$1,779,350 be allowed. The time claimed to have spent on various work is said to be excessive. Counsel’s fees are also said to be excessive.

36. In its Reply of 12 August 2021, Jinan Group relies principally on the complexity of the matter and the amount of materials involved. No concession has been made.

37. In my view:

(a)  the total amount of HK$5,531,131.50 is grossly excessive;
(b)  the hourly rates charged by the fee earners are far too high (nearly double the Solicitors’ Hourly Rates for party and party taxation in respect of 2 of them). The suggested complexity of the case in my view does not justify that;
(c)  the costs for Communication involve duplication, and the amount is excessive;
(d)  the total costs for Professional Work, and in particular:
(i)   more than HK$900,000 for preparation of documents is grossly excessive;
(ii)  nearly HK$1,000,000 for perusal of documents is grossly excessive;
The amount is not justified even after the complexity of the matter has been factored in;
(e)  counsel’s fees (HK$1,845,500 for leading counsel and HK$677,000 for junior counsel) are too high. I regard HK$900,000 and HK$350,000 respectively as being reasonable.

38. Adopting a broad‑brush approach, I summarily assess the costs at HK$2,200,000.

E. THE RECEIVERSHIP SUMMONS

E.1. CLAIM BY SHDS

39. By their Statement of Costs of 13 September 2019, the SHDs claim HK$2,301,900, comprising, inter alia, Professional Work in the total sum of HK$794,300, counsel’s fees in the total sum of HK$682,000 (HK$300,000 for leading counsel and HK$382,000 for junior counsel called in 2011), and HK$700,800 for Mainland legal advice.

40. By his Written Objection of 21 July 2021, Chen HQ proposes that HK$1,025,600 be allowed. The time spent on the Professional Work is said to be excessive. Leading counsel’s fee is agreed. The fees for junior counsel is proposed to be HK$150,000. The costs for the Mainland legal advice are suggested to be HK$150,000.

41. In their Reply of 11 August 2021, the SHDs rely on the complexity of the matters. They maintain that the time spent is not excessive. They however make some concessions. They maintain that counsel’s fees are reasonable. They counter‑propose HK$650,000 for the Mainland legal advice.

42. In my view:

(a)  costs in excess of HK$660,000 for perusal of documents and preparing for and attending hearings (as part of the Professional Work) are too high;
(b)  junior counsel’s fees being higher that those charged by the leader, with no explanation given for the apparent anomaly, is unreasonable. In my view, HK$200,000 for junior counsel is the reasonable amount;
(c)  the costs claimed for the Mainland legal advice is too high.

43. Adopting a broad‑brush approach, I summarily assess the costs at HK$1,450,000.

E.2. CLAIM BY JINAN GROUP

44. By its Statement of Costs of 13 September 2019, Jinan Group claims costs in the total sum of HK$3,533,019.50, which includes:

(a)  Communication etc in the total sum of HK$655,178 (Section C);
(b)  Professional Work in the total sum of HK$1,281,367 (Section D); and
(c)  External Counsel fees in the total sum of HK$1,490,900 (which includes HK$1,0455,500 for leading counsel (E2) and HK$345,400 for junior (E3)).

45. By his Written Objection of 21 July 2021, Chen HQ proposes that HK$1,332,410.50 be allowed. The time claimed to have been spent on various work is said to be excessive. Duplication of work is suggested. Counsel’s fees are also said to be excessive.

46. In its Reply of 12 August 2021, Jinan Group again relies principally on the complexity of the matter and the amount of materials involved. No concession has been made.

47. In my view:

(a)  the total amount of HK$3,533,019.50 is grossly excessive;
(b)  the hourly rates charged by the fee earners are far too high. The suggested complexity of the case in my view does not justify that;
(c)  the costs for Communication involve duplication, and the amount is excessive;
(d)  the total costs for Professional Work, and in particular:
(i)   more than HK$500,000 for preparation of documents is grossly excessive;
(ii)  nearly HK$500,000 for perusal of documents is grossly excessive;
The amount is not justified even after the complexity of the matter has been factored in;
(e)  counsel’s fees are too high. I regard HK$500,000 and HK$200,000 respectively for leading counsel (E2) and junior counsel (E3) as being reasonable.

48. Adopting a broad‑brush approach, I summarily assess the costs at HK$1,800,000.

F. CONCLUSION

49. I make the above summary assessments accordingly.

50. I make no further costs order in respect of the above assessments.

	(Keith Yeung)
	Judge of the Court of First Instance
	High Court

Statement of Costs and Objections by Gallant, for the Plaintiff

Statement of Costs, Objections and Reply by Stephenson Harwood, for the SH Defendants

Statement of Costs and Reply by Linklaters, for Jinan Group

HCA 1661, 1766, 2191/2014 &
HCA 623, 939, 1564/2015 (Consolidated)
and HCA 1282/2017
(Heard together)

[2021] HKCFI 1805

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 1661, 1766 & 2191 OF 2014 AND 623, 939 & 1564 OF 2015

________________________

BETWEEN

	張才奎所託管中國山水投資有限公司股份相關員工 Relevant employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED were held by ZHANG CAIKUI on trust	第一批原告人 1^st Group of Plaintiffs
	李延民所託管中國山水投資有限公司股份相關員工 Relevant employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED were held by LI YANMIN on trust	第二批原告人 2^nd Group of Plaintiffs
and
	張才奎 (ZHANG CAIKUI)	1^st Defendant
	李延民 (LI YANMIN)	2^nd Defendant

_______________

(Consolidated pursuant to the Order of

The Honourable Mr Justice G Lam dated 20 August 2015)

_______________

AND

HCA 1282/2017

ACTION NO 1282 OF 2017

_______________

BETWEEN

	LI MING (李明)	1^st Plaintiff
	WU RANTAO (吳然濤)	2^nd Plaintiff
	ZHAO DONGWEI (趙東偉)	3^rd Plaintiff
	ZHANG XIN (張信)	4^th Plaintiff
	ZHOU LI (周立)	5^th Plaintiff
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by ZHANG CAIKUI on trust (Please refer to Schedule 1 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表一))	6^th to 1008^th Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by LI YANMIN on trust (Please refer to Schedule 2 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表二))	1009^th to 1084^th Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by ZHANG CAIKUI on trust (Please refer to Schedule 3 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表三))	1085^th to 1531^st Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by LI YANMIN on trust (Please refer to Schedule 4 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表四))	1532^nd to 2019^th Plaintiffs
and
	ZHANG CAIKUI (張才奎)	1^st Defendant
	LI YANMIN (李延民)	2^nd Defendant

_______________

(Heard together)

Before: Hon K Yeung J in Chambers

Date of Hearing: 11 August 2020

Date of Decision: 23 June 2021

______________

D E C I S I O N

______________

The

“FR Lien Decision”

A. The Three Decisions

1. I call this decision the “FR Lien Decision”. It may be read in context together with two other related decisions this Court hands down at the same time (namely the “Leave & Directions Decision”[1] and the “CHQ Injunction Decision”[2]).

B. The present hearing

2. This is the hearing of the Lien Summonses (as defined below) taken out by the Former Receivers.

C. The Trust Actions and HCA 2648

3. These matters relate to HCA 1661, 1766, 2191/2014 and HCA 623, 939, 1564/2015 (Consolidated) (the “Trust Actions”), and HCA 1282/2017 (“HCA 1282”). They have a complicated history. For background, I refer to the main Judgment of G Lam J (as he then was) in the Trust Actions handed down on 31 January 2018[3] (the “Trust Actions Judgment”). I refer also to His Lordship’s Decision handed down at the same time[4] discharging the receivers (the “EY Receivers” or the “Former Receivers”, and “Trust Actions Discharge Decision”). I also, unless specified otherwise, adopt the same terms used by His Lordship in those Judgments and Decisions.

4. I refer also to the Jurisdiction Decision[5], the Receivership Decision[6] and the SHD Injunction Decision[7] this Court handed down on 30 August 2019.

5. To recapitulate the gist so as to set the scene:

(a) In the Trust Actions, the battle was between Zhang Snr and the Employee Shareholders over the beneficial ownership of 456,325 CSI Shares. In the end, the Employee Shareholders were successful. G Lam J (as he then was):
(i) made a declaration that Zhang Snr held 456,325 shares of and in CSI on trust for the Employee Shareholders;
(ii) made an order that the EY Receivers do take steps forthwith to transfer the 456,325 shares in CSI currently registered in the EY Receivers’ name to the Employee Shareholders concerned or to persons nominated by them;
(iii) granted liberty to apply for the purpose of carrying out the orders.
(b) Upon his unsuccessful application to be joined in the Trust Actions, Chen HQ on 17 November 2017 issued the Writ in HCA 2648/2017 (“HCA 2648”). That action when started was against 2,261 of the 2,630 Employee Shareholders in the Trust Actions. Chen HQ claimed to be the owner of those Employee Shareholders’ interests in their CSI Shares, so that should those Employee Shareholders become successful in the Trust Actions, the related shares, then held by the EY Receivers, should be passed to him but not the successful Employee Shareholders.

D. The Lien Summonses

6. There are 4 summonses before me. Two of them are substantive, and the other two procedural. They are all taken out by the Former Receivers:

(a) In respect of the 2 substantive ones[8], one is taken out under the Trust Actions, and the other one under HCA 1282 (together the “Lien Summonses”). The relief sought is identical, primarily for an order or declaration that the Former Receivers are entitled to a lien over the 456,325 shares in CSI in respect of which they had been appointed as receivers (the “Receiver Shares”) (§1), that they do stand charged with the amount of their remuneration, disbursement and expenses till full payment thereof (§2), and that those shares that have been deposited with Court shall remain so deposited (§3); and
(b) In respect of the 2 procedural ones[9], again one is taken out under the Trust Actions, and the other one under HCA 1282. Leave is sought for the Former Receivers to rely, for the purpose of the present applications, on the 13^thaffirmation of Mr Liu Yiu Keung, Stephen filed in the Trust Actions (“Liu” and “Liu/13^thAff”).

D.1. Liu /13^thAff

7. The purpose of Liu/13^thAff is to inform the Court that the board of CSI has served a notice to convene an EGM for the purpose of considering and if thought fit passing ordinary resolutions for inter alia the allotment of 80,000 ordinary shares in CSI to one Deyee International Company Limited. The point sought to be made is Mr Liu’s belief that there is still a keen demand for CSI shares, and that should the Shares be released and transferred to the nominees of the Employee Plaintiffs, there is a real possibility that they may be sold to bona fide purchasers.

8. Mr Maurellet, leading counsel for the SHPs, does not object to the same.

9. I on 11 August 2020 granted the Former Receivers leave to rely on Liu/13^thAff.

D.2. The affirmatory evidence

10. Two same sets (1 set under the Trust Actions and 1 set under HCA 1282) have been filed. I need only refer to 1 set. The main affirmations (excluding those earlier ones produced as exhibits) are:

(a) for the Former Receivers, Liu’s 9^th and 11^thaffirmations filed in the Trust Actions (“Liu/9^thAff” and “Liu/11^thAff” respectively) and Liu/13^thAff; and
(b) for the SHPs, the 12^thAffirmation of Zhao Dongwei filed in the Trust Actions (“Zhao” and “Zhao/12^thAff”).

E. The hearing on 18 October 2019

11. For the reasons set out in the Jurisdiction Decision and the Receivership Decision, I made a number of Orders against Chen HQ. In particular, I set aside the Service Out Order, the concurrent Writ and concurrent Amended Writ issued pursuant thereto and the service out permitted thereby. I discharged the ASI. I also dismissed Chen HQ’s Receivership Summons.

12. Chen HQ subsequently sought leave to appeal against those Orders. The SHDs and Jinan Group on the other hand sought directions for inter alia release of the CSI Shares.

13. After a call-over on 8 October 2019, the substantive hearing of those applications took place on 18 October 2019 before this Court.

14. In the meantime, the Former Receivers on 15 October 2019 took out the Lien Summonses, returnable on 14 November 2019.

15. The Former Receivers claimed entitlement to a lien formed one of the reasons the Former Receivers relied upon in opposition of the directions sought by the SHDs and the Jinan Group. Certain submissions made for the purpose of the hearing on 18 October 2019 are therefore relevant to the present hearing, and have been placed before this Court for the present hearing:

(a) The Former Receivers’ Skeleton Argument of 16 October 2019[10];
(b) the Skeleton Submission of the SHDs of 17 October 2019[11];
(c) Jinan Group’s Note on Equitable Lien of 21 October 2019[12]; and
(d) Former Receivers’ Written Submission on Receivers’ Lien of 25 October 2019[13].

F. The factual background

16. I refer to the Trust Actions Judgment and the Trust Actions Discharge Decision for the relevant facts.

17. The Former Receivers were appointed by Orders granted between May and July 2015. Their entitlement to remuneration under the Orders was the same, that[14]:

“ Subject to the approval of this Court, the remuneration of the Receivers be charged on a time-cost basis and approved by the Court and, subject to leave of the Court, but paid out of the Shares (and/or dividends derived therefrom) in the first instance.”

18. The status of the relevant shares as at 27 March 2019 when Liu filed his 8^thaffirmation in the Trust Actions has been explained at §10 thereof[15]. The majority of them have been deposited with the Court. Relevantly, of the 456,325 shares which formed the subject matter of the Trust Actions:

(a) 369,002 shares form the subject matter of HCA 2648, which this Court by the Order of 15 February 2018 in that action directed to be deposited with the Court;
(b) pursuant to that order, the Former Receivers, restricted however by the number of shares in the issued share certificates, deposited with Court Share Certificate No 29 of CSI in respect of 370,168 shares (being the closest number in excess of 369,002 shares) (the “1^stTransfer”);
(c) in about March 2018, some 321 SHPs owning 72,522 shares which were not subject to any further dispute demanded that the Former Receivers transfer them to their nominees, which the Former Receivers did (the “2^ndTransfer”). There are some technical issues concerning the splitting up of share certificate which we are not concerned with.

19. There is no dispute that the Former Receivers did conduct work as receivers. On 8 May 2018, the EY Receivers submitted an invoice for their fees and expenses in the total sum of HK$28,191,956.95 to the Registrar of the High Court for assessment. In July 2018, the Taxing Master proposed a 10% reduction to the profit costs of the EY Receivers and to the profit costs of the EY Receivers’ solicitors.

G. The issue

20. The main issue is whether this Court should on the evidence before me exercise its discretion so as to make a declaration that the Former Receivers are entitled to a lien over the Receiver Shares.

H. The applicable law

21. A court appointed receiver is entitled to be indemnified out of the assets over which he is appointed receiver for all his costs, charges, expenses and remuneration. The entitlement is not possession based, and does not terminate upon the receiver’s discharge — see Mellor v Mellor [1992] 1 WLR 517 at 526G-527E, Glatt v Sinclair [2013] 1 WLR 3602 at 3612C-D, Hughes v Customs and Excise Commissioners [2003] 1 WLR 177 at §64, and International Finance Corporation v DSNL [2007] 2 All ER (Comm) 305, §[42]. As summarized in Kerr & Hunter on Receivers and Administrators (20^thed) at §10-8:

“ The receiver has a lien for his or her remuneration and expenses, and to secure his or her right of indemnity, which binds the assets bound by the receivership. Its existence is independent of the receiver’s physical possession of any assets, and extends not merely over those assets in his or her actual possession, but also over all the assets so bound. Those rights do not terminate on the receiver’s discharge, nor on the return or delivery of the assets to the parties entitled to them.”

22. A court appointed receiver’s lien is an equitable one — Snell’s Equity (34^thed), §44-037. It is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness — see Hewett v Court (1982-1983) 149 CLR 639 at 663.

23. A lien can be enforced by an action seeking a declaration. As stated in Snell’s §44-011:

“The vendor may enforce his lien by commencing proceedings … claiming a declaration that he is entitled to a lien. On such declaration being made, his [sic.] is entitled to all such remedies for enforcing payment of his purchase-money and interest as he would have been entitled to under an express mortgage or charge, e.g. sale, or restoration of possession, or the appointment of a receiver. Further, where the contract provides for deferred payment, the court will not compel the vendor to transfer the property without safeguarding his lien.”

24. The receiver may waive the right to indemnity — see Kerr & Hunter (21^sted) §11-16. On the elements to be established by a party seeking to rely on waiver, Mr Chen refers to Hua Tyan Development Ltd v Zurich Insurance Ltd (2014) 17 HKCFAR 493 at §18, they being, in gist (1) a clear and unequivocal representation; (2) reliance by the representee; and (3) it would be inequitable for the representor to go back on the representation.

25. Waiver will however not be implied except in a plain case — Kerr & Hunter (21^sted) §11-16. I have also considered the approach adopted by Stone J in Miruvor Ltd v Panamawong-Globe Steamer Lines S.A. [2006] 2 HKC 617 (at p 628, wavier in the context of submission to jurisdiction), and the objective test applied by Kwan J (as she then was) in Re Kong Wah Holdings Limited, unrep, HCCW 49/2000, 20 July 2007 (at §12, in the context of waiver of legal professional privilege), which Mr Maurellet has cited to me.

I. SHPs’ opposition

26. Mr Maurellet does not seek to dispute that the Former Receivers had as court appointed receivers conducted certain work. Nor is there any serious dispute on the law.

27. Mr Maurellet summarizes the SHPs’ opposition as follows[16] (with original emphasis):

“ In gist, SHPs’ opposition is based on:-
2.1 the concepts of waiver and abuse. [The Former Receivers] issued their Lien Summons… almost2years after they had been discharged, and after they had previously been content to repeatedly release CSI shares from their control. They have therefore waived their entitlement to a lien or charge; and it had been abusive for them not to raise the point earlier.
2.2. the fact that [the Former Receivers] cannot prove they are owed any fees at all.
2.2.1. While [the Former Receivers] did conduct work as receivers (said to be HK$28 million), they did not do it on credit. On their own evidence, they had already pocketed HK$23-28 million. While they somehow claim these are only ‘loans’, [the Former Receivers] had put forward contradictory and inconsistent cases as to the funding arrangements with no documentary proof. Until they come forward with clear and comprehensive explanations, there is no reason for this Court to assist them.
2.2.2. Further, as this Court is well aware, there is a pending action, HCA 86, whereby [the Former Receivers] are being sued for colluding with Tianrui in the course of their receivership, and to deprive them of fees which they charged in relation to such conduct …”

28. In the course of the hearing, Mr Maurellet focused as his main point his submission summarized at §2.2 of his written submissions. I will hence consider that submission first.

J. Whether the Former Receivers have proved that they are owed fees

J.1. What need to be established

29. The first question to be considered is this: what the Former Receivers have to establish in order to get the declaration of lien which they are seeking.

30. Mr Maurellet submits that the avowed purpose of the lien is to protect the Former Receivers’ entitlement to their unpaid fees. So as to justify the court’s equitable jurisdiction to grant the declaration of lien sought, it is incumbent on the Former Receivers to prove that they are owed fees.

31. As a matter of principle, that must be right.

32. On that issue, Mr Chen relies on Hewett v Court. At p 668 of the judgment, Deane J observed that:

“ … I identify what I consider to be the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship …They are: (i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it … (ii) that that property (or arguably property including that property …) be specifically identified and appropriated to the performance of the contract …; and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion thereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged.”

33. Relying on that passage, in so far as relevant to the present applications, and with the necessary modifications given the facts of the present case, Mr Chen in the course of the hearing submitted that it is sufficient for the Former Receivers to establish that there is an actual or potential indebtedness in respect of their fees[17]. The focus is “actual or potential indebtedness”.

34. On the authorities cited before me, I am prepared to accept that.

J.2. The applicable threshold of proof

35. The next question is the threshold which the Former Receivers are required to overcome to establish the existence of “actual or potential indebtedness.” Should it be “prima facie case”, or “serious issue to be tried”, or “good arguable case”, or “balance of probabilities”.

36. I sought Mr Chen’s assistance in this regard in the course of the hearing. Mr Chen at some stage suggested that all the Former Receivers are required to establish is a serious issue to be tried that there is an actual or potential indebtedness in respect of their fees.

37. I do not accept that. This is not an application for an interlocutory injunction. This is an application by the Former Receivers for a binding declaration in their favour of the existence of a lien over the Receiver Shares. I do not see why those thresholds which are normally only applicable to applications for interlocutory orders should apply. I am of the view that the Former Receivers have to establish on the balance of probabilities the existence of an actual or potential indebtedness in respect of their fees. In the end, Mr Chen accepted that to be the position. He submitted that the evidence adduced by the Former Receivers is good enough to support that.

38. I now turn to the evidence.

J.3. The evidence

39. Both Mr Maurellet and Mr Chen have taken me through the relevant documents and affirmations evidence. I discuss them as follows.

40. The Former Receivers have conducted work in their capacity as the court-appointed receivers. In that capacity, the evidence suggests that they have incurred costs and disbursements.

41. The evidence suggests that they have been “in fund” for that.

42. The questions are: who have been providing the funds, and what terms there were for the provision of those funds.

43. In early 2018, 5 of the Employee Plaintiffs initiated HCA 86/2018 (“HCA 86”)[18] against 2 of the EY Receivers. One allegation is that the Former Receivers had been funded by Tianrui or its related party.

44. Liu denied having been funded by Tianrui. In an affirmation filed in HCA 86 on 29 June 2018[19], Liu stated at §84[20] that:

“ … In October 2015, Wong & Lawyers representing a group of minority shareholders in CSI arranged for the funding of the Receivers work by providing total funds of HK$28 million — see Wong & Lawyers’ 19 and 29 October 2015 letters to the Receivers’ solicitors ... According to Mi Jingtian … and Zhao Yongkui …, that funding was secured by 5 representatives of the Employee Plaintiffs, namely, themselves plus Li Maohuan, Yu Yuchuan and Zhao Liping …”

45. Whilst Liu’s said affirmation filed in HCA 86 was placed before me on the purpose of these applications, the exhibits adduced were not. Mr Chen at one stage of the hearing sought to place the letters from Wong & Lawyers before me, but ultimately it was not pursued further.

46. I have however in the HCA 86 Decision set out the material contents of those letters from Wong & Lawyers[21]. Reference could be made to them if necessary.

47. In any event, the 4^thaffirmation of Zhao Dongwei dated 26 September 2018 filed in HCA 86 on behalf of the plaintiffs is before me. He made reference to those letters, that[22]:

“ 33. The Defendant Receivers deny that they received payment from Tianrui. They referred to two letters from Messrs. Wong & Lawyers in October 2015 and Zhang Sr’s Affirmations, appearing to indirectly hint that their remunerations were paid by the Minority Shareholders. I have since spoken to the 6 Minority Shareholders (apart from Zhao Yongkui) regarding this matter, and they told me that none of them had ever paid any remuneration to the Receivers through Messrs. Wong & Lawyers or any other means.
34. However, the letters from Messrs. Wong & Lawyers referred to above in fact stated that ‘our client’ was prepared to arrange funding for the Receivers. To clarify who was the ‘our client’ which arrange for funding, SH wrote to Messrs. Wong & Lawyers.
35. On 16 August 2018, Messrs. Wong & Lawyers replied, stating that the ‘client’ which arranged funding was Zhao Yongkui, and that due to privilege they were unable to provide any further details. This confirmed that the 6 Minority Shareholders had nothing to do with the funding. Moreover, it is important to note that it was Zhao Yongkui, who defected to and had been closely associated with Tianrui, who arranged for funding, and it is quite clear that he did not himself have the resources to fund the litigation. In fact, and according to his various other affirmations filed in proceedings in Hong Kong, he admitted that employee plaintiffs did not have the resources to fund. As a result, Zhao Yongkui said that they had gone to an anonymous ‘3rd party’ or a ‘litigation funder’ ... I have since asked the Minority Shareholders and was told that this anonymous ‘3rd party’ or ‘litigation funder’ was in fact Tianrui …”

48. Then, on 9 November 2018, Liu filed his 7^thaffirmation in the Trust Actions in support of the Former Receivers’ application for interim payment. At §42 thereof, Liu says:

“ Although the Receivers did not receive a single dollar from the Employee Plaintiffs or Zhang Senior during the receivership, the Receivers did obtain funding from a minority shareholder of CSI, Zhao Yongkui (‘Zhao YK’). Zhao YK provided funding for the Receivers in the total amount of about $23.18 million, $12,750,099.23 of which was paid to the Receivers and the remaining $10,435,137.75 was paid to PCW. The funds are repayable upon the Receivers receiving their remuneration and recovering the costs and disbursements from the Receivership Shares or their rightful owners. Accordingly, Zhao YK’s funding does not affect the amount claimed by and due to the Receivers ($28.19 million).”

49. On 27 March 2019, Liu filed his 8^thaffirmation in the Trust Actions in support of the Former Receivers’ application for interim payment. He saw the need to make certain clarifications therein, that[23]:

“ 11. In HCA 86/2018, I stated that in October 2015, Wong & Lawyers (representing Zhao YK being one of the minority shareholders in CSI) arranged for the funding of the Receivers’ work by providing total funds of HK$28 million. Out of these funds:
(a) About HK$23.18 million were used to fund the Receiver’s work by way of loan. The Receivers received about HK$12.75 million and PCW received about HK$10.4 million.
(b) The remaining HK$4.82 million were loaned to CSI (treated as a loan from a shareholder) for CSI to discharge its legal fees ….
(c) The HK$28 million were not all used to fund the Receivers’ work. A part of it was used to fund CSI’s expenses. I apologize for any confusion caused.
12. In any event, the Receivers’ remuneration and disbursement exceed the HK$23.18 million in funding received by way of loans:
(a) As of 31 January 2018, the Receivers’ professional fees were HK$16,899,454, the Receivers’ recoverable disbursements were HK$250,187, and as of 16 March 2018, PCW’s fees were HK$11,042,315 (aggregating HK$28,191,956) …
(b) Since 31 January and 16 March 2018, however, the Receivers and PCW respectively have incurred further fees and costs aggregating about half a million.
13. The funding has been provided to the Receivers by way of loan. It is highly undesirable that the Receivers, being professional accountants, should have a substantial liability outstanding for such a long period of time.”

50. In Liu/11^thAff, Liu says at §14 that:

“ There is no dispute that the Former Receivers received funding for their work at a time when substantial work had to be carried out and none of the Employee Plaintiffs provided such funding to the Former Receivers. As stated in paragraph 13 of my 8^th Affirmation…, the funding was provided to the Former Receivers ‘by way of loan’. The Former Receivers are under an obligation to repay the funding so provided.”

51. What is significant from the above are these:

(a) In his affirmation filed in June 2018, Liu stated that funding in the total sum of HK$28 million was arranged and provided. There was no mention of any loan whether to the Former Receivers, or to CSI;
(b) Then in November 2018, it was said for the first time that the funding was provided by way of a loan. The only term of the alleged loan which Liu however was minded to reveal is that the “funds are repayable upon the Receivers receiving their remuneration and recovering the costs and disbursements from the Receivership Shares or their rightful owners”;
(c) Liu has not revealed whether the alleged loan was made orally or in writing;
(d) If it were in writing, the written agreement has not been produced;
(e) If it were the result of oral negotiations, evidence on such oral negotiations have not been provided;
(f) No information has been provided by Wong & Lawyers on the basis of privilege;
(g) The absence of documentary records is particularly surprising given the fact that the Former Receivers were officers of the court, and they were obtaining the loan whilst and for the purpose of discharging their duties as such. They are “liable to account for all money coming into his or her hands, in the capacity of receiver, at any time” — Kerr & Hunter §10-2. The Court is entitled to expect that the terms of the alleged loan obtained in such circumstances be carefully negotiated, fully recorded, the Former Receivers’ liabilities thereunder clearly defined, and the related fund-flow meticulously charted;
(h) As it is, the only disclosed term of the alleged loan is that the “funds are repayable upon the Receivers receiving their remuneration and recovering the costs and disbursements from the Receivership Shares or their rightful owners”. Nothing else is known. Not even whether it was interest-bearing;
(i) As Mr Maurellet has submitted, on the face of that alleged term, the Former Receivers’ obligation to repay only arise upon they “receiving their remuneration and recovering the costs and disbursements”, but there is on the face of that alleged term no obligation on the part of the Former Receivers to take step to recover their costs and disbursements. The legitimate question arising is whether the Former Receivers would be liable to repay if those triggering conditions did not materialize;
(j) Further, no evidence has been adduced as to whether Zhao YK had ever chased the Former Receivers for the alleged loan. In this regard, I note that Zhao YK has in fact passed away, and there is equally no evidence as to whether his estate has chased for the alleged loan;
(k) The same can be said about the alleged loan of HK$4.82 million to CSI. No document has been produced in support. No evidence has been given on how it was negotiated and agreed upon;
(l) The upshot is that whilst funds in the total sum of HK$28 million has admittedly been provided, the allegation that they (or part of them) were loaned to the Former Receivers is just Liu’s bare assertion not supported by any contemporaneous records.

52. The Former Receivers ought to be in the position to provide much more detailed evidence on the source and terms of the funding. They have chosen not to.

53. One added consideration is that the Former Receivers are seeking a binding declaration. It is a discretionary relief. Where the factual basis on which one is sought is hypothetical, or if the declaration serves no practical purpose, none will be granted.

54. In all the circumstances, and on the evidence before me, I am not satisfied that the Former Receivers have established on balance of probabilities the existence of any actual or potential indebtedness in relation to their unpaid fees.

55. To the above, I add this. Mr Chen seeks further to rely on the following matters:

(a) given the alleged loan of HK$4.8 million to CSI, the Former Receivers have been short-paid in any event by about HK$5 million; and
(b) a further half a million had been incurred.

56. In respect of the alleged loan to CSI, I repeat my discussions above, and in particular paragraph 51(k).

57. In respect of the further fees of half a million, the sum is not particularized, and is insignificant compared with the values of the Receiver Shares. I bear in mind the discretionary nature of the declaration sought. I also bear in mind the passage from Hewett v Court cited above, and in particular circumstance (iii) thereof which engages concept of unconscionability and unfairness. I am not minded to grant the declaration sought on that basis.

K. Waiver?

58. The other objections raised by Mr Maurellet, whilst not abandoned, have not been developed in the course of Mr Maurellet’s oral submissions.

59. In deference to submissions made, and despite my decision above, I deal with them as follows.

60. In submitting waiver, Mr Maurellet relies principally on the 1^st and 2^ndTransfers.

61. I accept Mr Chen’s submissions that lien not being possession based, those Transfers do not constitute any clear and unequivocal representation required to establish waiver. I note also that by the 1^stTransfer, the Former Receivers were only depositing the relevant shares with Court, and in relation to the 2^ndTransfer, the Former Receivers have expressly reserved their rights[24] — see Large Land Investments Ltd v Cheung Siu Kwai [2003] 1 HKLRD 313 at §39.

62. The other matters and conduct relied on, namely the failure to seek any declaration of lien when making the application for interim payment, and the lateness of the present action, are at best equivocal.

63. Mr Maurellet next relies on a number of authorities on guarantees[25] and put forward the proposition of “waiver of all by waiver of part”. He submits that as the Former Receivers have in any event clearly waived their lien in respect of the 72,522 shares, that waiver of lien over part of the shares constitutes a waiver of lien over all the shares.

64. I have reservations as to whether those cases on guarantees are applicable to a case of lien. I will not however enter the debate on law. As Mr Chen has submitted, this alternative limb of Mr Maurellet’s submission is premised upon the Former Receivers having waived lien over part of the shares. I am not satisfied that they have. This alternative submission is therefore not engaged.

L. Abuse?

65. Mr Maurellet complains that the present application could and should have been made earlier. He submits that the Former Receivers’ conduct in “pulling its punches” is an abuse of process.

66. I have considered whether the conduct complained of constitutes any Henderson v Henderson type of abuse. I however regard as important, as Mr Chen has highlighted, that there are no successive actions, no earlier concluded proceedings, and that the present application is in fact made under the Trust Actions. I have undertaken the balancing exercise explained by Ma CJ in Ko Hon Yue v Chu Pik Yuk (2012) 15 HKCFAR 72, at 82(5). I am not satisfied that there has been any abuse.

M. §3 of the Lien Summonses

67. §3 of the Lien Summonses asks that those shares that have been deposited with Court shall remain so deposited. It is intended to be an ancillary order, so that should this Court grant the Lien sought, the Lien will be effective. Given my discussion above, I refuse §3 also. This dismissal is however without derogation from the effects of my decisions in the Leave & Directions Decision and the CHQ Injunction Decision.

N. Disposition

68. I have considered, given the state of the evidence, whether I should adjourn the applications so that further evidence may be filed, or simply dismiss them. In the course of his submissions, Mr Maurellet submitted that either course is open to this Court.

69. I have considered both courses. It is for the Former Receivers to put forward sufficient and appropriate evidence to support their applications. I have formed the view that they have failed to. In my view, the appropriate course is to dismiss the applications. As to whether they may under the liberty to apply clause, and given the fact that they were court-appointed receivers, come back, I will leave the point open for further submissions should the point arise.

O. Costs

70. I make a costs order nisi that the SHPs shall have their costs of the applications, to be taxed if not agreed, with certificate for 2 counsel. Any application for variation shall be made within 14 days from the date hereof, upon which further directions for the same will be given.

	(Keith Yeung)
	Judge of the Court of First Instance
	High Court

Mr José-Antonio Maurellet SC, leading Mr Alexander Tang and Mr Kevin Lau, instructed by Stephenson Harwood, for the SH Plaintiffs

Mr David Chen, instructed by P C Woo & Co, for the EY Receivers (Former Receivers)

[1] [2021] HKCFI 1803.

[2] [2021] HKCFI 1804.

[3] [2018] HKCFI 195.

[4] [2018] HKCFI 194.

[5] [2019] HKCFI 2121 in HCA 2648/2017.

[6] [2019] HKCFI 2122 in HCA 2648/2017 and HCA 1282/2017.

[7] [2019] HKCFI 2123 in HCA 2648/2017.

[8] Tabs 1 and 2 of [A].

[9] Tabs 10A and 10B of [A].

[10] [A/60-65].

[11] [A/66-71].

[12] [A/72-74].

[13] [A/75-78].

[14] [B3/508].

[15] and see in particular the table at §10(4) thereof [B4/770].

[16] §2 of his written submissions.

[17] See also §17 of his written submissions.

[18] I on 28 October 2020 handed down my Decision ([2020] HKCFI 2708, the “HCA 86 Decision”). I dismissed the defendants’ application seeking to strike out the claim, and allowed the plaintiffs’ application for retrospective leave to commence HCA 86 against the defendants.

[19] In opposition of the application by the plaintiffs for retrospective leave.

[20] [B3/695].

[21] See §115(c) thereof.

[22] [B3/729-730].

[23] [B4/771].

[24] See the relevant covering letters at [B1/2], [B1/5] and [B1/8].

[25] Eg O’Donovan and Phillips, The Modern Contract of Guarantee (3^rd Ed.), at §§8-021 to 8-022, and Andrews and Millett, Law of Guarantees (7^th Ed) at §12-021.

HCA 2648/2017
and HCA 1282/2017
(Heard together)

[2021] HKCFI 1803

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2648 OF 2017

_______________

BETWEEN

	CHEN HONGQING (陳宏慶)	Plaintiff
and
	The persons whose names are set out in the second column of the Schedule to the Re-amended Writ of Summons filed on 26 March 2018 (其姓名載於2018年3月26日存檔的再修訂的傳訊令狀附表第二欄的人士)	1^st to 2265^th Defendants
	JINAN INDUSTRIAL DEVELOPMENT INVESTMENT GROUP CO, LTD (濟南產業發展投資集團有限公司)	2,266^th Defendant

_______________

AND

HCA 1282/2017

ACTION NO 1282 OF 2017

_______________

BETWEEN

	LI MING (李明)	1^st Plaintiff
	WU RANTAO (吳然濤)	2^nd Plaintiff
	ZHAO DONGWEI (趙東偉)	3^rd Plaintiff
	ZHANG XIN (張信)	4^th Plaintiff
	ZHOU LI (周立)	5^th Plaintiff
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by ZHANG CAIKUI on trust (Please refer to Schedule 1 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表一))	6^th to 1008^th Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by LI YANMIN on trust (Please refer to Schedule 2 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表二))	1009^th to 1084^th Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by ZHANG CAIKUI on trust (Please refer to Schedule 3 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表三))	1085^th to 1531^st Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by LI YANMIN on trust (Please refer to Schedule 4 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表四))	1532^nd to 2019^th Plaintiffs
and
	ZHANG CAIKUI (張才奎)	1^st Defendant
	LI YANMIN (李延民)	2^nd Defendant

_______________

(Heard together)

Before:

Hon K Yeung J in Chambers

Dates of Hearing:	8 and 18 October 2019
Date of Decision:	23 June 2021

______________

D E C I S I O N

______________

The

“Leave & Directions Decision”

A. Introduction

1. I call this decision the “Leave & Directions Decision”. It is my decision on principally the NOA Summons and the SHDs Directions Summons (both defined below). It may be read in context together with two other related decisions this Court hands down at the same time (namely the “CHQ Injunction Decision”[1] and the “FR Lien Decision”[2]).

2. This Decision is to be read together with the Jurisdiction Decision[3], the Receivership Decision[4] and the SHD Injunction Decision[5] this Court handed down on 30 August 2019. I also adopt the same terms used in those Decisions.

3. For reasons as set out in the Jurisdiction Decision, I set aside the Service Out Order, the concurrent Writ and concurrent Amended Writ issued pursuant thereto and the service out permitted thereby. I also discharged the ASI. Those orders are for ease of reference referred to as the “Jurisdictional Orders”.

4. For reasons set out in the Receivership Decision, I dismiss Chen HQ’s Receivership Summons.

5. There were a number of parties before me:

(a) Chen HQ, represented by Mr Law Man Chung and Mr Issac Chan on 8 October 2019 and Mr Ambrose Ho SC leading Mr Issac Chan on 18 October 2019;
(b) the SHDs, represented by Mr José-Antonio Maurellet SC leading Mr Alexander Tang;
(c) the Jinan Group, represented by Mr Anson Wong SC leading Mr Ross Li;
(d) the EY Receivers, represented by Mr David Chen; and
(e) those plaintiffs in HCA 1282/2017 (“HCA 1282”) who were represented by Messrs K&L Gate (“K&L Gate”, and the “KLG Employee Shareholders”), represented by Mr Samuel Ngo on 8 October 2019 and Mr Keith Tam on 18 October 2019.

B. The number of applications in HCA 2648/2017, HCA 1282, the Trust Actions, and HCA 1699/2019 before this Court

6. During the period between late 2019 and early 2021, a number of different but related applications in different actions came before me.

7. The following matters in HCA 2648/2017 (“HCA 2648”) were on 18 October 2019 before this Court[6]:

(a) Chen HQ’s application by Summons of 13 September 2019 (“NOA Summons”) for:
(i) leave to appeal against the Jurisdictional Orders and the dismissal of the Receivership Summons;
(ii) leave for him to rely on certain new evidence for his application for leave, and if granted, for the appeal;
(iii) interim measures pending appeal;
(b) SHDs’ applications by Summons of 13 September 2019 in HCA 2648 and 4 October 2019 in HCA 1282 for consequential directions (the “SHDs Directions Summons”) on, inter alia, release of the CSI Shares;
(c) Taxation of costs in respect of the Jurisdiction, Receivership and SHDs Injunction Applications, and in that regard the summons taken out by Chen HQ for extension of time for him to file his response to the SHDs’ and Jinan Group’s submissions for summary assessment (the “CHQ Costs Extension Summons”);
(d) Summons taken out on 17 October 2019 by the KLG Employee Shareholders seeking adjournment of the SHDs Directions Summons (the “K&L Summons”);
(e) The objection raised by the EY Receivers to the terms of the directions sought by the SHDs on the grounds, inter alia, that they are entitled to a lien to the CSI Shares.

8. At the time of the hearing, there were other additional and relevant summonses which were pending but were not before this Court on that same hearing day. They subsequently were. Some more related applications have since then been taken out. I set them out as follows.

9. The CHQ Injunction Summons and other applications under HCA 1699/2019:

(a) On 17 November 2017, soon after his unsuccessful application to be joined in the Trust Actions, Chen HQ commenced HCA 2648. He claimed to be the owner of those Employee Shareholders’ interests in their CSI Shares, so that should those Employee Shareholders become successful in the Trust Actions, the related shares, then held by the EY Receivers, should be passed to him but not the successful Employee Shareholders;
(b) On 30 August 2019, I handed down the Jurisdiction Decision in HCA 2648. I made the Jurisdictional Orders. For reasons set out in the Receivership Decision, I also dismissed Chen HQ’s Receivership Summons;
(c) On 13 September 2019, Chen HQ started HCA 1699/2019 (“HCA 1699”). Instead of seeking to have the matter tried in Hong Kong, as he had been seeking to do in HCA 2648, he seeks in HCA 1699 to rely on the decisions he has obtained in the Mainland (the “Ruzhou Judgments”) against certain of the Employee Shareholders. He seeks to enforce those judgments;
(d) On the same day, he took out the NOA Summons;
(e) On 3 October 2019, two of the SHDs took out a summons for leave to be joined in HCA 1699. They have subsequently been joined, and are now D4 and D5 in HCA 1699;
(f) By summons dated 4 October 2019 under HCA 1699 and returnable on 31 October 2019 before this Court (the “CHQ Injunction Summons”), Chen HQ sought against the EY Receivers an interim injunction to restrain them from disposing of the 368,168 CSI Shares pending trial or further order;
(g) During the hearing on 31 October 2019, and having heard respective Senior Counsel appearing for the parties, I refused Chen HQ’s application for interim / interim relief (see [2019] HKCFI 2720 in HCA 1699). I adjourned the matter for substantive argument. That hearing was originally fixed before me on 3 March 2020. That was vacated due to the COVID-19 pandemic. I on 28 February 2020 ordered paper disposal, and gave directions on the further conduct of the matter, including the filing of written submissions and extension of time for the filing of further evidence as requested by Chen HQ;
(h) Before the close of the filing of submissions for the CHQ Injunction Summons, and by summons of 16 March 2020 (“Jinan Group Joinder Summons”), Jinan Group sought leave to be joined as a defendant in HCA 1699, and other consequential directions relating to the CHQ Injunction Summons should it be permitted to so join;
(i) After a contested hearing on 5 January 2021, and for reasons set out in my Decision of 23 February 2021[7], I allowed the Jinan Group Joinder Summons;
(j) Pursuant to the directions I gave on 23 February 2021, and between 23 March and 16 April 2021, further submissions in relation to the CHQ Injunction Summons were filed;
(k) By the CHQ Injunction Decision handed down together with this Decision, I allow the CHQ Injunction Summons.

10. The Lien Summonses:

(a) Mr Chen referred to the Lien Summonses (defined below) at §11 of his written submissions;
(b) I have mentioned above the question of lien raised by the EY Receivers;
(c) On 15 October 2019, the EY Receivers took out 2 identical summonses under the Trust Actions and HCA 1282 (the “Lien Summonses”) for inter alia a declaration that they are entitled to a lien over the CSI Shares;
(d) The contested hearing took place before me on 11 August 2020;
(e) By the FR Lien Decision handed down at the same time as the present Decision, I refused the Lien Summonses.

11. All the above matters intertwined. In particular, Mr Ho urged this Court to view the disposal of HCA 2648 and HCA 1699 as a whole[8]. He further invited this Court to hear parties on all the matters first. Any decisions and directions for both HCA 2648 and HCA 1699 may then be given at the same time[9].

12. Given their intertwined nature, I am of the view that they would have to be (and hence the handing down of this Leave & Directions Decision, the FR Lien Decision and the CHQ Injunction Decision at the same time).

C. The KLG Employee Shareholders’ application for adjournment

13. Subsequent to the hearing, Messrs Stephenson Harwood (“SH”) on 25 October 2019 (the “SH 25/10/19 Letter”) wrote in and informed this court that agreement had been reached to adjourn the issue concerning how to deal with the shares of certain specific KLG Employee Shareholders sine die with liberty to restore. I make an order to effect that. I otherwise need not be concerned about that further.

D. The NOA Summons

14. I consider the NOA Summons first.

15. A draft Notice of Appeal (“Draft NOA”) is attached to the NOA Summons.

16. To get leave, it is incumbent upon Chen HQ to show that the intended appeal has a reasonable prospect of success.

D.1. In relation to the Jurisdiction Decision

17. I consider the proposed grounds in relation to the Jurisdiction Decision first.

18. Whilst the Draft NOA contains a number of paragraphs, they fall into 2 broad grounds, and Mr Ho addresses them as such in his written submissions. I will consider them along the same line.

19. The first broad ground — submission to jurisdiction:

(a) As submitted and summarised by Mr Ho[10], the first broad ground suggests that “SHDs and Jinan [Group] have submitted to the jurisdiction of the Hong Kong Courts through their application for anti-suit Injunction”;
(b) I agree with Mr Maurellet and Mr Wong that that ground is not reasonably arguable;
(c) To start with, the SHDs Directions Summons was taken out by the SHDs, but not the Jinan Group;
(d) I am not satisfied that Jinan Group, by supporting the same, has submitted to the jurisdiction of the Hong Kong Courts;
(e) Further, my attention has been drawn by Mr Maurellet and Mr Wong to a number of authorities which explain what constituted voluntary submission to jurisdiction. They include, Hwoo Huang Linda v Fu Being San [2013] 1 HKLRD 259, per Deputy Judge Reyes SC (as he then was) at §§25-26 (citing Mustill and Boyd, The Law and Practice of Commercial Arbitration in England (2^nded, 1989) pp.472-473), RKL v WL [2016] 5 HKC 153 (CA), per Chu JA at §§31-32, and China Medical Technologies, Inc (In Liquidation) v The Bank of East Asia, Limited[2019] HKCFI 2143, per Wilson Chan J at §12;
(f) I note the circumstances leading to the application for the SHD Injunction. Consistent with those circumstances, in his written submission of 3 June 2019 made in support of that application, Mr Maurellet submitted that:
“ 44. …unlike the traditional case, the injunctions sought herein are not based on a dispute over forum, and the assertion by the applicant that HK is the forum conveniens. In fact, the SHDs’ disputed that HK is the appropriate forum.
45. As such, unlike the traditional case, where an anti-suit injunction is based on the jurisdiction of the Hong Kong Court, the injunctions sought herein is not.
46. In fact, all that the injunctions would achieve (if granted) is to deprive Chen HQ of any fruits of his abusive conduct …”
(g) I accept Mr Maurellet’s submission[11] that properly understood, the true purpose of SHDs’ application was to preserve the status quo pending determination of the Jurisdiction Challenge and the ASI Discharge Application — and see Hwoo Huang Linda §26(3).

20. The second broad ground — the Ruzhou Judgments:

(a) Mr Ho submits[12] that “This Court held that the parties should fight these disputes out in the Mainland: Jurisdiction Decision §150… P has done that through the Ruzhou Proceedings. In fact, judgments had been obtained …”;
(b) At §1(6) of the Draft NOA, it is suggested that in respect of those SHDs who were involved in the Ruzhou Proceedings, they “are estopped by the judgment against them”; and in respect of those who were not, still those judgments “should be taken into account and accorded due weight in this action”;
(c) Request for leave under the Ladd v Marshall [1954] 1 WLR 1489, principles to rely on fresh evidence (“Fresh Evidence”) on certain further developments in relation to the Ruzhou Proceedings is then made (§2 of the Draft NOA);
(d) Then at §3 of the Draft NOA, it is suggested that:
“ After taking into account, and giving due weight, to the judgments in all the aforesaid Ruzhou Proceedings, including those referred to in the Fresh Evidence, the Underlying Issues have by now been concluded and should accordingly be applied to the only remaining issue in this action, namely, in the light of such judgments, whether the Plaintiffs … is entitled to and/or interested in the Shares (‘Remaining Issue’) …”
(e) As Mr Maurellet and Mr Wong have submitted, that approach is different and inconsistent with the stance that Chen HQ had thus far adopted. His stance in prosecuting HCA 2648 had been that Hong Kong was the appropriate forum for adjudicating his claim. But now, he is seeking to say that the Mainland is in fact the appropriate forum, that he had obtained the Ruzhou Judgments, and that all that is left is the Remaining Issue;
(f) It is one thing for Chen HQ, after my Jurisdiction Decision, to commence HCA 1699 and adopt a different stance. I have considered the implications in the CHQ Injunction Decision. It is however quite another to try to rely on a ground of appeal in HCA 2648 basing on a stance which is contradictory to the stance which he has previously adopted and maintained in the same action;
(g) I agree with Mr Maurellet and Mr Wong, relying on Express Newspapers Plc v News (UK) Ltd [1990] 1 WLR 1320 at 132F-G and Chan Chun Chuen v Kao, Lee & Yip, unrep, HCA 597/2015, 12 October 2017 at §30(4), that would be barred from running such a point on appeal;
(h) I am of the view that the second broad ground is also not reasonably arguable;
(i) In my view, the Fresh Evidence does not assist Chen HQ. I refuse him leave to rely on them;
(j) On similar considerations, I am of the view that §§6 and 7 of the Draft NOA in relation to my views on material non-disclosure are also not reasonably arguable.

21. I refuse leave in respect of all the proposed grounds of appeal against the Jurisdiction Decision and Jurisdictional Orders.

D.2. In relation to the Receivership Decision

22. I proceed to consider the proposed appeal against the Receivership Decision.

23. §9 of the Draft NOA relies on the same matters which Chen HQ seeks to rely on in relation to his proposed appeal against the Jurisdiction Decision. For the same reasons discussed above, I am of the view that it is not reasonably arguable.

24. §10 of the Draft NOA complains that I have “erred in holding that there was no necessity for a receivership over the Shares: Receivership Decision §22”. It proposes to contend that I should have considered that the discharge of the EY Receivers has led to Zhang Snr becoming the single largest shareholder in CSI.

25. At §§20 and 21 of the Receivership Decision, I stated that given my conclusion that there is no serious issue to be tried, the Receivership Summons should be dismissed. I proceeded to consider the Alleged Necessities in case I were wrong in that conclusion.

26. I repeat the matters which I have stated at §22 of the Receivership Decision. I have considered the relevant evidence and materials that were before me before reaching the view that the Alleged Necessities, whether individually or collectively, do not afford any basis for the appointment of interim receivers. I am of the view that §10 of the Draft NOA is not reasonably arguable.

27. In respect of §11 of the Draft NOA, I highlight §25 of the Receivership Decision. That proposed ground is in my view not reasonably arguable.

28. §§12 and 13 of the Draft NOA concern my consideration of the Takeover Code in the context of the issue of balance of convenience. For the reasons stated at §23, I am not satisfied that those proposed grounds are reasonably arguable.

29. I refuse leave in respect of all the proposed grounds of appeal against the Receivership Decision.

D.3. Interim measures pending appeal

30. Given my conclusion that the grounds set out in the Draft NOA are not reasonably arguable so that the proposed appeal has no reasonable prospect of success, I refuse to grant any of the interim measures sought.

31. Also in the light of that same conclusion of mine, there is no need for me to resolve the disagreement between the parties on the interpretation of Registrar of Hong Kong Institute of Certified Public Accountants v X [2017] 3 HKLRD 541 as to whether the threshold test for interim injunction pending appeal is the higher one of “a real prospect of success” — see §43 per Kwan JA. If necessary, I would have applied the threshold of “a real prospect of success”, which in my view is the effect of Her Ladyship’s observations.

32. I dismiss §3 of the NOA Summons.

33. The dismissal of §3 of the NOA Summons is however without derogation from the effect of the CHQ Injunction I grant for reasons set out in the CHQ Injunction Decision.

E. The SHDs Directions Summons

34. I proceed to deal with the SHDs Directions Summons.

35. I refer to the FR Lien Decision. For the reasons set out therein, I dismiss the Lien Summonses.

36. I refer to the CHQ Injunction Decision. For the reasons set out therein, I allow the application.

37. The SHDs Directions Summons has to be considered in the light of those 2 Decisions.

38. I refer to the Order I made on 15 February 2018 (the “15/2 Order”)[13]. Given the Jurisdictional Orders, and this Court’s decision refusing Chen HQ leave to appeal, I see no reason why the undertaking given by 1,878 SH Defendants should be permitted to stay. I release the 1,878 SH Defendants from that undertaking.

39. The 385 Defendants (Categories 1.4 and 1.5 as set out at Appendix I to Mr Maurellet’s written submissions of 3 October 2019) who are subject to the injunction imposed by §6 of the 15/2 Order are mostly not represented by SH[14]. I however accept Mr Maurellet’s submissions that since the challenge goes to the jurisdiction of the court, this court would need to form a view regardless of the positions taken by the parties — see Lehman & Co Management Ltd v Effiscient Limited, unrep, CACV 272/2011, 13 March 2013, at §47. Given the Jurisdictional Orders and my views leading to them, I form the view that that injunction should also be discharged. I discharge the injunction against the 385 Defendants.

40. In short, I grant §§1 and 2 of the SHDs Directions Summons, and make an order in terms of §§1 and 2 of the Draft Order attached to the SH 25/10/2019 Letter (the “Draft Order”).

41. The release of the undertaking and the discharge of the injunction are however subject to the effect of the CHQ Injunction.

42. Given the CHQ Injunction Decision, I am of the view that the Shares (as defined in the 15/2 Order) and other related documents that have been deposited with Court pursuant to §5 of the 15/2 Order should remain in Court.

43. I refuse §§3 and 4 of the SHDs Directions Summons.

44. Given my decisions above, the technical matters raised at §51 of Mr Maurellet’s written submissions are not engaged.

F. The issues on costs

45. I now consider the CHQ Costs Extension Summons.

46. I have refused leave to appeal. I have refused CHQ the measures pending appeal sought.

47. Whilst I have granted the CHQ Injunction, those costs may be dealt with under the CHQ Injunction Summons in HCA 1699.

48. I refuse §2 of the CHQ Costs Extension Summons.

49. In his written submissions, Mr Ho has in fact gone further than seeking time. He submits that “the figures put forward by the SHDs and the Jinan Group for summary assessment are, to say the least, staggering”, and that “[such] substantial amount claimed demonstrates that summary assessment should not be made”.

50. Relying on Seridom Servicios Integrados Idom SAU v Heng Wen Trade Co., Ltd[2019] HKCFI 761 at §§24-30, Mr Maurellet submits that the mere fact that quantum is high does not make gross-sum assessment unsuitable. As observed by Marlene Ng J at §29, there should be “disputes over points of principle that underlied the amount of costs claimed”, as opposed to simply “potential arguments as to quantum”.

51. In reply, Mr Ho submits that the dispute “did not just go to quantum, but rather are proofs of significant duplication of costs”, and that “there are substantial dispute as to obviously duplicating feature of the costs claimed by both SHDs and Jinan [Group] which merits a careful examination through taxation”.

52. With respect, what Mr Ho has put forward remain in my view “potential arguments as to quantum”. Nothing on the substance and extent of the dispute has been put forward to justify taxation.

53. Despite submissions, I remain of the view that summary assessment is on the facts before me appropriate.

54. I am however prepared to give Chen HQ sometime to prepare his objections. I give him 28 days from the date hereof to do so. That should give him and his team sufficient time to go conduct the examination carefully. SHDs and Jinan Group are given 21 days thereafter to file their replies.

G. Disposition

55. I therefore:

(a) dismiss the NOA Summons;
(b) allow §§1 and 2 of the SHDs Directions Summons and dismiss the balance;
(c) allow the CHQ Costs Extension Summons to the extent as explained above;
(d) in respect of the K&L Summons, make an order in effect by consent as per Section C above.

H. Costs

56. I make the following costs order nisi:

(a) Chen HQ should bear the costs of and occasioned by the NOA Summons, with certificate for 2 counsel for SHDs and Jinan Group;
(b) whilst I have allowed §§1 and 2 of the SHDs Directions Summons, §§3 and 4 thereof are the more controversial and substantial ones. I order that the SHDs shall bear 1/3 of the costs of and occasioned by that summons, with certificate for 2 counsel for Chen HQ;
(c) whilst I have granted Chen HQ time to file his objections, he is seeking the indulgence of the court. I make no order as to costs in so far that the CHQ Costs Extension Summons is concerned;
(d) I make no order as to costs in respect of the K&L Summons, it having been dealt with in effect by consent;
(e) all costs are to be summarily assessed. Statement of costs to be filed within 28 days from the date hereof, objections 21 days thereafter, and reply 14 days thereafter.

	(Keith Yeung)
	Judge of the Court of First Instance
	High Court

In respect of the hearing on 8 October 2019 :

Mr Law Man Chung and Mr Issac Chan, instructed by Gallant, for the Plaintiff (in HCA 2648/2017)
Mr José-Antonio Maurellet SC, leading Mr Alexander Tang, instructed by Stephenson Harwood, for the SH Defendants
Mr Anson Wong SC, leading Mr Ross Li, instructed by Linklaters, for Jinan Group (the 2266^th Defendant) (in HCA 2648/2017)
Mr David Chen, instructed by P C Woo & Co, for the EY Receivers (Former Receivers)
Mr Samuel Ngo, of K&L Gate, for the KLG Employee Shareholders in HCA 1282/2017
Deacons, for the 1^st Defendant (in HCA 1282/2017), absent from the hearing
The 2^nd Defendant (in HCA 1282/2017) was not represented and did not appear

In respect of the hearing on 18 October 2019 :

Mr Ambrose Ho SC, leading Mr Issac Chan, instructed by Gallant, for the Plaintiff (in HCA 2648/2017)
Mr José-Antonio Maurellet SC, leading Mr Alexander Tang, instructed by Stephenson Harwood, for the SH Defendants
Mr Anson Wong SC, leading Mr Ross Li, instructed by Linklaters, for Jinan Group (the 2266^th Defendant) (in HCA 2648/2017)
Mr David Chen, instructed by P C Woo & Co, for the EY Receivers (Former Receivers)
Mr Keith Tam, instructed by K&L Gate, for the KLG Employee Shareholders in HCA 1282/2017
Deacons, for the 1^st Defendant (in HCA 1282/2017), absent from the hearing
The 2^ndDefendant (in HCA 1282/2017) was not represented and did not appear

[1] [2021] HKCFI 1804.

[2] [2021] HKCFI 1805.

[3] [2019] HKCFI 2121.

[4] [2019] HKCFI 2122.

[5] [2019] HKCFI 2123.

[6] They first came before me on 8 October 2019 with only 30 minutes reserved. On that occasion, I directed that they be heard first on 18 October 2019 despite the other pending matters set out below.

[7] [2021] HKCFI 440.

[8] §4 of his written submissions.

[9] §15 of his written submissions.

[10] §23 of his written submission.

[11] §13(d) of his written submissions.

[12] §34 of his written submissions.

[13] [A1/28-83].

[14] In the SH 25/10/19 Letter, the Court was informed that 48 Defendants of Category 1.4 are represented by K&L Gate, whilst the balance of 45 Defendants are represented by SH.

HCA 2648/2017 and
HCA 1282/2017
(Heard Together)
[2019] HKCFI 2122

HCA 2648/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2648 OF 2017

_______________

BETWEEN

	CHEN HONGQING (陳宏慶)	Plaintiff
	and
	The persons whose names are set out in the second column of the Schedule to the Re-amended Writ of Summons filed on 26 March 2018 (其姓名載於2018年3月26日存檔的再修訂的傳訊令狀附表第二欄的人士)	1^st to 2265^th Defendants
	JINAN INDUSTRIAL DEVELOPMENT INVESTMENT GROUP CO, LTD (濟南產業發展投資集團有限公司)	2,266^th Defendant
	and
	LIU YIU KEUNG STEPHEN	1^st Putative Interested Party
	YEN CHING WAI DAVID	2^nd Putative Interested Party
	KOO CHI SUM	3^rd Putative Interested Party

_______________

AND

HCA 1282/2017

ACTION NO 1282 OF 2017

_______________

BETWEEN

	LI MING (李明)	1^st Plaintiff
	WU RANTAO (吳然濤)	2^nd Plaintiff
	ZHAO DONGWEI (趙東偉)	3^rd Plaintiff
	ZHANG XIN (張信)	4^th Plaintiff
	ZHOU LI (周立)	5^th Plaintiff
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by ZHANG CAIKUI on trust (Please refer to Schedule 1 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表一))	6^th to 1008^th Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by LI YANMIN on trust (Please refer to Schedule 2 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表二))	1009^th to 1084^th Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by ZHANG CAIKUI on trust (Please refer to Schedule 3 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 張才奎所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表三))	1085^th to 1531^st Plaintiffs
	Relevant Employees whose shares in CHINA SHANSHUI INVESTMENT COMPANY LIMITED held by LI YANMIN on trust (Please refer to Schedule 4 of the Re-amended Writ of Summons filed on 13 December 2017 for names of the relevant employees) ( 李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表四))	1532^nd to 2019^th Plaintiffs
	and
	ZHANG CAIKUI (張才奎)	1^st Defendant
	LI YANMIN (李延民)	2^nd Defendant

_______________

(Heard Together)

Before:

Hon K Yeung J in Chambers

Dates of Hearing:	15 February 2018 (for HCA 2048/2017)
	30 – 31 May 2018 (for HCA 2048/2017 and HCA 1282/2017)
Date of Decision:	30 August 2019

______________

D E C I S I O N

______________

The
“Receivership Decision”

This Decision and my Jurisdiction Decision

1. At the same time when I handed down this Decision (which I refer to as the “Receivership Decision”), I also handed down my Decisions on the SHD Jurisdiction Summons and the Jinan Group Jurisdiction Summons (the“Jurisdiction Decision” [1] ), and my Decisions on the SHD Injunction Summons (the “SHD Injunction Decision” [2] ). For the reasons set out in the Jurisdiction Decision, I acceded to the jurisdiction challenges brought by the SHDs and Jinan Group (the “Jurisdiction Challenge”). For the reasons set out in the SHD Injunction Decision, I dismissed the SHD Injunction Summons.

2. This Receivership Decision has to be read in conjunction with my Jurisdiction Decision and SHD Injunction Decision, as they are related. I also use in this Decision the same terms and abbreviations as they are used in those Decisions.

The applications

3. This is another set of many complicated interlocutory applications relating to the fight over the control of China Shanshui Investment Company Limited (“CSI”) (and through it the listed company China Shanshui Cement Group Limited (“CSCG”)).

4. This time, there are three matters before me:

(a)  On 8 February 2018, Chen HQ took out a summons (the “Receivership Summons”) for (1) the appointment of interim receivers over 369,002 shares in CSI; and (2) further and/or in the alternative, interlocutory injunctions to restrain 2,263 of the defendants from inter alia selling, transferring, or otherwise dealing with those Shares. It first came before me on 15 February 2018 when I made certain interim-interim orders. The substantive hearing took place before me on 30 and 31 May 2018. However, given the subsequent Jurisdiction Challenge brought by the SHDs and Jinan Group, parties have agreed that I should consider not delivering my decision on the Receivership Summons until after I have also heard the SHD Jurisdiction Summons and Jinan Group Jurisdiction Summons, as the issues overlapped;
(b)  On 20 April 2018, 1,691 of the SHDs took out a Summons in HCA 1282/2017 (the “Direction Summons”) for an Order to direct the Former Receivers to inter alia vote certain shares of CSI subject to this Court’s directions. The summons had been adjourned to be heard before me together with the Receivership Summons;
(c)  There was also a summons dated 25 May 2018 taken out by those SHDs before me for leave to adduce the 3^rd affirmation of Liu Shuqing. On the second day of the hearing, I granted leave for the filing of a redacted version of the same.

5. For the purpose of this hearing, upwards of 30 box files of affirmations, exhibits and submissions were placed before me. The factual background and some of the issues however overlapped with that of the Jurisdiction Challenge subsequently brought. Having set out the full background in my Jurisdiction Decision and having considered some of the related issues therein, I may perhaps be forgiven for being briefer when dealing with these applications.

The Jurisdiction Challenge of the SHDs and Jinan Group

6. For reasons set out in my Jurisdiction Decision, I acceded to the Jurisdiction Challenges and set aside the Service Out Order and the related service. I also discharged the ASI.

7. I have set out in my Jurisdiction Decision the background relevant to, and the reasons for setting aside the Service Out Order and the ASI. I will not repeat them.

8. Given my Jurisdiction Decision and the setting aside of the Service Out Order (and the related service), the substratum for any application for appointment of interim receivers (or in the alternative an interim injunction) has in effect gone. The substratum having gone, the Receivership Summons has to be dismissed. For the following additional reasons, I would in any event have dismissed it.

Chen HQ’s case for receivership in gist

9. On 10 November 2017, G Lam J refused Chen HQ’s Trust Actions Joinder Application. After that refusal, Chen HQ on 17 November 2017 commenced the present action. His stated reason for doing so, as put by Mr Mok SC (who together with Mr Martin Kok and Ms Stephanie Wong appeared for Chen HQ) [3], was “to protect his interests in the Shares,seekinginter alia for an Order for the transfer and assignment of the Shares to [Chen HQ] in the event of and upon the pronouncement of the judgment of the Trust Action in favour of the Employees.”

10. Chen HQ’s interests in the Stake were said to be subject to “risk or jeopardy” [4]. Those risk or jeopardy relied upon by him were primarily the purchase by the Jinan Group of the Stake, described on behalf of Chen HQ as follows [5] :

“ 15.  Subsequent to [Chen HQ’s] full payment of the Shares in 3.2017, there have recently been numerous wrongful attempts by many (if not all) of the Employees to sell, dispose of, or surrender their respective interests in the Shares to third parties, in the absence of [Chen HQ’s] consent or authorisation …
16.  Since around 9.2017, many Employees have been subject to lure and/or pressure, by persons actually acting as the senior management of their employer, to sign documents to purportedly sell, transfer and/or surrender their respective interests in the CSI Shares to [the Jinan Group] …
…
20.  The aforesaid risk of jeopardy to the Shares is further reinforced (and indeed exacerbated) by vexatious proceedings commenced in Jinan (‘Jinan Proceedings’) in 12.2017 …”

11. On 8 February 2018, Chen HQ took out the Receivership Summons.

The parties’ submissions

12. On behalf of Chen HQ, Mr Mok submitted that “there are plainly serious issues to be tried as to [Chen HQ’s] beneficial and/or equitable interests in the Shares and/or whether [Chen HQ] is contractually entitled to have the Shares transferred and assigned to him” [6], that “interim receiversought to be appointed as a matter of necessity, and there are no less intrusive measures available in the present case” [7], and that balance of convenience was in favour of interim receivership [8].

13. In the course of his oral submissions, Mr Mok summarised his position and gave three “necessities” (which I will call respectively “Alleged Necessity #1”, “Alleged Necessity #2” and “Alleged Necessity #3”for ease of reference) which he submitted justified the appointment of interim receivers to hold the Shares. The effects of Mr Mok’s submissions are as follows:

(a)  In respect of the Alleged Necessity #1: at the moment the Shares are registered in the name of the former EY Receivers. That arrangement is inadequate where it becomes necessary for the actual or the newly appointed receivers to attend EMGs or any other meetings of the company and be counted in the quorum;
(b)  In respect of the Alleged Necessity #2: even though as a matter of normal course of event, any interim receivers to be appointed should abstain from voting, there may be exceptional circumstances where their voting may be required, and that in a situation like that, they would have to apply to court for direction on how to vote; and
(c)  In respect of the Alleged Necessity #3: in case of urgency, for example if there is to be a proposal to have the Shares diluted, they should be at liberty to come to court for some sort of urgent applications, and if necessary on an interim basis, for the court to see whether any urgent relief should be granted.

14. Mr Mok’s application was hence not for the appointment of any interim receivers with unrestricted powers to vote. It was envisaged that any interim receivers appointed should come to court for directions first before they could vote. This was also reflected by the more restricted scope of the order which Mr Mok actually intended to seek (as opposed to and compared with the terms originally set out in the Receivership Summons):

(a)  In the Receivership Summons, any interim receivers to be appointed were originally intended to possess inter alia the following wide powers as set out in Schedule 2 thereto:
“ 2(b)  Take control of, exercise or refrain from exercising any or all of the voting rights in respect of the Shares or any part thereof in such manner and on such terms as the Receives think fit and to take all such stems as may be necessary to preserve the value of the Shares;
2(c)  Take control of, exercise or refrain from exercising any or all of the rights to which a registered holder of the Shares is entitled, including the powers to attend meeting;”
(b)  In the course of his submissions, Mr Mok informed me that Clause 2(b) would no longer be pursued, and that Clause 2(c) would be amended as follows (as underlined):
“ 2(c)  Subject to the exercise of the voting right as provided below, take control of, exercise or refrain from exercising any or all of the rights to which a registered holder of the Shares is entitled, including the powers to attend meeting (and be counted as quorum) but to abstain from voting, subject to any application to court made under paragraph 6 hereinbelow [9] ;”

15. On behalf of the SHDs, Mr Westbrook SC (who together with Mr Alexander Tang and Ms Sharon Yuen appeared for the SHDs) submitted [10] that receivership ought not to be granted because Chen HQ’s case herein had been so contradictory and unworkable that there was no serious issue to be tried, and that the balance of convenience was in any event against the appointment of receiver. It was submitted that the true purpose of seeking receivership was not to protect the value of the Stake, but to entrench Tianrui’s control over CSCG.

16. On behalf of the Jinan Group, Mr Wong SC (who together with Mr Ross Li and Ms Rosa Lee appeared for the Jinan Group) submitted [11]that the Receivership Summons should be dismissed for the reasons that there was no serious issue to be tried, and that further or in any event, Chen HQ had failed to demonstrate that it was necessary and proportionate to appoint receivers.

Legal principles on ordering interim receivership

17. The fact that a dispute exists over a property does not necessarily call for the appointment of a receiver of that property. This is axiomatic. A proper basis has to be alleged and established. As explained by Susan Kwan J (as Kwan VP then was) in Re Zealot & Co Ltd [2008] 1 HKLRD 386 at §§30, 34 – 35:

“ 30.  The principles for the appointment of interim receivers are well established. I apply by analogy the principles for granting interlocutory injunctions in American Cyanamid Co v Ethicon Ltd [1975] AC 396. I need to consider if there is a serious case to be tried, if there is proper basis for appointing receivers such as a jeopardy to assets, and where does the balance of convenience lie.
…
34.  Ms Chan submitted that the court should be slower to appoint interim receivers than to grant an interlocutory injunction, as this form of relief is more intrusive, more expensive and less reversible than the granting of an injunction. Hence, the applicant must show that the appointment of receivers is appropriate because other less invasive remedies would be inadequate (Steven Gee, Commercial Injunctions(5^th ed., 2004) para.16-008; Goldlion Properties Ltd & Others v Regent National Enterprises Ltd (unrep., HCMP 5273/2003, 21 September 2006) para.38). I was also reminded that the courts have always recognised the need for great circumspection in granting such relief, as the appointment of interim receivers is an extremely serious matter for a company (Bond Brewing Holdings Ltd & Others v National Australia BankLtd & Others (1990) 1 ASCR 445 at pp.456–457, 471; Re Chime Corp Ltd (unrep., HCMP 4146/2001, 25 June 2003) para.41).
35.  I bear these principles in mind. …”

18. As explained in Kerr & Hunter on Receivers and Administrators (12^th ed), at §§1-6 to 1-8, there are two main classes of cases in which receivers may be appointed: appointment to enforce right, and appointment to preserve property:

(a) Examples of the first class include appointment at the instance of a mortgagee, cases of equitable execution, appointment made under a statutory provision, and appointment over the assets of a dissolved partnership. It has been commented [12] that:
“ In such cases, the appointment is made as a matter of course, as soon as the applicant’s right is established; it is unnecessary to allege any danger to the property, for the appointment of a receiver is necessary to enable the applicant to obtain that to which he is entitled.”
(b) In respect of the second class:
“ 1-8 Appointment to preserve property.
The second class of cases include those in which the appointment is made to preserve property and, where required, to ensure its proper management, pending litigation to decide the rights of the parties, or:
(1) to prevent a scramble among those entitled, as where a receiver is appointed, pending a grant of probate or administration;
(2) to preserve property of persons under disability; or
(3) where there is danger of the property being damaged or dissipated by those with the legal title, such as executors or trustees, tenants for life, persons with a partial interest, such as partners, or the persons in control, as where the directors of a company with equal powers are at variance.
In all cases within this second class, it is necessary to allege and prove some peril to the property; the appointment then rests on the discretion of the court. In exercising its discretion, the court proceeds with caution, and is governed by a view of all the circumstances. No rule can be laid down as to whether the court will or will not interfere by this kind of interim protection of the property. Where, indeed, the property is, as it were, in medio, in the enjoyment of no one, it is the common interest of all parties that the court should prevent a scramble, and a receiver will readily be appointed: as, for instance, over the property of a deceased person,pending litigation as to the right to probate or administration.
1-9 Balancing the rights claimed by the parties.
Where the object of the claimant is to assert a right to property of which the defendant is in enjoyment, the case presents more difficulty. The court, if it takes possession at the instance of the claimant, may be doing a wrong to the defendant; in some cases an irreparable wrong …”

Discussion

19. I have in my Jurisdiction Decision dealt with in some details the merits of Chen HQ’s case. I have reached the conclusion that Chen HQ had and has failed to establish a good arguable case for leave to serve out under Order 11, rule 1(1)(b).

20. Given the fundamental and drastic differences between the cases which Chen HQ has run (as I have explained in details in the Jurisdiction Decision), I reach the further conclusion, and in this regard accept Mr Westbrook’s submissions, that Chen HQ’s case herein is so contradictory that there is no serious issue to be tried [13]. I further accept Mr Westbrook’s submission that “… the Loan/Conditional Purchase Case and the Purchasing Agent Case are squarely contradictory. Chen HQ’s failure to square the two shows that neither case is sustainable.” [14]

21. Having reached that conclusion, there is in fact no need for me to consider the other two issues (whether a proper basis for appointing receivers has been established, and where the balance of convenience lies). I proceed nonetheless to consider them in case I were wrong in my conclusion that Chen HQ has failed to demonstrate any serious issue to be tried.

22. I have set out above the three Alleged Necessities relied upon by Mr Mok. For the following reasons, I am of the view that they,individually or collectively, do not afford any basis for the appointment of interim receivers:

(a)  As submitted by Mr Wong, and fully supported by the authorities discussed above, it is for Chen HQ to put forward and establish a proper basis for the appointment of interim receivers;
(b)  I accept Mr Wong’s submissions that the three Alleged Necessities were put forward in a vacuum;
(c)  In connection with Alleged Necessity #1, Chen HQ has pointed to no specific EMG or other meeting. I see no basis to appoint interim receivers just so that they could be in the position in some unspecified future point of time to make up the quorum of some unspecific meetings with unknown agendas;
(d)  In connection with Alleged Necessities #2 and 3, the existence of any exceptional situations for any interim receivers to vote or to apply to court for reliefs is entirely speculative;
(e)  Specifically in respect of Alleged Necessity #2:
(i)  Mr Wong, relying upon In re Rondahl, Henderson v Executor Trustee Australia Ltd & Ors [2005] SASC 477, at §§56 – 66, submitted that where the beneficial ownership of the shares is in dispute, the nominee/trustee of the shares should refrain from voting;
(ii)  Rondahl was a probate case. The testatrix held certain shares in a company. She had made three wills. Which of those will was her true will was disputed by the potential beneficiaries. The company was subsequently subject to a takeover offer, and the potential beneficiaries disagreed as to whether the offer should be accepted. The issue before the Supreme Court of South Australia was whether the first instance judge was correct in directing that the administrator should not exercise voting rights in respect of those shares hold by him. In holding that the judge was correct and dismissing the appeal, Debelle J observed that (with emphasis added):
“ 56.  The question whether or not the administrator should be directed to vote these shares must be determined by a reference to the circumstances in which he was appointed. Those circumstances may be briefly summarised in these terms.
1.  There is a dispute as to which of the three wills of the testatrix is the true will of the testatrix. …
2.  The administrator holds the shares of the testatrix in Coopers knowing that, until the Court decides which is the true will of the testatrix, it is not possible to determine who has the beneficial interest in the shares.
3.  The potential beneficiaries who are litigating the issue as to which is the true will have different views as to how to vote …
…
58.  If the potential beneficiaries had agreed how the voting rights attached to the shares should be exercised, the Court could have directed the administrator to vote in accordance with this agreement. Failing agreement, the Court is not in a position to give any directions as to how the voting rights attached to the shares should be exercised. To do so would prefer the interests of one group of potential beneficiaries over another.
…
65.  … while a dispute continues to exist as to which is the true will of the testatrix and who are her true beneficiaries, it is not possible in the absence of agreement to exercise the voting rights attached to the shares. The Court has no alternative but to maintain the position that no person may exercise those rights.”
(iii)  In the present case, “the circumstances” in which any voting right may need to be exercised are completely unknown. I repeat also the commentary from Kerr & Hunter which I have cited above, that “[i]n exercising its discretion, the court proceeds with caution, and is governed by a view of all the circumstances.” I see no basis to exercise my discretion in favour of the present application when “the circumstances” are entirely unknown;
(iv)  In any event, no justification has at this stage been, and indeed can be, given as to why and how the court can be in the position to give any interim receiver any direction on voting;
(v)  In my view, Alleged Necessity #2 is again entirely speculative;
(f)  Specifically in relation to Alleged Necessity #3, it is no less speculative. No cause for relief has arisen, and none has been threatened. To suggest that an interim receiver should be appointed in anticipation of some unspecified cause so that the interim receiver can act immediately as and when that cause arises (if arises at all) is in my view a non-starter.

23. Balance of convenience is also against the appointment of any interim receivers:

(a)  I am entitled to bear in mind the contradictory nature of the different cases which Chen HQ has run even if my conclusion above on merits (that no serious issue to be tried having been established) were wrong and that it could somehow be suggested and argued that he has marginally demonstrated a serious issue to be tried on merits — see Kung Cheong Kai v Kung Cheong Ki & Ors HCA 704/2013 (31 May 2013), at §30 per M Chan J, Hong Kong Civil Procedure 2019, at §29/1/16, and Series 5 Software Ltd v Clarke & Ors [1996] 1 All ER 853, 865 – 866, per Laddie J. In this regard, I accept Mr Westbrook’s submissions that “even if there is just barely a serious issue to be tried, Chen HQ’s case on the SPA Shares is so dubious that it should be a material factor tiling the balance against the grant of any interim relief, let alone a draconian receivership order” [15] ;
(b)  I have in Hau Cho Shing v Hau Chi Wing & Ors[2018] HKCFI 686 at §§44 – 46 considered the relevance of the doctrine of clean hands when it comes to considering the balance of convenience. The Court may refuse to grant interlocutory relief if the grime on the applicant’s hands is sufficiently closely connected with the equitable remedy that is being sought [16] ;
(c)  I have set out in my Jurisdiction Decision the evidence on Chen HQ’s consistent failure to provide full details about the source of his funds said to have been made available to the 11 Representatives to purchase the Stake. In this regard, I also respectfully repeat and adopt the observations made by G Lam J in this regard in his Decision handed down on 7 May 2018 in HCA 1282/2017, that:
“ 16.  Further, I have expressed serious concerns in the Discharge Decision [2018] HKCFI 194 at §§62 – 66 that the transfer of the interests of the plaintiffs in CSI shares in August 2015 (of which Chen HQ now claims to be the beneficiary), among other vital information, had been withheld from the court (both DHCJ Seagroatt and the Court of Appeal on appeal from him) and that a misleading picture had been presented to the court when it granted orders for the Receivers to become involved in the management of CSCG, with the result that the board of the listed company became thereafter dominated by Tianrui and the Receivers. I have also both in the Joinder Decision (at §21) and in the Discharge Decision (§§35 – 37) referred to the evidence including banking documents that the RMB700 million (paid to a large number of plaintiffs as the first tranche (70%) of the price)came from Tianrui, not Chen HQ.
17.  Chen HQ has not addressed any of these concerns. What he said in his latest affirmation dated 4 May 2018 (for joinder in the trust actions) is that ‘I do not wish to disclose too much of my personal financial information’, saying he will address that matter in the CIETAC arbitration in due course. But by simply parroting he paid the money and he was independent from Tianrui in his affirmations, he cannot expect this court to suspend its critical faculty and simply to believe anything that has been penned for him to sign.”
(d)  This refusal to disclose details about the source of the funds has particular implications on the issue as to whether the whole transaction was an attempt by Tianrui to circumvent the obligation to make a mandatory general offer under the Takeover Code. As observed again by G Lam J at §20 of the 962 Discharge Decision:
“ 20.  Secondly, if Chen HQ had indeed acquired the employee- plaintiffs’ interests in the CSI shares in question from the outset, there might be requirements under securities regulations such as for disclosure of interest, since CSI held a 25.09% interest in the listed company, China Shanshui Cement Group Ltd. In the receivership application before Mimmie Chan J, when faced with the criticism that he had not made any disclosure of interest filings, Chen HQ categorically said he had ‘not yet acquired the Purchased Shares’, which is to be contrasted with his statement in the joinder application in the Trust Actions that he had ‘become the full beneficial owner of the CSI Shares … from around March 2017’. Moreover, the point had been raised by the defendants before Mimmie Chan J that Chen HQ was a front-man for Tianrui. If in fact Chen HQ had already purportedly acquired interests in CSI shares, that would bring into sharp focus whether or not the whole transaction was an attempt by Tianrui to circumvent any obligation to make a mandatory general offer under the Takeover Code, which would be relevant to whether the court’s discretion should be exercised to assist Chen HQ by appointing interim receivers.”
(e)  On this basis alone, I would in any event have refused to exercise my discretion to appoint any interim receivers.

Conclusion on the appointment to appoint interim receivers

24. For the reasons set out above, I would in any event have refused Chen HQ’s application for appointment of interim receivers.

The alternative application for an interim injunction

25. For the same reasons, which are primarily failure to establish any series issue to be tried and balance of convenience, I would in any event also have refused Chen HQ’s alternative application for an interim injunction.

Overall conclusion on the Receivership Summons

26. I therefore dismiss the Receivership Summons in its entirety.

The Direction Summons

27. HCA 1282/2017 was one of the Trust Actions.

28. Mr Westbrook summarised his stance at §66 of his written submissions, that:

“ In [respect of the Direction Summons], the proper Order to be made under that Summons depends on this Court’s findings in the instant receivership application:
(a) If this Court takes the view that Chen HQ’s case presents no serious issue to be tried, or Chen HQ is otherwise not worthy of any interim protection, an order compelling the EY Receivers to vote in accordance with the employees’ wish could be granted.
(b) If this Court decides otherwise and also decides that no voting should take place in the interim while the ownership of the Shares is disputed, then there will no longer be a need for any Order thereunder.”

29. I have made my ruling on the Receivership Summons above. However, in my view, what the EY Receivers should do ought to be governed by the results of the Trust Actions and the related Orders made by G Lam J in those Actions. I have since acceded to the Jurisdiction Challenge. This is also a relevant consideration. Consequential upon those decisions of mine, and due to the complicated background of this case, I have granted the parties liberty to seek any consequential orders or directions which they may deem appropriate. I have further directed that if necessary, a hearing date may be sought for that purpose. In all the circumstances, I have decided not to make any order in respect of the Direction Summons. I however grant parties similar liberty as I have done in the Jurisdiction Decision. In my view, that should be the most effective and expeditious way of dealing with the matter.

Disposition

30. For the reasons set out above:

(a) I dismiss the Receivership Summons in its entirety; and
(b) I make no order in respect of the Direction Summons.

Costs

31. On the question of costs, I make the following order nisi:

(a) Chen HQ should bear the costs of the Receivership Summons, with certificate for two counsel; and
(b) there be no order as to costs in respect of the Direction Summons. I bear in mind that the vast majority of the time spent was spent on the Receivership Summons.

Any party who seeks any variation or summary assessment should lodge their submissions within 14 days from the date hereof, response within 14 days upon receipt, and reply within 7 days thereafter.

	(Keith Yeung)
	Judge of the Court of First Instance
	High Court

In respect of the hearing on 15 February 2018 of HCA 2648/2017:

Mr Johnny Mok SC, leading Mr Martin Kok and Ms Stephanie Wong, instructed by Stevenson, Wong & Co, for the plaintiff

Mr Simon Westbrook SC, leading Mr Alexander Tang and Ms Sharon Yuen, instructed by Stephenson Harwood, for the SH Defendants (the SHDs, as defined in the Summons of 25 May 2018)

Mr Christopher Chain, instructed by Linklaters, for Jinan Group (the Intended Intervener, subsequently the 2266^th defendant)

Mr Hon Wai Hon, Wayne, of P C Woo & Co, for the Former Receivers / the EY Receivers (the 1^st to 3^rd putative interested parties)

In respect of the hearing on 30 and 31 May 2018 of HCA 2648/2017 and HCA 1282/2017:

Mr Johnny Mok SC, leading Mr Martin Kok and Ms Stephanie Wong, instructed by ONC Lawyers, for the plaintiff (in HCA 2648/2017)

Mr Simon Westbrook SC, leading Mr Alexander Tang and Ms Sharon Yuen, instructed by Stephenson Harwood, for the SH Defendants (the SHDs, as defined in the Summons of 25 May 2018) (in HCA 2648/2017) and the 2,012 Plaintiffs represented by Stephenson Harwood (the SH Eps, as defined in the Summons of 20 April 2018) (in HCA 1282/2017)

Mr Anson Wong SC, leading Mr Ross Li and Ms Rosa Lee, instructed by Linklaters, for Jinan Group (the 2266^th defendant) (in HCA 2648/2017)

P C Woo & Co, for the Former Receivers (in HCA 1282/2017) and the 1^st to 3^rd Interested Parties (in HCA 2648/2017), absent from the hearing

Deacons, for the 1^st defendant (in HCA 1282/2017), absent from the hearing

The 2^nd defendant (in HCA 1282/2017) was not represented and did not appear

[1] [2019] HKCFI 2121

[2] [2019] HKCFI 2123

[3] §19 of his first set of written submissions dated 12 February 2018 (“Chen HQ/Sub#1”)

[4] §20 of Chen HQ/Sub#1

[5] §§15, 16 and 20 of Chen HQ/Sub#1

[6] §40 of Chen/Sub#1

[7] §12 of his second set of written submissions dated 29 May 2018 (“Chen HQ/Sub#2”)

[8] Section C of Chen HQ/Sub#2

[9] Paragraph 6 being “The Receivers be at liberty to apply to the Court for any further directions or order, including, where necessary, an order for the purpose of protecting the assets held by the Receivers.”

[10] as summarized at §§2 – 6 of his written submissions

[11] as summarized at §4 of his written submissions

[12] §1-6 of Kerr & Hunter

[13] §5 of his written submissions

[14] §33 of his written submissions

[15] §49 of his written submissions

[16] see also Grobbelaar v News Group Newspapers Ltd [2002] 1 WLR 3024, at §90 per Lord Scott, which I cited at §45 of Hau Cho Shing

HCMP 738/2018

[2018] HKCFI 1184

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 738 OF 2018

____________________

	IN THE MATTER OF China Shanshui Investment Company Limited
	and
	IN THE MATTER OF Section 724 of the Companies Ordinance (Cap 622)

____________________

BETWEEN
	DONG CHENGTIAN	1^st Petitioner
	WANG YONGPING	2^nd Petitioner
	and
	CHONG CHA HWA	1^st Respondent
	HWA GUO WAI, GODWIN	2^nd Respondent
	ZHAO YONGKUI	3^rd Respondent
	RONOMINEES LIMITED	4^th Respondent
	LIU YIU KEUNG STEPHEN (AS RECEIVER)	5^th Respondent
	YEN CHING WAI DAVID (AS RECEIVER)	6^th Respondent
	KOO CHI SUM (AS RECEIVER)	7^th Respondent
	YEO BOON ANN (ALSO KNOWN AS KENNETH YEO)(AS RECEIVER)	8^th Respondent
	KONG CHI HO, JOHNSON (AS RECEIVER)	9^th Respondent
	ZHANG CAIKUI	10^th Respondent
	CHINA SHANSHUI INVESTMENT COMPANY LIMITED	11^th Respondent

____________________

AND

HCMP 740/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 740 OF 2018

____________________

	IN THE MATTER OF Section 570 of the Companies Ordinance (Cap 622)
	and
	IN THE MATTER OF Order 102 rule 2 of the Rules of the High Court (Cap 4A)
	and
	IN THE MATTER OF China Shanshui Investment Company Limited

____________________

BETWEEN
	ZHANG CAIKUI	Plaintiff
	and
	CHINA SHANSHUI INVESTMENT COMPANY LIMITED	1^st Defendant
	ZHAO YONGKUI	2^nd Defendant
	CHONG CHA HWA	3^rd Defendant
	RONOMINEES LIMITED	4^th Defendant
	任其昌	5^th Defendant
	and
	DONG CHENGTIAN	1^st Intended Intervener
	WANG YONGPING	2^nd Intended Intervener

____________________

AND

HCA 1282/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1282 OF 2017

____________________

BETWEEN
	LI MING （李明）	1^st Plaintiff
	WU RANTAO（吳然濤）	2^nd Plaintiff
	ZHAO DONGWEI（趙東偉）	3^rd Plaintiff
	ZHANG XIN（張信）	4^th Plaintiff
	ZHOU LI（周立）	5^th Plaintiff
	RELEVANT EMPLOYEES WHOSE SHARES IN CHINA SHANSHUI INVESTMENT COMPANY LIMITED HELD BY ZHANG CAIKUI ON TRUST (PLEASE REFER TO SCHEDULE 1 OF THE REAMENDED WRIT OF SUMMONS FILED ON 13 DECEMBER 2017 FOR NAMES OF THE RELEVANT EMPLOYEES) （張才奎所託管中國山水投資有限公司股份相關員工（其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表一））	6^th to 1,008^th Plaintiffs
	RELEVANT EMPLOYEES WHOSE SHARES IN CHINA SHANSHUI INVESTMENT COMPANY LIMITED HELD BY LI YANMIN ON TRUST (PLEASE REFER TO SCHEDULE 2 OF THE REAMENDED WRIT OF SUMMONS FILED ON 13 DECEMBER 2017 FOR NAMES OF THE RELEVANT EMPLOYEES) （李延民所託管中國山水投資有限公司股份相關員工（其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表二））	1,009^th to 1,084^th Plaintiffs
	RELEVANT EMPLOYEES WHOSE SHARES IN CHINA SHANSHUI INVESTMENT COMPANY LIMITED HELD BY ZHANG CAIKUI ON TRUST (PLEASE REFER TO SCHEDULE 3 OF THE REAMENDED WRIT OF SUMMONS FILED ON 13 DECEMBER 2017 FOR NAMES OF THE RELEVANT EMPLOYEES) （張才奎所託管中國山水投資有限公司股份相關員工（其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表三））	1,085^th to 1,531^st Plaintiffs
	RELEVANT EMPLOYEES WHOSE SHARES IN CHINA SHANSHUI INVESTMENT COMPANY LIMITED HELD BY LI YANMIN ON TRUST (PLEASE REFER TO SCHEDULE 4 OF THE REAMENDED WRIT OF SUMMONS FILED ON 13 DECEMBER 2017 FOR NAMES OF THE RELEVANT EMPLOYEES) （李延民所託管中國山水投資有限公司股份相關員工（其名字詳情見於2017年12月13日存檔的再修訂的傳訊令狀中的附表四））	1,532^nd to 2,019^th Plaintiffs
	and
	ZHANG CAIKUI（張才奎）	1^st Defendant
	LI YANMIN（李延民）	2^nd Defendant

____________________

(Heard Together)

Before: Hon G Lam J in Chambers

Date of Hearing: 18 May 2018

Date of Decision: 18 May 2018

Date of Reasons for Decision: 30 May 2018

____________________________________

REASONS FOR DECISION

____________________________________

1. At the end of the hearing in the evening of 18 May, I ordered an EGM of China Shanshui Investment Company Limited (“CSI”) to be held on 20 May and granted an injunction restraining the existing directors of CSI from acting as such. These are the reasons which I indicated would be handed down in writing.

2. The hearing on 18 May was another one that arose in connection with the EGM of CSI scheduled for 8 May 2018. It had sprung from the situation described in the decision of DHCJ Keith Yeung SC in HCA 2880/2015 dated 3 May 2018 [2018] HKCFI 973 and in my decision in HCA 1282/2017 and HCA 2648/2017 dated 7 May 2018 [2018] HKCFI 1042, to which I refer.

3. What had happened was that, despite and after:

(1)   DHCJ Keith Yeung SC, in his decision of 3 May, refused, inter alia, to restrain CSI from holding the EGM on 8 May already requisitioned by Zhang Caikui (“Zhang Snr”),
(2)   I refused, on 7 May, Chen Hongqing’s (“Chen HQ”) application filed on 4 May for an order that the EY Receivers vote the shares of 1,878 SH plaintiffs at the EGM on 8 May to seek an adjournment thereof (or to vote against all the proposed resolutions), and
(3)   the Court of Appeal (Lam VP and Kwan JA) also on 7 May refused to grant any interim relief to prevent the EGM from proceeding pending the application of CSCG and others for leave to appeal against DHCJ Keith Yeung SC’s decision (which, incidentally, was heard and dismissed by the Court of Appeal on the morning of 18 May),

at the EGM of CSI on 8 May, the chairman of the meeting, Mr Chong Cha Hwa (“Chong”), refused to recognise and admit the proxies of Zhang Snr, Dong Chengtian (“Dong”) and Wang Yongping (“Wang”), and declared the meeting inquorate.

4. At that time, the only directors of CSI were:

(1)   Chong (who had been nominated by the EY Receivers[1] to the CSI board since 12 August 2015 and had for some time from 1 December 2015 onwards also served on the CSCG board);
(2)   Zhao Yongkui (“Zhao YK”), one of the original 7 minority shareholders of CSI who had since around end of 2016 been at loggerheads with, among others, Zhang Snr, Dong and Wang[2]; and
(3)   Ronominees Limited (which was the corporate vehicle of the BDO Receivers[3]). I was told that it had resigned on the morning of 18 May 2018 following the discharge of the BDO Receivers the day before (in HCMP 962/2017).

5. The grounds on which the proxies were rejected were as follows. In relation to Zhang Snr’s proxy, namely, Mr Cheung Kwok Kit, a partner of Deacons, he was told by Chong that his proxy form would be rejected. Chong said he would not say what the reason was since it was sensitive. Upon Mr Cheung’s insistence, Chong said: (1) he did not know where the proxy form was signed; (2) the proxy form was not notarised; (3) there was dispute on the ownership of Zhang Snr’s shares; and (4) other sensitive reason(s) which he would not disclose.

6. In the case of Dong’s and Wang’s proxies, Chong rejected them on the grounds that (1) the proxy forms had not been notarised; and (2) there were two sets of proxy forms and he did not know which set was valid.

7. On this basis, the proxies were expelled from the meeting. Zhang Snr, Dong and Wang had subsequently been informed that the meeting was inquorate. They felt aggrieved and by solicitors’ letters dated 11 May they gave indication of the legal proceedings that would be issued and the relief sought.

8. Eventually, on 15 May, Dong and Wang presented a petition (HCMP 738/2018) for relief against unfairly prejudicial conduct of the affairs of CSI pursuant to s 724 of the Companies Ordinance (Cap 622) (“the Ordinance”) against the directors and shareholders at the time of CSI (with CSI being the 11^threspondent). At the same time, Dong and Wang also issued a summons in those proceedings for directions for an EGM to be held and injunctive relief restraining the existing board of directors of CSI from acting pending the new EGM.

9. On the same day (15 May), Zhang Snr brought proceedings by way of an originating summons (HCMP 740/2018) for an order pursuant to s 570 of the Ordinance against CSI and its then directors that an EGM of CSI be convened by the Court with ancillary directions. Dong and Wang applied to be joined as interveners to support this originating summons, which I allowed, there being no opposition to the joinder.

10. In my opinion, a strong case has been made out that the grounds relied upon by Chong were not valid. In the case of the proxy of Zhang Snr:

(1)   There was no requirement under the law or the Articles of CSI as to where the proxy form must be signed.
(2)    There was no requirement under the law or the Articles of CSI that a proxy form had to be notarised. The validity of the proxy was not governed by Mainland law so the practice there was in my view not relevant. There was no previous practice in relation to CSI meetings of requiring notarisation of proxy forms and, furthermore, the notice of EGM dated 10 April 2018 specified that the original proxy form or a notarially certified copy should be deposited with the company. The evidence was that Zhang Snr’s proxy form deposited with CSI was the original. Article 74(b) of CSI’s Articles simply provides:
“ …an instrument appointing a proxy shall be in writing in any usual or common form or in any other form which the Directors may accept, and shall be deemed, save where the contrary appears on the face of the instrument of proxy, to confer authority…and to include power to act generally at the meeting…”
(3)    As for the suggestion that there was a dispute over the ownership of Zhang Snr’s shares, this was apparently based on an allegation by Zhao YK (through his proxy at the meeting) that some of the shares registered in Zhang Snr’s name had been sold to Chen HQ and Jinan Industrial Development Investment Group Co Ltd. But no legal action had been brought by Chen HQ for such claim (despite numerous other proceedings had been instituted by him) and it seems to me wholly wrong for a chairman to exclude a shareholder merely on the say‑so of someone alleging that beneficial ownership was in dispute. In any event, it is trite that a company generally does not look behind the share register to see who are beneficially interested in the shares: s 634 of the Ordinance; Re Universal Horizon Investment Ltd [2000] 3 HKC 627, 630D; Re Perkins (1890) 24 QBD 613, 616.
(4)    In his affirmation placed before the court at the hearing, Chong raised a further concern that the whole proxy form including Zhang Snr’s signature was in black‑and‑white so that he was unable to see if the document was an original or a copy. He also raised doubt as to Zhang Snr’s signature and as to the fact that the proxy form and Deacon’s cover letter were both dated 25 April 2018. But as counsel pointed out, there could be nothing improper about Zhang Snr signing the proxy form first and his solicitors or agents putting a later date on it. The points about the document being in black‑and‑white and the signature were not mentioned at the meeting. Anyhow they had little force in the light of the fact that (a) the form was delivered to CSI by Deacons, Zhang Snr’s long‑standing lawyers in Hong Kong; (b) the proxy appointed was Mr Cheung, a partner of Deacons who has been acting for Zhang Snr throughout related proceedings since at least 2015; (c) the form had been delivered to CSI almost two weeks before the meeting and no query whatsoever had been raised about it; and (d) there is no suggestion that Chong ever tried to ascertain the position from Deacons.

11. As to Dong and Wang’s proxy forms:

(1)   There was no requirement for notarisation of the proxy form under the law or in CSI’s Articles; see above.
(2)   Chong’s decision to invalidate both sets of proxies in these circumstances is both wrong and irrational. Mr Edward Chan SC, who appeared for Chong, relied on Article 78(a) of CSI’s Articles which provided that a proxy form may be revoked by forwarding to the company written notification of such revocation signed by or on behalf of the person who issued the proxy. Dong’s and Wang’s second set of proxies were clearly dated subsequently (3 May) to the first set (19 April), in writing, signed by them, and delivered to CSI. As such, it seems to me that they were effective to revoke the first set by implication and to authorise the new proxies: see Shackleton on the Law and Practice of Meetings (14^thed) at §14‑25: Halsbury’s Laws of England (5^thed), vol 15, §737.
(3)    In any event, the holders of the new proxy had informed Chong at the meeting on 8 May that if he considered the new proxies not valid, the holder of the original proxies could attend. She was on standby in the same building in which the meeting was being held in case anyone took issue with the second set of proxies. It seems to me irrational for Chong to exclude both sets of proxies.

12. Further, in my view, the flimsiness of these grounds has to be seen against the backdrop of a plethora of recent steps which counsel characterised as a campaign to entrench the control by Tianrui[4] of the board of China Shanshui Cement Group Limited (“CSCG”) — the “entrenchment campaign”, which include:

(1)   The recent court applications made by CSCG and others, based on a previously obtained Mareva Injunction in HCA 2880/2015, to restrain Zhang Snr from “(i) requisitioning and/or (ii) taking any further steps in relation to any prior requisition or call for any [general] meeting… for the appointment and/or removal of directors of CSI” and to restrain CSI from holding the EGM convened pursuant to Zhang Snr’s requisition dated 20 March 2018 whether on 8 May 2018 or thereafter and for an order that CSI be directed to adjourn the EGM until a date to be specified. By his decision dated 3 May 2018 [2018] HKCFI 973, DHCJ Keith Yeung SC rejected those applications.
(2)   Immediately thereafter, on 4 May, CSCG and others applied to DHCJ Keith Yeung SC for leave to appeal and again applied for interim orders pending their leave application. These applications were dismissed by the learned Deputy Judge on the same day.
(3)   Chen HQ made an eleventh‑hour allegation (made in his affirmation of 4 May 2018 for the hearing in HCA 1282/2017 and HCA 2648/2017 on 7 May 2018) that, out of the 36.11% stake held by Zhang Snr in CSI, he had purchased some 10%, which had hitherto be unheard of.
(4)   The surprising attempt by CSCG and Pioneer[5] to wind up CSI by issuing statutory demands dated 13 April 2018 to CSI for $10,717.4 and HK$819,650.75 respectively and their unwillingness to withdraw the statutory demand even when Dong and Wang offered full payment on behalf of CSI, which led to an urgent application by Dong and Wang to Deputy Judge Keith Yeung SC on 4 May 2018 for an injunction to restrain CSCG and Pioneer from presenting a petition to wind up CSI, and eventually an undertaking by CSCG and Pioneer not to present such a petition until the application for injunction has been disposed of.
(5)   The last minute application by Chen HQ in HCA 2648/2017 for an order to direct the EY Receivers to seek an adjournment of the 8 May EGM. On 7 May, I dismissed that application; see my decision [2018] HKCFI 1042.
(6)   On the same day (7 May), at 4 pm, CSCG etc appeared before the Court of Appeal (Lam VP and Kwan JA) on their application for an interim order (to restrain Zhang Snr from voting at the 8 May EGM of CSI and to direct CSI to adjourn that EGM) pending their application to the Court of Appeal for leave to appeal from the decision of DHCJ Keith Yeung SC. Such interim relief was refused by the Court of Appeal at the hearing. The Court of Appeal gave CSCG until 5 pm the next day (8 May) to confirm whether they still wished to pursue their leave application, which if necessary could be heard on 18 May.
(7)   Despite all lawful attempts to prevent the 8 May EGM were exhausted and failed, by the steps taken by Chong as chairman, that EGM was aborted within less than an hour of its appointed time (3 pm).
(8)   Shortly thereafter, at around 4:47 pm, CSCG informed the Court of Appeal that they would continue to proceed with their leave application.

13. It is not necessary for me to make actual findings of bad faith and I think that in these applications which have been brought on with some urgency I should avoid doing so. But the fact that Chong’s acts have come hot on the heels of a glut of actions by the then CSCG board, the then CSI board and Chen HQ to prevent shareholders’ meetings from taking place or to prevent these boards from being reconstituted, coupled with the spurious reasons given for rejecting the proxies, are in my view sufficient to show a strong case that he was acting for improper purposes in conducting the EGM in the way he did. In fact, the affirmation of Chong placed before this court made it abundantly clear that he was determined to prevent Zhang Snr, Dong and Wang from voting to remove the existing directors and to appoint their nominated persons to the board of CSI.

14. Dong and Wang have applied for an order for an EGM to be held under ss 725 and 729 of the Ordinance but I am not sure these provisions empower the court by way of interim relief to order general meetings and give directions that override the requirements of the articles: see ReHong Kong Chung Shan Lung Chan Clan Association (unrep, HCMP 1989/2004, 9 August 2005), at §11. The urgent hearing on 18 May was not an appropriate occasion to consider the submissions made by Mr Westbrook SC, who appeared for Dong and Wang, to distinguish that case.

15. There is no doubt, however, that the court has specific power to order meetings under s 570 of the Companies Ordinance, which provides:

“ (1) This section applies if for any reason it is impracticable—
(a) to call a general meeting of a company in any manner in which general meetings of that company may be called; or
(b) to conduct the meeting in the manner prescribed by the company’s articles or this Ordinance.
(2) The Court may, either of its own motion or on application—
(a) by a director of the company; or
(b) by a member of the company who would be entitled to vote at the meeting, order a general meeting of the company to be called, held and conducted in any manner the Court thinks fit.
(3) If the order is made, the Court may give any ancillary or consequential directions that it thinks expedient.
(4) Directions given under subsection (3) may include a direction that one member of the company present at the meeting in person or by proxy is to be regarded as constituting a quorum.
(5) A general meeting called, held and conducted in accordance with an order under subsection (2) is to be regarded for all purposes as a general meeting of the company duly called, held and conducted.”

16. The power only arises if there is impracticability as prescribed. Mr Chan, relying on Re Success Plan Limited [2002] 3 HKLRD 560 at §42, submitted that it would only come into play if it was impossible to call a meeting. This is, with respect, not quite accurate, because there are two limbs in s 570 (to “call” and to “conduct” a meeting). In Success Plan Yuen J was only concerned with the first limb, as can be seen from the fact that her Ladyship did not include the second limb in the quotation of s 114B (the predecessor of s 570) at p 568, obviously because it was not relevant in that case.

17. In considering this provision, it is useful to bear in mind what Wynn‑Parry J said in In re E1 Sombrero Ltd [1958] Ch 900 at 904:

“ It is to be observed that the section opens with the words ‘If for any reason,’ and therefore it follows that the section is intended to have, and, indeed, has by reason of its language, a necessarily wide scope. The next words are ‘…it is impracticable to call a meeting of a company…’. The question then arises, what is the scope of the word ‘impracticable’? It is conceded that the word ‘impracticable’ is not synonymous with the word ‘impossible’; and it appears to me that the question necessarily raised by the introduction of that word ‘impracticable’ is merely this: examine the circumstances of the particular case and answer the question whether, as a practical matter, the desired meeting of the company can be conducted, there being no doubt, of course, that it can be convened and held. Upon the face of the section there is no express limitation which would operate to give those words ‘is impracticable’ any less meaning than that which I have stated, and I can find no good reason in the arguments which have been addressed to me on behalf of the respondents for qualifying in any way the force of that word ‘impracticable’ or the interpretation which I have placed upon it, and therefore upon that point I am in favour of the applicant.”

18. In Re Yaumati Kai Fong Welfare Advancement Association Ltd [2007] 4 HKLRD 643, Kwan J, as she then was, also said:

“ …the section is intended to have a wide scope. Further, the court should examine the circumstances of the particular case and ask, as a practical matter, if the desired AGM could be conducted.”

In that case, Kwan J held that if the defendants followed proper legal advice, it might not be impracticable for a meeting to be properly convened but that had not happened, and on the evidence, her Ladyship could not but think that if the matter were left wholly to the defendants, no or no proper steps would be taken for an AGM to be properly convened. It was held that in the peculiar circumstances of that case, it was impracticable to convene a meeting and that the court should “take a firm line”, and exercise its discretion to order a meeting (see §§43‑45).

19. I accept that the jurisdictional threshold would not be met merely because it would be impracticable to call an immediate meeting: Hong Kong EstatesLtd & Others v San Imperial Corporation Ltd [1980] HKLR 386. But given that the chairman had on 8 May gone to such lengths to prevent a meeting from taking place at which the voting rights of the shares held by Zhang Snr, Dong and Wang would be recognised, and given the whole history of the matter including another incident of disenfranchisement of Zhang Snr in February 2017 (on a ground based on a Mareva injunction which was subsequently in effect accepted to be indefensible), and given the chairman’s deep‑rooted antagonism (as admitted in his own affirmation) against Zhang Snr and those he referred to as the “Mi Camp” (referring to Mi Jingtian, one of the minority shareholders of CSI, and his associates), it would be wholly unrealistic to expect any meeting to be effectively conducted which involved resolutions to remove the existing directors and to appoint any person nominated by Zhang Snr, Dong and Wang. Article 62 of CSI’s Articles required that the chairman of the board shall preside as the chairman of every EGM.

20. In the unusual circumstances of this case, I was satisfied that it was impracticable to conduct a meeting in the manner prescribed by CSI’s articles and the Ordinance, which of course provide that members are entitled to vote their shares and further that they may vote by proxy and do not allow a member’s voting rights to be denied simply because there is a dispute over the ownership of his shares. The factual situation might be novel here but the purpose of an order under s 570 extends to such a situation. In Re MandarinCapital Advisory Co Ltd [2011] 2 HKLRD 1003 at §19, Harris J said:

“ A majority shareholder, such as the plaintiff, has by virtue of s 157B of the Companies Ordinance[6] a statutory right to remove the first defendant. Section 114B is the procedure provided by statute for addressing problems, inter alia, in realising the right given by s 157B caused by the impracticability of conducting a general meeting of a company. Section 157B expressly states that the right that it confers cannot be excluded by anything in the memorandum or articles of agreement or any agreement between the company and a shareholder.”

21. It is clear that Zhang Snr, Dong and Wang, together with the 321 employee-plaintiffs in the Trust Actions whose shares were not claimed by Chen HQ (see my decision of 7 May 2018) all wished to vote for the removal of then directors of CSI. They would form a clear majority at a general meeting on the present shareholding structure of CSI. Indeed, if the shares of 4 other minority shareholders, namely, Mi Jingtian, Yu Yuchuan, Li Maohuan and Zhao Liping (who had undertaken in HCMP 962/2017 not to vote their shares pending the arbitration between them and Chen HQ) were taken into account, they would form an absolute majority. Who should be directors of CSI is a matter for the company in general meeting. Chong’s acts, as an unlawful attempt to usurp that function and to prevent his own removal as director by the shareholders of the company, cannot be allowed to prevail: China Investment Fund Co Ltd v Guang Sheng Investment Development Group Ltd & Others (unrep, HCA 411/2016, 27 May 2016), at §§24‑25. In these circumstances the court should not, in my view, shrink from using its available power under s 570.

22. Mr Chan submitted that even if a meeting was to be ordered, there was no urgency and that any EGM ordered should follow the provisions in the Articles as regards the period of notice. I did not agree. The 8 May EGM of CSI should have taken place on that day, well before the EGM of CSCG scheduled on 23 May. To require strict adherence to the original notice period in these circumstances would be tantamount to adjourning the original 8 May EGM of CSI until after the EGM of CSCG, which CSCG and Chen HQ had tried but failed to obtain from three different courts.

23. In Chong’s affirmation much was said about the damage that would be caused if Zhang Snr and the so‑called “Mi camp” were permitted to gain control of the board of CSI. Mr Westbrook submitted that it would be unreal to suggest CSCG could simply “scupper” extant proceedings brought in its name without Tianrui complaining, and that the board proposed for the EGM of CSCG on 23 May included representatives from all major shareholders including Tianrui. In any event the short answer is that the point had already been considered by DHCJ Keith Yeung SC: see his decision of 3 May 2018 at §§58‑66. The learned Deputy Judge rejected the contention that there would be irreparable damage if the CSI EGM was to be permitted to proceed, saying (at §64):

“ … [Zhang Snr] is a shareholder of CSI. He has the right to requisition for its EGM. I bear in mind the fact that the composition of the present board of CSI was very much affected by the appointment of the EY Receivers. On 16 October 2015, Deputy Judge Seagroatt permitted the EY Receivers to vote in CSI to cause a change in the composition of the CSC board and to become directors of CSC themselves. G Lam J has made findings on the circumstances in which those and some other directions were given. He observed that “the picture presented to the Court by those using the names of the plaintiffs verged on the misleading” (paragraph 67 of his Reasons for Decision dated 31 January 2018). For that and other reasons, he allowed [Zhang Snr]’s application for the discharge of the EY Receivers. Now that they have been discharged, it is not unnatural that shareholders of CSI may want to re‑constitute the Board. In fact, some of the Employee Plaintiffs have expressed similar wishes … [They] may even want to nominate their allies into the Board. Those are commercial decisions which the Court is ill‑equipped to intervene, let alone used as the basis to infer the existence of any ulterior purpose.”

CSCG and others have since failed to obtain from the Deputy Judge and the Court of Appeal leave to appeal against that decision.

24. As to the injunction sought by Dong and Wang, if the proxies were not rejected by Chong acting in the way he did, on the evidence the resolutions proposed would clearly have been passed at the 8 May EGM with the result that the then directors of CSI would no longer have been directors. In these circumstances there was clearly available power by the grant of an interlocutory injunction in Dong’s and Wang’s petition to prevent the board of directors (consisting of only two remaining directors at the time of hearing, namely, Chong and Zhao YK) from continuing to act as such pending the meeting ordered: King Pacific International Holdings Ltdv Chun Kam Chiu & Others [2002] 3 HKLRD 49. Considering the strength of the case against them and the balance of convenience, I so ordered accordingly.

25. For these reasons I granted an order under s 570 for an EGM of CSI to be held on 20 May 2018 and gave ancillary directions, and an injunction to prevent Chong and Zhao YK from acting and holding themselves out as directors of CSI pending that EGM. I also varied the direction to the EY Receivers given on 7 May 2018 in HCA 1282/2017 to extend it to the EGM ordered.

	(Godfrey Lam)
	Judge of the Court of First Instance High Court

Mr Simon Westbrook SC, Mr Alexander Tang, Ms Sharon Yuen and Mr Kevin Lau, instructed by Stephenson Harwood, for the Petitioners in HCMP 738/2018, the 1^st and 2^ndIntended Interveners in HCMP 740/2018; and the Plaintiffs in HCA 1282/2017

Mr Edward Chan SC and Ms Queenie Lau, instructed by Lee & Associates, for the 1^stRespondent in HCMP 738/2018; and the 1^st, 3^rd and 5^thDefendants in HCMP 740/2018

Miss Astina Au, instructed by Lee & Associates, for the 11^th Respondent in HCMP 738/2018

Mr Jean‑Paul Wou and Mr Patrick Siu, instructed by Deacons, for the Plaintiff in HCMP 740/2018; and the 10^thRespondent in HCMP 738/2018

Mr Danny Fung, instructed by Edward Lau, Wong and Lou, for 4^th, 8^th and 9^thRespondents in HCMP 738/2018; and the 4^thDefendant in HCMP 740/2018

Mr Patrick Fung SC, instructed by PC Woo & Co, for the 5^th, 6^th and 7^thRespondents in HCMP 738/2018 and the EY Receivers in HCA 1282/2017

The 2^nd Respondent Hwa Guo Wai Godwin in HCMP 738/2018 was not represented and did not appear

The 3^rdRespondent Zhao Yongkui in HCMP 738/2018 and the 2^nd Defendant in HCMP 740/2018 was not represented and did not appear

[1] The 3 receivers from Ernst & Young who were appointed receivers over the 456,325 CSI shares in dispute (45.63% of the issued share capital) in the Trust Actions ie HCA 1661, 1766, 2191 of 2014 and HCA 623, 939, 1564 of 2015, and HCA 1282/2017. The appointment of the EY Receivers was discharged on 31 January 2018: see [2018] HKCFI 194.

[2] Zhao YK is suing Zhang Snr and others in at least two actions: HCMP 2219/2017 and HCA 2281/2017.

[3] The 2 receivers from BDO who were appointed receivers over 104,908 CSI shares of 4 minority shareholders (namely, Mi Jingtian, Yu Yuchuan, Li Maohuan and Zhao Liping) in HCMP 962/2017, in respect of which Chen HQ has asserted a security interest arising from share pledge and guarantee agreements. The appointment of the BDO Receivers was discharged on 17 May 2018.

[4] Tianrui (International) Holding Company Limited.

[5] China Pioneer Cement (Hong Kong) Co Ltd, a subsidiary of CSCG.

[6] Now see ss 462-463 of the Companies Ordinance (Cap 622).

HCA 1661, 1766, 2191/2014 &

HCA 623, 939, 1564/2015 (Consolidated)

[2018] HKCFI 195

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 1661, 1766, 2191 OF 2014 AND 623, 939, 1564 OF 2015

__________________

BETWEEN

	張才奎所託管中國山水投資有限公司股份相關員工(其名字詳情見傳訊令狀之附表一)	第一批原告人
	Relevant employees whose shares in China Shanshui Investment Company Limited were held by ZHANG CAIKUI on trust (Please refer to Schedule 1 attached to the Writ of Summons for names of the relevant employees)	The 1^st Group of Plaintiffs
	李延民所託管中國山水投資有限公司股份相關員工 (其名字詳情見傳訊令狀之附表二)	第二批原告人
	Relevant employees whose shares in China Shanshui Investment Company Limited were held by LI YANMIN on trust (Please refer to Schedule 2 attached to the Writ of Summons for names of the relevant employees)	The 2^nd Group of Plaintiffs
	and
	張才奎 (ZHANG CAIKUI)	1^st Defendant
		(第一被告人)
	李延民 (LI YANMIN)	2^nd Defendant
		(第二被告人)

__________________

(Consolidated pursuant to the Order of The Honourable Mr Justice G Lam dated 20 August 2015)

_______________

HCA 1282/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1282 OF 2017

_______________

BETWEEN
	LI MING (李明)	1^st Plaintiff
	WU RANTAO (吳然濤)	2^nd Plaintiff
	ZHAO DONGWEI (趙東偉)	3^rd Plaintiff
	ZHANG XIN (張信)	4^th Plaintiff
	ZHOU LI (周立)	5^th Plaintiff
	RELEVANT EMPLOYEES WHOSE SHARES IN CHINA SHANSHUI INVESTMENT COMPANY LIMITED WERE HELD BY ZHANG CAIKUI ON TRUST (PLEASE REFER TO SCHEDULE 1 FOR NAMES OF THE RELEVANT EMPLOYEES)	6^th to 1,008^th Plaintiff
	(張才奎所託管中國山水投資有限公司股份相關員工(其名字詳情見附表一))
	RELEVANT EMPLOYEES WHOSE SHARES IN CHINA SHANSHUI INVESTMENT COMPANY LIMITED WERE HELD BY LI YANMIN ON TRUST (PLEASE REFER TO SCHEDULE 2 FOR NAMES OF THE RELEVANT EMPLOYEES)	1,009^th to 1,084^th Plaintiffs
	(李延民所託管中國山水投資有限公司股份相關員工(其名字詳情見附表二))
	RELEVANT EMPLOYEES WHOSE SHARES IN CHINA SHANSHUI INVESTMENT COMPANY LIMITED WERE HELD BY ZHANG CAIKUI ON TRUST (PLEASE REFER TO SCHEDULE 3 FOR NAMES OF THE RELEVANT EMPLOYEES)	1,085^th to 1,531^st Plaintiffs
	(張才奎所託管中國山水投資有限公司股份相關員工(其名字詳情見附表三))
	RELEVANT EMPLOYEES WHOSE SHARES IN CHINA SHANSHUI INVESTMENT COMPANY LIMITED WERE HELD BY LI YANMIN ON TRUST (PLEASE REFER TO SCHEDULE 4 FOR NAMES OF THE RELEVANT EMPLOYEES)	1,532^nd to 2,019^th Plaintiffs
	(李延民所託管中國山水投資有限公司股份相關員工(其名字詳情見附表四))
	and
	ZHANG CAIKUI (張才奎)	1^st Defendant
	LI YANMIN (李延民)	2^nd Defendant

__________________

Before: Hon G Lam J in Court

Date of Hearing: 28-30 November & 1, 4, 7, 8 December 2017

Date of Judgment: 31 January 2018

TABLE OF CONTENTS
		Paragraph
I.	Introduction	1
II.	Relevant facts and events	5
III.	The actions brought in the name of the participating employees	39
IV.	Strike‑out application under O 41A r 6	44
V.	The evidence	47
VI.	Analysis of the legal position	52
	A. 2001 to 11 April 2005	53
	B. 11 April 2005 to 5 September 2005	70
	C. 5 September 2005 to 28 November 2005	86
	D. 28 November 2005 to 7 April 2008	90
	E. After 7 April 2008	102
VII.	An alternative analysis	111
VIII.	Conclusion and orders	115

__________________

J U D G M E N T

__________________

I. Introduction

1. The plaintiffs in these actions were employees who held interests under a staff investment scheme in a Mainland company, Shandong Shanshui (defined in §19 below). As a result of the restructuring of the enterprise which culminated in the listing of China Shanshui Cement Group Limited (中國山水水泥集團有限公司) (“CSCG”) on the Main Board of the Hong Kong Stock Exchange (stock code 00691) in 2008, the plaintiffs’ interests in Shandong Shanshui were replaced by interests in the shares of a Hong Kong company called China Shanshui Investment Company Limited (中國山水投資有限公司) (“CSI”), which in turn now holds shares representing approximately 25.09% of the issued share capital of CSCG.

2. The 1^st defendant (張才奎) (“Zhang Snr”) and the 2^nd defendant (李延民) (“Li YM”) were the former heads of management of Shandong Shanshui as well as trustees of the shares in CSI. Li YM, who was later substituted as trustee by Zhang Snr, has not been served with the writs and has never taken part in these proceedings.

3. The dispute between the plaintiffs and Zhang Snr centres round the nature of the plaintiffs’ interests in the relevant CSI shares. The plaintiffs contend they are absolute beneficial and equitable owners of shares in CSI representing 45.6325% of the issued share capital of CSI. In contrast, Zhang Snr contends the plaintiffs are not beneficial owners but merely members of the class of beneficiaries under two discretionary trusts on which the shares were settled.

4. The plaintiffs were originally all represented by K & L Gates (“KLG”) under 6 actions consolidated by order in August 2015. Starting from early 2017, some of them became represented by Stephenson Harwood (“SH”) and were permitted, in effect, to transfer their claims to a new action in 2017. These actions have been tried together. Where appropriate I shall refer to the 2 groups of plaintiffs as the “KLG plaintiffs” and the “SH plaintiffs” respectively. As far as the issues in the trial are concerned, there is nothing that separates them.

II. RELEVANT FACTS AND EVENTS

5. Most of the relevant facts and events are uncontroversial and are set out in this section.

Establishment of Jinan Shanshui

6. In 1997, Jinan Construction Material Industrial Group Co Ltd (濟南建築材料工業集團有限公司) was set up as a state‑owned enterprise with the approval of the municipal government of Jinan, Shandong Province, for the purpose of managing a number of state‑owned enterprises including one named Shandong Cement Factory which had been entrusted to the municipal government to manage. The company carried on business in the making of cement and related products. It changed its name to Jinan Shanshui Group Limited (濟南山水集團有限公司) (“Jinan Shanshui”) in June 2000.

Employees Stock Ownership Scheme

7. In October 2000, following the national policy of de‑nationalisation of state‑owned enterprises, Jinan Shanshui began to promote an Employees Stock Ownership Scheme (職工持股計劃) (“ESO Scheme”) by which its employees were given the opportunity of investing in the enterprise, in the form of taking part in a new company to be set up which would eventually take over the business. A handbook was produced to inform the employees of the purposes and details of the scheme (“promotion handbook”), extracts from which are set out in §54 below.

8. By around February 2001, a total of 2,518 employees of Jinan Shanshui (out of a total of 3,006 employees) had decided to take part in the ESO Scheme. As the Company Law in force in the Mainland at the time confined the number of shareholders of a limited liability company to 50, the shares for which each of the participating employees subscribed had to be held by a representative. Each of the employees who chose to participate (“participating employees”) signed an “Entrustment Agreement” (委託代理協議), whereby he entrusted one of 9 “employee shareholding representatives” to exercise shareholder’s rights on his behalf, acknowledging that the investment returns and risks were his. The agreement was a short one and read as follows (in English translation):

“Entrustment Agreement
I hereby appoint Comrade XXX of the shareholders’ committee to exercise the powers of a shareholder on [my] behalf, but investment proceeds and risks shall be received and borne by the appointer.”[1]

9. A receipt was given to each participating employee, and a register with the title “Jinan Chuangxin Investment Management Co Ltd Register of Members” (濟南創新投資管理有限公司股東登記表) was created in which the personal details and amounts of capital contribution of the participating employees were entered.

10. The new company envisaged in the ESO Scheme was set up on 10 August 2001 with the name of Jinan Chuangxin Investment Management Co Ltd (濟南創新投資管理有限公司) (“Jinan Innovation”)[2] for the purpose of taking over the relevant business and assets of Jinan Shanshui. Its initial registered capital was RMB 30,203,000, of which RMB 24,203,000 was funded from capital contributed by the 2,518 participating employees and RMB 6,000,000 by Jinan Shanshui.

11. Between 2002 and 2003, further capital was raised, including approximately RMB 4,300,000 and RMB 2,000,000 from some of the existing participating employees in 2002 and 2003 respectively, RMB 42,600,000 from 50 senior employees, RMB 8,000,000 being dividends for the year 2002 re‑invested as capital contribution, and RMB 18,000,000 from 1,782 new employees who joined the group after 2001 as a result of acquisitions and mergers.

12. On 28 July 2003, the registered capital of Jinan Innovation was increased from RMB 30,203,000 to RMB 105,287,161 (of which RMB 6,000,000, or approximately 5.70%, was attributable to Jinan Shanshui, and the rest to the participating employees). By then, 353 participating employees had died, retired or transferred their interests to others. As a result, the total number of participating employees had become 3,947 (ie 2,518 + 1,782 – 353). 5 of the 9 employee shareholding representatives were replaced in July 2003. Another 2 were replaced in 2004.

Domestic restructuring

13. By late 2004, Jinan Innovation had engaged professional advisers for the purpose of furthering a plan to list the business in Hong Kong, including, among others, Morgan Stanley, and a Mainland law firm, Commerce & Finance Law Offices (“CFLO”). In October 2004, the plan to privatise Jinan Shanshui was approved by the municipal government of Jinan.

14. For the purpose of restructuring the group and, in particular, to take up the State’s remaining interest in the enterprise, two additional companies, called Jinan Shanshui Lixin Investment and Development Co., Ltd. (濟南山水立新投資發展有限公司) (“Lixin”) and Jinan Shanshui Jianxin Investment and Development Co., Ltd. (濟南山水建新投資發展有限公司) (“Jianxin”) respectively, were set up on 15 October 2004. The registered capital of Lixin in the sum of RMB 31,806,000 and Jianxin in the sum of RMB 5,000,000 were paid up out of dividends declared by Jinan Innovation for the year 2003. Accordingly, the participating employees’ interests in these 2 companies were in exactly the same proportions inter se as their interests in Jinan Innovation. In November 2004, these two companies were used to acquire all the State’s interest in Jinan Shanshui.

15. On 15 December 2004, for the purposes of further corporate restructuring for a listing in Hong Kong, the employee shareholding representatives and Jinan Shanshui entered into a “Share Transfer Agreement” with, and transferred (for no consideration) the 94.30% and 5.70% equity interests they respectively held in Jinan Innovation to, 9 individuals who became known as the “Management Shareholders”. They were senior employees involved in the management of Jinan Shanshui and included Zhang Snr and Li YM as well as 7 others specified in the next paragraph, all of whom had substantial beneficial interests of their own in Jinan Innovation. The interests transferred to Zhang Snr and Li YM were to be held by them respectively on behalf of 3,940 participating employees including themselves. The interests transferred to the other 7 Management Shareholders were those belonging to them and to be held for themselves beneficially. I shall refer to these 7 individuals as the “Minority Shareholders”.

16. As a result, the 9 Management Shareholders held the entire equity interest in Jinan Innovation as follows:

Name
Shareholding interests (in Rmb) out of the registered capital of Rmb 105,287,161
Equivalent Percentage of shareholding interests
Remarks
1 Zhang Snr
69,017,760
65.5519%
52.3668% held for 2,548 participating employees
13.1851% held for Zhang Snr himself
2 Li YM
17,046,170
16.1902%
9.4001% held for 1,390 participating employees
6.7901% held for Li YM himself
3 Yu Yuchuan
(于玉川)
4,584,384
4.3542%
beneficially held for himself
4 Dong Chengtian
(董承田)
4,397,266
4.1765%
beneficially held for himself
5 Zhao Liping
(趙利平)
3,209,068
3.0479%

beneficially held for himself
6 Zhao Yongkui
(趙永)
2,921,023
2.7743%

beneficially held for himself
7 Mi Jingtian
(宓敬田)
1,645,349
1.5627%

beneficially held for himself
8 Li Maohuan
(李茂桓)
1,606,686
1.5260%

beneficially held for himself
9 Wang Yongping
(王永平)
859,455
0.8163%

beneficially held for himself
Total
105,287,161
100%

17. In other words, 61.7669% (ie 52.3668% + 9.4001%) of the equity interest in Jinan Innovation was attributable to 3,938 participating employees (ie 3,947 less the 9 Management Shareholders). It is significant to note that, as will be seen below, the shareholding in CSI was structured in exactly the same proportion as shown in this table.

18. In around late January or early February 2005, each of the 3,938 participating employees signed a document called “Equity Entrustment Declaration” (股權委託聲明) whereby he entrusted either Zhang Snr or Li YM with the management of his equity interest in the 3 companies concerned. The document (using the version that concerns Zhang Snr) provided as follows (in English translation):

“Equity Interest Entrustment Declaration
I, XXX, [gender], I.D. card numbered xxx
Actual contribution of capital was made to [Shandong Shanshui] in the sum of xxx yuan. After the value has been increased by xxx yuan, the equity interest held is in the sum of xxx;
The equity interest held at [Lixin] is in the sum of xxx yuan;
The equity interest held at [Jianxin] is in the sum of xxx yuan.
The ownership of the aforesaid equity interests belongs to me; I am hereby willing to entrust the management of the aforesaid equity interests to Zhang Caikui who will handle it on my behalf.”[3]

19. On 6 February 2005, Jinan Innovation, which had changed its name to Jinan Shanshui Innovation on 28 July 2003, changed its name again to Shandong Shanshui Cement Group Company Limited (山東山水水泥集團有限公司) (“Shandong Shanshui”).

Overseas restructuring

20. The overseas part of the restructuring began in 2005. As an integral part of that exercise, CSI was incorporated as a private company in Hong Kong on 25 January 2005, with an authorised capital of HK$10,000 divided into 1,000,000 shares of HK$0.01 each.

21. When CSI was first incorporated, only one share was held by LFDI Nominees Ltd as the subscriber; on the date of incorporation, a further 999,999 shares were issued and allotted at par to MS Cement Ltd. Both were apparently service companies made available by the professionals engaged in the restructuring. A few days later, LFDI Nominees Ltd transferred its 1 share to MS Cement Ltd, which became the holder of all the 1,000,000 issued shares of CSI.

22. On the same date of 25 January 2005, 2 other Hong Kong companies, namely, China Shanshui Cement Group Co Ltd (中國山水水泥集團有限公司)[4] (“CSHK”) and China Pioneer Cement (Hong Kong) Co Ltd (中國先鋒水泥(香港)有限公司) (“Pioneer”), were also incorporated. CSHK had 2 issued shares of HK$0.01 each, held by MS Cement Ltd and MS Cement II Ltd respectively. Pioneer was incorporated with 1 share of HK$0.01 issued to LFDI Nominees Ltd, which was transferred to CSHK on 31 January 2005 when Pioneer, therefore, became wholly‑owned by CSHK.

23. At that time all 3 companies (CSI, CSHK and Pioneer) were bare corporate shells with no valuable asset, having just been established in preparation for the subsequent transactions, with LFDI Nominees Ltd, MS Cement Ltd and MS Cement II Ltd being nominee corporate vehicles used for the restructuring exercise.

24. On 11 April 2005, the entire issued share capital of CSI was transferred by MS Cement Ltd to the 9 Management Shareholders in the proportion set out in §16 above. The total consideration for the transfer was said to be HK$1. Accordingly, Zhang Snr and Li YM each became a holder of 655,519 shares and 161,902 shares in CSI respectively (of which 523,668 shares and 94,001 shares respectively were attributable to the 3,938 participating employees who had entrusted them with their shares in Shandong Shanshui), and the 7 Minority Shareholders also became holders of CSI shares in the proportion set out in §16 above. As the argument developed, the principal dispute emerged to be whether, on 11 April 2005, Zhang Snr and Li YM established discretionary trusts under the laws of the British Virgin Islands (“BVI”) over 617,669 CSI shares (viz 523,668 shares + 94,001 shares) or whether they established Hong Kong fixed trusts over those shares for the benefit of the participating employees. This key issue will be discussed in section VI.B below.

25. The injection of assets into Pioneer and CSI took place in September 2005. By then, Jinan Shanshui had transferred its remaining cement business, related assets and employees to Shandong Shanshui. On 5 September, Pioneer entered into an “Equity Transfer Agreement” with the 9 Management Shareholders to acquire from them the entire equity interest in Shandong Shanshui at a consideration of RMB 162.8 million to be funded from the subscription monies paid by the Investors referred to in §26 below. The completion date was stipulated to be the date of payment by Pioneer, to be made within 3 months after Shandong Shanshui was converted into and licensed as a wholly foreign-owned enterprise. It appears that the business licence was converted on 19 October 2005.

26. On 9 September 2005, CSI acquired the entire issued share capital (ie 2 shares) of and in CSHK (which in turn held Pioneer) from MS Cement Ltd and MS Cement II Ltd for a total consideration of HK$2. Towards the end of November 2005, CSHK allotted new shares to CSI and institutional investors (“Investors”), with the result that CSI held 51% and the Investors held 49% of CSHK. In return, the Investors paid approximately US$51 million to CSHK. These proceeds were injected into Pioneer to fund, inter alia, the acquisition of Shandong Shanshui from the 9 Management Shareholders mentioned above and the increase of capital of Shandong Shanshui by approximately RMB 167.3 million to RMB 272.6 million.

27. It is not entirely clear when exactly the price of RMB 162.8 million was paid to the 9 Management Shareholders, or how the sale proceeds were deployed afterwards (except for RMB 86.2 million which went to Lixin and Jianxin for the acquisition of the State’s stake in Jinan Shanshui (see §14 above)). It was common ground, however, that they were not paid into the pockets of the 9 Management Shareholders but ploughed back into the group in the Mainland.

28. As a result of these transactions, as shown in the diagram below, Shandong Shanshui became 100% owned by Pioneer (which was wholly owned by CSHK, which in turn was owned by CSI and the Investors as to 51% and 49% respectively) and therefore a wholly foreign‑owned enterprise, and the ESO Scheme came to an end.

BVI trusts

29. On about 28 November 2005, Zhang Snr and Li YM executed 2 trust deeds respectively. It is said that by these deeds, Zhang Snr and Li YM “confirmed” the trusts on which they held the shares in CSI, called the “Zhang Trust” and the “Li Trust” respectively. In the deed of the Zhang Trust, Zhang Snr was stated to be the settlor and trustee of 655,519 CSI shares. The beneficiaries were 2,549 participating employees named in the schedule (including Zhang Snr himself as the first‑named beneficiary). The terms of the deed of the Li Trust were materially identical, with Li YM being the settlor and trustee of 161,902 CSI shares and another 1,391 participating employees named in the schedule (including Li YM himself) as beneficiaries. I shall refer to the two trusts together as the “BVI trusts”.

30. For present purposes, the following features of each of the BVI trusts are of note:

(1) The trust is an irrevocable one for the period of 100 years.
(2) It is an absolute discretionary trust, in that the trustee may appoint that he holds the trust property for the benefit of any beneficiaries on such terms as he thinks fit. The powers of the trustee may be exercised at his absolute discretion.
(3) The trustee may appoint new or additional trustees.
(4) The trustee has the power to transfer any trust property to be held on another trust for the benefit of any one or more of the original beneficiaries, to be held on the terms of the new settlement, freed and released from the terms of the BVI trusts.
(5) Subject to the trustee’s power to amend, the trust is governed by BVI law and the BVI courts have “exclusive jurisdiction in any proceedings involving rights or obligations under the settlement”.
(6) The trustee may amend the governing law of the trust and the courts which have exclusive jurisdiction in any proceedings involving rights or obligations under the trust.

31. Accompanying the deeds of trust were non‑binding letters of wishes for the Zhang Trust and the Li Trust respectively. The contents of each represented the “current wishes” of the settlor. The letter is “not intended to be binding on the trustees but is intended to guide them in the exercise of their discretions”, and states that settlor’s firm wish is that the beneficiaries listed in the schedule to the letter should receive the proportion of the dividends on the shares corresponding to the amounts listed in the schedule. The amounts listed for the beneficiaries are in proportion to their entitlements as participating employees under the ESO Scheme.

32. Between December 2005 and September 2007, 11 participating employees ceased to be employees of Shandong Shanshui and apparently “transferred” their “interests” to other participating employees, though it is not clear how such transfers were actually implemented.

The listing in Hong Kong

33. For the purpose of a public offer of shares, CSCG was incorporated in the Cayman Islands in 2006 as the company to become listed. In September 2007, CSI and the Investors exchanged their shares in CSHK for the same number of shares in CSCG, with the result that CSCG was interposed as the 100% immediate holding company of CSHK.

34. In April 2008, each of the participating employees was procured to sign a letter of confirmation (“2008 Confirmation”). Much reliance was placed by Zhang Snr on this document as a ratification of the BVI trusts. The arguments are dealt with in section VI.E below.

35. The prospectus of the public offer of CSCG’s shares was published in June 2008 (“IPO Prospectus”). The shares began to be listed on the Main Board of the Hong Kong Stock Exchange on 4 July 2008. Zhang Snr was the chairman of the board of directors and an executive director of CSCG. The corporate structure immediately after the listing was as follows:

Mr Li’s resignation

36. In July 2010, Li YM resigned as director of the companies in the group. Without the knowledge or consent of the participating employees, he also retired, and was replaced by Zhang Snr, as trustee of the Li Trust. The CSI shares held in Li YM’s name for the Li Trust were transferred to Zhang Snr in January 2011.

The repurchase plan

37. In November 2013, Zhang Snr presented a proposal to the participating employees effectively to buy them out from the BVI trusts. Under the plan, the purchase price would be calculated with reference to the share price of the listed company, but at a discount. The payment would be completed in 3 terms of 10 years each. The capital payments would be derived from and funded by the income of the trusts, ie dividends received by the trustee from CSI. The plaintiffs suspected that the plan would involve Zhang Snr using “their money” to buy them out. According to the plaintiffs, this was the first time they became aware that the relevant shares in CSI were said to be held on absolute discretionary trusts.

38. Many of the participating employees opposed and boycotted the repurchase plan. They lodged complaints with the Mainland authorities, rejecting the repurchase plan, and demanded the termination of the trust arrangements and requested that the shares in CSI be returned to them individually. Eventually their Hong Kong solicitors, KLG, issued a letter of demand on 22 August 2014. On the same date, Zhang Snr’s Hong Kong solicitors denied all the allegations on his behalf.

III. The actions brought in the name of the participating employees

39. On 23 August 2014, the first action, ie HCA 1661/2014, was brought in the name of 761 participating employees against Zhang Snr and Li YM. In the following months, 5 further actions were commenced against Zhang Snr and Li YM in the name of additional groups of participating employees. The total number of plaintiffs grew to 2,631, who together laid claim to 456,325 shares (45.6325% of the issued share capital) of CSI. These 6 actions were consolidated by an order in August 2015. Receivers were appointed by this court on 20 May 2015 over those 456,325 shares which have since been registered in the Receivers’ name.

40. In the first few months of 2017, a number of plaintiffs signed documents to terminate their retainer of KLG and to instruct SH to represent them in these actions. There was a dispute whether, because of a special mandate in KLG’s retainer, it could only be terminated by the clients in person in Hong Kong. To avoid that argument, 5 of the plaintiffs flew to Hong Kong to sign the requisite documents. Represented by SH, they instituted a new action (HCA 1282/2017) against the same 2 defendants and ceased to be plaintiffs in the consolidated actions.

41. By June 2017, another 1,073 plaintiffs had also signed documents in the Mainland to similar effect and, although the authority of SH to act for them was initially disputed by KLG,[5] the challenge was later withdrawn and on 9 October 2017, those 1,073 plaintiffs, as well as 6 additional plaintiffs who had come to Hong Kong to sign documents, switched from the consolidated actions to become the 6^th to 1,084^th plaintiffs in HCA 1282/2017.

42. On 14 November 2017, summonses were filed for another 935 plaintiffs to leave the consolidated actions and join HCA 1282/2017 instead. Following confirmation on 4 December 2017 (Day 5 of the trial) that there was no objection from anyone, the applications were allowed. They became the 1,085^th to 2,019^th plaintiffs in the new action.

43. Accordingly, SH on record now act for 2,019 plaintiffs[6], who were represented at trial by Mr Simon Westbrook SC (leading Mr Alexander Tang and Mr Kevin Lau), whereas KLG on record act for 612 plaintiffs[7], who were represented by Ms Audrey Eu SC, leading Mr MC Law. Despite being separately representated, the KLG plaintiffs and SH plaintiffs have shared the same pleadings and a single expert and their submissions are largely aligned.

IV. Strike‑out application under O 41A r 6

44. By a summons dated 24 December 2015, Zhang Snr has applied for an order under O 41A r 6 to strike out the claims of those plaintiffs who have not filed statements of truth for their pleadings. The position has developed since and by now only a very small portion of the plaintiffs have not filed statements of truth.

45. As stated by Rogers VP (sitting as an additional CFI judge) in Tong Kin Hing v Autron Mauritius Corp [2010] 1 HKLRD 77 at §19:

“The requirement of a statement of truth is important. Its purpose is to focus the mind of the relevant party and to deter sloppy or speculative pleadings and prevent dishonest cases being put forward. It is a very important part of the Court’s process in applying the Rules.”

46. In my discretion, nevertheless, I decline to strike out their claims on this ground because (i) whilst not abandoned, the application was only faintly pursued by counsel for Zhang Snr at trial; (ii) there are a very large number of plaintiffs all resident in the Mainland, with associated logistical difficulties in getting every plaintiff to sign statements of truth; (iii) all the plaintiffs’ contentions and interests are identical; (iv) the pleadings have been verified by the vast majority of the plaintiffs; (v) there is nothing to indicate that the case of those plaintiffs who have not signed the statements of truth are somehow different and not reflected by the pleadings; and (vi) to strike out the claims would in my judgment be a disproportionately draconian response; see eg Adams v Ford [2012] 1 WLR 3211 at §§40–42 & 48–53.

V. The evidence

47. There is no major dispute between the parties as to the underlying history and primary facts relating to the restructuring and listing exercise set out above, which are evidenced by the documents. There are 2 issues of fact concerning the nature and terms of the trust set up in April 2005 (see section VI.B below) and the extent of the plaintiffs’ knowledge and consent (see section VI.E below).

48. Mr Liu Xianliang was called on behalf of the SH plaintiffs. He came across as a collected and coherent witness and I find his evidence generally credible. Obviously, however, he was only one of 2,631 plaintiffs and even though he was in a fairly senior supervisory position, his answers cannot necessarily be taken to reflect the position of every plaintiff.

49. The KLG plaintiffs had filed statements of 2 factual witnesses, namely, Zhao Yongkui (“Zhao YK”) (one of the 7 Minority Shareholders) and Gao Yong (one of the KLG plaintiffs). Neither of them, however, attended the trial to give evidence in circumstances beyond their control as explained in solicitors’ affirmations. The admission of their statements as hearsay evidence was objected to on behalf of Zhang Snr but I decline to exclude them altogether because I am not satisfied in all the circumstances that exclusion of such evidence is not prejudicial to the interests of justice. In relation to any parts of the statements that are significant and contentious, however, I bear in mind they have not been tested and the weight to be accorded them must be adjusted accordingly.

50. Only one factual witness was called on behalf of Zhang Snr, namely, Mr Tang Boxian, a Mainland lawyer who was at the material times with CFLO which acted as the Mainland legal advisers to Shandong Shanshui. Much of his statement consisted of comment on events and documents of which he had no or very limited personal knowledge. No explanation has been given why Zhang Snr did not give evidence.

51. The plaintiffs and Zhang Snr had each arranged for one expert to opine on 3 specified questions of Mainland law but, for reasons I need not go into, neither of the experts attended the trial. Their reports were admitted into evidence as hearsay without objection. There is no dispute that the proper approach in evaluating expert evidence on the law of a different jurisdiction is that set out in Full Wisdom Holdings Ltd v Traffic Stream Infrastructure Co Ltd [2004] 2 HKLRD 1016 (CA) at §23 and (2004) 7 HKCFAR 442 at §§21–22, and MCC Proceeds Inc v Bishopsgate Investment Trust [1999] CLC 417 at §§13 & 19–20, as adopted in Shenzhen Development Bank Co Ltd v New Century Int’l (Holdings) Ltd (HCA 2976/2001; 31 July 2002), §25. The laws of other jurisdictions are, in Hong Kong proceedings, treated as facts, but they are facts of a special kind. The judge is obliged to use his legal training where it has a bearing in determining such facts, especially where the concepts are not very different from Hong Kong law, and where appropriate may form his own view as to the meaning of the statutes of another jurisdiction.

VI. Analysis of the legal position

52. Since the ESO Scheme, domestic restructuring, overseas restructuring, BVI trusts and listing of CSCG took place successively over a prolonged period of time, I shall approach the ultimate issue by analysing in turn the legal relationship between the parties at the following stages:

(1) 2001 to 11 April 2005;
(2) 11 April 2005 to 5 September 2005;
(3) 5 September 2005 to 28 November 2005;
(4) 28 November 2005 to 7 April 2008; and
(5) after 7 April 2008.

A. 2001 to 11 April 2005

53. This is the period from the inception of the ESO Scheme until the transfer of the 1 million CSI shares to the 9 Management Shareholders for $1. There is no real dispute as to what happened in fact during this period of time. It is common ground that Mainland law governed the relationship between the parties, but it is not entirely clear what the terms of the ESO Scheme were and there is a dispute over the proper legal characterisation of the relationship and its incidents.

54. The ESO Scheme was not formally embodied in any single written document put before this court. In the promotion handbook, one could find the following descriptions (in English translation):

“I. Explanation relevant to establishing the company
…
3. What are the advantages to the Group and individuals by establishing a company for asset and investment management? What is the prospect?
After the establishment of the company, it will mainly engage in capital operation, and will invest on products of high‑technology with subsidiary investment in other industries and participate in businesses such as listed company operation and securities investment and so on, making use of the flexible investment and management systems to maximize the profits so as to bring shareholders higher returns and profits from investments. The employees become asset proprietors in the company in which they work and will earn wages in return for work and profits in return for investment at the same time. This may be said to be beneficial to the development of the Group and providing the employees with a legitimate channel to make better profits from investment, benefiting both the country and the people.
…
II. Explanation about the scheme of establishing the company
1. What is the nature of the company?
The company is a legal person in the form of a corporation making diversified investments as the main business with various financial elements co‑existing, and individual employees of the Group will hold shares.[8] It will be a company of limited liabilities. All shareholders would bear limited liabilities and gain profits proportionate to their capital contribution.
…
4. How would shareholders’ contribution and individuals’ shareholding be regulated?
For all shareholders, subscription of shares of the company shall be made in cash. Shareholders enjoy rights and bear liabilities in proportion to their capital contribution.[9] Shareholders cannot withdraw from holding their shares after capital contribution, but shares are transferable amongst members of the company.
Individual shareholding will be carried out by way of a shareholders’ council who will be appointed to exercise shareholders’ rights on their behalf with dividends belonging to individuals.[10]
…
11. How will company profits be distributed?
The company will distribute dividends annually. Profits after tax and withdrawal of provident funds and charity funds in accordance with the law will be distributed to the shareholders in proportion to their individual capital contribution. The dividend distribution scheme shall be formulated by the Board of Directors and put to the vote of the Shareholders’ General Meeting for approval. Dividends for individual shareholding will be distributed after unified collection by the shareholders’ council.
12. What is the operating period of the company, and how would the assets be dealt with after the company has been terminated or dissolved?
The term of operation of the company is ten years. Upon expiry, it will be put to the vote of the Shareholders’ Meeting to decide if the operation will continue. Should the company be terminated or dissolved, settlement/liquidation would be proceeded with pursuant to the Company Law and the articles of association, and shareholders shall be entitled to distribution of the company assets in proportion to their capital contribution.
III. Management of Individual Shareholders
1. Who can subscribe to shares to invest on an individual basis?
Individual subscription is limited to serving employees of the Group, including all serving employees of the institutions of the Group and their subsidiary units, whereas those outside the Group and employees not serving within the Group cannot participate.
2. How can employees subscribe for shares on an individual basis?
Employees of the Group may subscribe for shares voluntarily by contributing in cash. Each contribution of 1000 yuan is considered as one unit. Upon receipt of the capital contributed by individuals, the company will issue certificates of contribution as proof, and the individuals’ names would be registered as shareholders of the company. They enjoy rights and bear liabilities proportionate to their individual contributions.
3. Can one withdraw from shareholding after subscription?
Individuals cannot withdraw from shareholding after subscribing for shares.
4. Are equity rights freely transferable? How?
Equity rights may be transferred amongst shareholders inside the company but not to any outsider. Transfer price is to be fixed upon negotiation by the two sides. The company will announce reference transfer price annually for guidance purpose. Transfer procedures are to be dealt with by the individual shareholders’ council. Equity rights of individual shareholders can be transmitted to successors pursuant to the Law of Succession.[11]
5. How will problems about the exercise of rights by individual shareholders be solved?
In view of the large number of scattered individual shareholders, an individual shareholders’ council will be set up so that their interests can be practically protected, and they can effectively take part in making policies for the company and exercising the rights of shareholders.
…
8. What is the entrusting procedures between individual shareholders and the council?
Individual shareholders shall sign an equity interest entrustment declaration with the council, with investment proceeds and risks to be received and borne by the individual shareholders themselves. The council shall set up a register to put the entrustment by individual shareholders on record.” (emphasis added)

55. The ESO Scheme duly started in 2001 but the way in which it was implemented did not in every respect match the description in the promotion handbook. The evidence shows that in practice:

(1) As anticipated in §III.8 of the promotion handbook, the individual shareholders did sign an entrustment agreement in January or February 2001, in terms set out in §8 above.
(2) As envisaged in §III.8, a register was indeed set up where the details of the participating employees together with their capital contribution were recorded (see §9 above). Contrary to §III.2, however, the participating employees were not formally registered as shareholders of the company. It was not possible to have them registered as such because the Company Law limited the number of shareholders to 50.
(3) As stated in §II.4 and §III.4, transfers of equity interests were permitted between employees, and widows and children could inherit the interests of deceased employees. It appears that the price for the transfer was negotiable: it was dollar‑for‑dollar for the capital contribution in some cases but a different, negotiated figure in other cases. It appears that the company did not publish any indicative prices.
(4) As stated in §II.11, it was recognised that the participating employees were entitled to dividends in proportion to their capital contribution. As stated in §§11 & 14 above, the dividends (for the years 2002 and 2003) declared and notionally paid in 2003 and 2004 were ploughed back into the group. The fact that the participating employees did not receive any dividend in cash between 2001 and 2004 was consistent with the statement in the promotion handbook that the dividend plan would be decided by the directors and approved by the shareholders.
(5) While the promotion handbook envisaged there would be a “council” of individual shareholders consisting of 3 persons to be elected by the individual shareholders, in practice there were 9 employee shareholding representatives who were apparently not elected by the participating employees either initially or upon replacement in 2003 and 2004.

56. Mr Paul Lam SC, who appeared for Zhang Snr, was in my view correct in submitting that subsequent conduct may be relied upon for the purpose of finding what the terms of a contract (which is not wholly in writing) are, as opposed to construing the known terms of a contract: Lewison, The Interpretation of Contracts (6^th ed), pp 179 & 183–4. However, in the circumstances of this case, the weight that can be placed on such conduct is limited because (i) the participating employees, as subordinates to the senior management, were likely to take a subservient attitude towards the views of the latter; and (ii) unless their interests were invaded, the participating employees might not feel any need to take an active interest in how the company was run. Accordingly, it seems to me the fact that they acquiesced in the way in which the affairs of the company were conducted is not probative of limitations on their entitlements under the ESO Scheme. Furthermore, there is evidence that the participating employees were consulted from time to time in relation to matters to be decided at shareholders’ meetings.

57. As far as the characterisation of the legal relationship between the parties to the ESO Scheme is concerned, the plaintiffs’ expert, Mr Huang Hui, took the view that it was a relationship of contract of entrustment (委託代理合同), while the defence expert, Mr Gao Zongze, considered that it was a relationship of “completely anonymous investment” (完全隱名投資). In the ultimate analysis, it seems to me the difference between them is narrower than it might first appear, and may be attributed to the different perspectives from which one approaches the question. Mr Westbrook neatly rationalised their difference by suggesting that while Mr Gao focussed on the external aspect of the entrustment relationship, Mr Huang’s analysis was centred on the internal aspect of that relationship.

58. For present purposes, in my opinion, there was clearly a contract of entrustment under Mainland law between each participating employee and his employee shareholding representative (who became either Zhang Snr or Li YM in December 2004). This was confirmed in the legal due diligence report prepared by CFLO for the listing and in the IPO Prospectus.

59. Under that contract of entrustment, the shareholding or equity interest of the participating employee in Jinan Innovation (later renamed Shandong Shanshui) was entrusted to the employee shareholding representative, who alone was registered in the company’s formal record as a shareholder in respect of those shares. It is common ground that the Trust Law of the Mainland (where trust is a highly specific concept with specific requirements) did not apply to this relationship.

60. The result was that, under the Company Law of the Mainland, the participating employee was the “actual contributor” (實際出資人) whereas the employee shareholding representative was the “nominal contributor” (名義出資人) or “nominal shareholder” (名義股東). In this context, their respective rights and obligations were dealt with in Articles 24 and 25 of the “Provisions of the Supreme People’s Court on Several Issues concerning the Application of the Company Law of the People’s Republic of China (III) (2014 Amendment)” (最高人民法院關於適用《中華人民共和國公司法》若干問題的規定(三)(2014修正)) (“SPC Provisions on Company Law (III)”), which had retrospective effect (back to 1 October 1999 when the Company Law was enacted) and provided (in English translation):

“Article 24 Where the actual contributor of a limited liability company enters into a contract with the nominal contributor specifying that the actual contributor shall make capital contribution and be entitled to investment interests and that the nominal contributor shall be the nominal shareholder, if the actual contributor and the nominal shareholder dispute over the validity of the contract, the People’s Court shall determine the contract as valid so long as none of the circumstances prescribed in Article 52 of the Contract Law exist.
Where there arises any dispute between the actual contributor with the nominal shareholder referred to in the preceding paragraph over the ownership of investment interests, the People’s Court shall support the claim of rights made by the actual contributor against the nominal shareholder on the ground that he has performed the actual capital contribution obligation. The People’s Court shall not support the nominal shareholder denying the rights of the actual contributor by relying on the record of the register of shareholders or the registration with the companies registration authority.
The People’s Court shall not support the request made by the actual contributor, without the consent of more than half of all other shareholders of the company, for the company to change its shareholders, issue a capital contribution certificate, record him in the register of shareholders, record him in the company’s articles of association, and to register with the companies registration authority.
Article 25 Where a nominal shareholder transfers, pledges or otherwise disposes of the equities registered under his name, and the actual contributor, on the ground that he has the actual entitlement to the equities, requests the People’s Court to determine the equity disposal as invalid, the People’s Court may handle the case with reference to Article 106 of the Property Law.
If the actual contributor suffers losses because of the equity disposal made by the nominal shareholder, the People’s Court shall support the claim made by the actual contributor requesting the nominal shareholder to bear the liability for compensation.”[12]

61. These provisions, which elaborate upon the Company Law, have in turn been authoritatively explained by the Second Civil Division of the Supreme People’s Court in a text named “Annotations on Provisions of the Supreme People’s Court on the Company Law (III)” (最高人民法院關於公司法解釋清算紀要（三）理解與適用［注釋版］) (“Annotations”). The Annotations confirm that shareholders’ rights can only be directly exercised by the nominal shareholder. It is open to the actual contributor and the nominal shareholder to agree between themselves that the former can indirectly through the latter exercise all shareholders’ rights, or that the former shall simply receive the income leaving to the latter a discretion in the exercise of other shareholders’ rights. Such agreement has effect, however, only between the actual contributor and the nominal shareholder and not externally. Where the actual contributor seeks to be registered as shareholder in place of the nominal shareholder, the general provision[13] that requires the consent of over half of the other shareholders will apply.

62. Where the relationship of actual contributor and nominal shareholder has arisen from an agreement, its precise incidents are a matter of contract. There are general provisions under the Contract Law of the Mainland (Chapter 21) applicable to contracts of entrustment, including Article 410 which provides that both the entrustor and entrustee can terminate the contract at will, but it seems to me they have to be read together with any specific terms agreed between the parties.

63. So far as the ownership of the shares is concerned, on the evidence it is, in my view, clear that as between a participating employee and his employee shareholding representative, it was intended that the former was the real owner of the shares.

(1) Numerous passages in the promotion handbook made it clear that a participating employee became owner of the shares (see those underlined in §54 above). After all, even the IPO Prospectus referred to the scheme as the “Employee Stock Ownership Plan”.
(2) While the 2001 entrustment agreement did not expressly mention ownership of the shares, it made clear that the participating employee bore both the risks and the benefits of the investment — the hallmarks of ownership.
(3) In the notice issued by Jinan Innovation to the participating employees in June 2003 regarding the capitalisation of dividends, they were notified that their shareholding (股權) had increased proportionately.
(4) In a speech to employees’ representatives in January 2004, Zhang Snr said (in English translation):
“Another point is that we still have to work for the welfare of our employees so that they can change from being a member of the proletariat to that of the bourgeoisie, becoming the real owner of the enterprise. In 2001, we established Jinan Innovation with investments from the serving employees of the Group. … After the company had operated for 2 years, everybody got the first sum of dividend last year and, with full confidence in it, continues to increase their investment and expand their shareholding.”[14]
(5) This was repeated in a speech made at a meeting of employees’ representatives on 4 August 2004, where Zhang Snr said (in English translation):
“Because after restructuring, nearly all the employees of Shanshui are its shareholders, and the enterprise is closely connected with the individuals.”[15]
At the same meeting, Li YM made clear in his speech that the state‑owned stake in the enterprise was to be transferred to Lixin and Jianxin, which were both wholly funded by the employees (in English translation):
“Our registered capital comes from the dividends of Jinan Innovation in 2003. That is to say, nearly all of our employees are the shareholders of the two companies the subject of acquisition. They are the indirect holders of the assets of the Shanshui Group after restructuring. They have realized the change from being a member of the proletariat to that of the bourgeoisie.”[16]
(6) The 2005 entrustment declaration, expressly stating that “ownership” (所有權) belonged to the participating employee, could not have been in clearer terms. This is a term with established meaning in Mainland law (see Article 39 of the Property Law and Article 71 of the General Principles of Civil Law).

64. There was in my view nothing in Mainland law that prevented this clear intention of the parties from taking effect as between them. While it is common ground that Mainland law embraces the principle of “one thing, one right (of ownership)” (一物一權) and that formal separation of legal and beneficial ownership is not recognised, Mainland law also recognises that in this context there may be “double standards, since internal and external relationships differ” (內外有別，雙重標準).

65. In fact, the reference in Article 25 of the SPC Provisions on Company Law (III) to Article 106 of the Property Law is telling, for it provides:

“Where a person transfers to a transferee immovables or movables which he has no right to dispose of, the owner shall have the right to recover them …
Where a transferee acquires the ownership of the immovables or movables in accordance with the provisions in the preceding paragraph, the original owner shall have the right to request the person who has no right of disposition to compensate for the losses. …” (emphasis added)

This suggests that unless the actual contributor agrees, the nominal shareholder has no right of disposal over the shares, which is of course an important indicia of ownership: see Article 71 of the General Principles of Civil Law; Article 39 of the Property Law. The experts were agreed that the right of disposal was the “core” right and power of an owner. Instead, Article 25 the SPC Provisions on Company Law (III) proceeds on the basis that the actual contributor has the final say over disposal. He is the person capable of invoking Article 106 of the Property Law against the nominal shareholder and a third party transferee; he can recover the shares purportedly disposed of unless the transferee is a bona fide registered transferee for reasonable value. This is confirmed in the following passage that appears at p 393 of the Annotations in the explanation of Article 25 (in English translation):

“The nominal shareholder has agreed with the actual contributor for him to exercise the equity interest. However, since such equity interest is obtained only by virtue of the capital contribution made by the actual contributor, it is ultimately vested in the actual contributor. The nominal shareholder may exercise the right of a shareholder but cannot dispose of such equity interest without authority, and no equity interest may be disposed of unless the actual contributor has given consent. When the actual contributor has not authorized the nominal shareholder to dispose of the equity interest, the nominal shareholder is not entitled to dispose of that part of the equity interest, and his conduct in disposing of it is unauthorized disposition.”[17] (emphasis added)

66. It seems to me Mr Gao’s conclusion that the relationship between the plaintiffs and defendants was one of “completely anonymous investment” (完全隱名投資) was based on his assumption that all the rights other than the right to receive dividends had by agreement been conferred on the defendants. His opinion that vis‑à‑vis the company and third parties, it is the nominal shareholder who is for all intents and purposes the shareholder, is unobjectionable. Insofar as he reasoned from the external position to the conclusion that the nominal shareholder is the owner of the shares and the actual contributor is not, that analysis is, with respect, unconvincing. He did not cite any statute to support his distinction between “completely anonymous investment” and “incompletely anonymous investment”. He relied on statutory provisions that concern Sino‑foreign or wholly foreign‑owned enterprises, which had no application to Jinan Innovation which was, until September 2005, a wholly domestic enterprise. The concept of “completely anonymous investment” was not alluded to in the judicial decisions he relied upon. Moreover, the investment could hardly on the facts of the present case be said to be completely anonymous or undisclosed. Jinan Innovation was set up pursuant to the ESO Scheme; it issued receipts to the participating employees, entered their names in a register and notified them of the capitalisation of their dividends.

67. On behalf of Zhang Snr, and in a similar vein to Mr Gao’s approach, Mr Lam relied on a number of contemporaneous documents whose wording suggested that the employee shareholding representatives were actual owners of shares in Jinan Innovation, such as (i) the application for incorporation of Jinan Innovation in August 2001; (ii) capital injection verification reports; (iii) agreements for the transfer of shares executed upon changes of employee shareholding representatives; (iv) the Share Transfer Agreement dated 15 December 2004 (see §15 above) and the acknowledgments signed by the transferors; and (v) the Equity Transfer Agreement dated 5 September 2005 (see §25 above). In my view, these documents do not assist Zhang Snr. They merely show that externally, vis‑à‑vis the company and other third parties, the participating employees were not entitled to be regarded as shareholders. Mainland law, like Hong Kong law, treats the share register as evidence of shareholding and does not allow an unregistered person directly to assert shareholders’ rights against the company. These documents did not purport to deal with the legal relationship between the participating employees and the registered shareholders and do not detract from the above analysis of their relationship inter se.

68. Accordingly, I find that the position under Mainland law was in summary as follows:

(1) Vis-à-vis Shandong Shanshui and third parties, Zhang Snr and Li YM were the shareholders who alone were entitled directly to exercise shareholders’ rights.
(2) The participating employees had ownership rights to the shares entrusted with Zhang Snr and Li YM. The latter, as nominal shareholders, were not entitled to deal with the entrusted shares without the consent and approval of the former. If they dealt with the shares without authority, the participating employees had the right to demand the specific return of the shares. This right would prevail against third parties except those who had received the shares bona fide for a reasonable price and been registered as transferees.
(3) The participating employees were entitled to demand from the nominal shareholders all the financial benefits arising out of the entrusted shares, including all dividends.
(4) The participating employees could transfer their equity interests to other employees and their interests could upon their death be inherited by family members.

69. The legal relationship under Mainland law during this period continued, with respect to the shares in Shandong Shanshui, until those shares were transferred to Pioneer pursuant to the Equity Transfer Agreement dated 5 September 2005 (see §25 above). Meanwhile, however, a new relationship with respect to the shares in CSI came into being on 11 April 2005 (see section B below).

B. 11 April 2005 to 5 September 2005

70. This is the period from the transfer by MS Cement Ltd of the 1 million CSI shares to the 9 Management Shareholders to the date of the Equity Transfer Agreement for the sale of the shareholding interests they held in Shandong Shanshui to Pioneer. The plaintiffs and Zhang Snr agree that upon acquisition, the 523,668 shares and 94,001 shares in CSI were held by Zhang Snr and Li YM on trust respectively. The dispute is what trust it was. I shall deal first with Zhang Snr’s contention that the shares were subject to the BVI trusts from 11 April 2005 onwards.

(1) Whether the BVI trusts were set up in April 2005

71. There are 2 arguments raised on behalf of Zhang Snr, namely: (i) on 11 April 2005, Zhang Snr and Li YM in fact declared and established 2 trusts of CSI shares substantially on the terms of the BVI trusts; (ii) alternatively, by executing the BVI trust deeds on 28 November 2005, Zhang Snr and Li YM retrospectively declared the BVI trusts with effect from 11 April 2005.

(a) Express declaration of BVI trusts on 11 April 2005

72. I do not accept that discretionary trusts, whether substantially in the terms of the BVI trusts or otherwise, were specifically and expressly established on 11 April 2005.

(1) There is no evidence from any witness having relevant personal knowledge to suggest that this actually happened. Zhang Snr, who would be the best person to testify if there was such a trust set up, did not give evidence at all.
(2) As referred to in §81(4) below, such restructuring documents as were disclosed show that what was contemplated was simply an “extraterritorial” (境外) trust (and it was clear from the documentation that that description could refer to a trust established in Hong Kong). The first contemporaneous documents that mentioned any discretionary trust were the BVI trust deeds executed on 28 November 2005.
(3) The BVI trusts each recited in its preamble:
“The Original Trustee has, since he acquired the Original Shares on 11 April 2005, held them upon trust for the Beneficiaries and wishes to confirm the trusts on which he holds them.”
This cryptic recital, whilst doubtless a confirmation that the relevant CSI shares had been held on trust since 11 April 2005, is, in my view, far from clear evidence that there was a declaration in terms of the BVI trusts as early as in April 2005. In any event, assuming it is admissible,[18] the weight that should be placed on it, as a subsequent, self‑serving pronouncement, is highly limited.
(4) The IPO Prospectus stated that the BVI trusts were established “when the Management Shareholders acquired [CSI] in April 2005” and that the trusts “were formally recorded and documented in writing in November 2005”[19], but the prospectus was only published in June 2008 and did not state the source of information for that statement.
(5) There is no evidence that documents containing substantially the terms of the BVI trusts were provided to Zhang Snr and Li YM for them to declare trusts on 11 April 2005. It is extremely improbable that in the absence of any such assistance, Zhang Snr and Li YM could have declared trusts in terms foreshadowing the BVI Trusts. There is nothing to show that either of them had even heard of “discretionary trust” prior to 28 November 2005.

73. Mr Lam placed reliance on a draft trust deed as at 28 April 2005 prepared by Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss draft”) as evidence of the alleged intention to create a discretionary trust in April 2005. This draft was subsequently attached to an email of 21 October 2005 from Morgan Stanley which asked that it be executed by Zhang Snr and Li YM. Upon closer examination, however, the draft seems to me to have been one for a fixed trust instead of a discretionary trust.

(1) It was a declaration that the trustee held
“UPON TRUST for the Beneficiaries or their respective successor in title such number of Shares as shown in the Schedule attached hereto, subject to the terms and conditions set out in this Declaration of Trust” (emphasis added)
(totalling 523,668 and 94,001 shares in the case of Zhang Snr and Li YM respectively). The schedule to the draft deed set out a table containing the names and, importantly, a column headed “Trust Assets held on trust for the Beneficiaries” setting out separately what was evidently the number of CSI shares to which each of the beneficiaries was entitled.
(2) Clause 7 provided a power of altering the terms of the trust which was subject to the proviso that
“no such alteration or amendments shall deprive the Beneficiaries or any of them of their respective beneficial ownership interest of the Trust Assets without the written consent of the Beneficiaries affected thereby.” (emphasis added)
(3) The draft deed envisaged that the beneficiaries could transfer or create security interests over the beneficial interests. Thus clause 8 provided:
“The Beneficiaries shall not transfer, mortgage, pledge, charge or otherwise dispose of their beneficial interests under this Declaration of Trust except with the written consent of the Registered Holder.” (emphasis added)
Clause 13 provided:
“The successors in title and assigns of the Beneficiaries to any right or benefit hereunder shall be bound by the terms and obligations set forth herein.”
(4) The provisions in clauses 3 and 6 simply gave the trustee a discretion “to determine whether and when” to transfer the trust assets or their sale proceeds to the beneficiaries. They did not give the trustee the power to decide how to apportion the trust assets or the income as among the beneficiaries.

74. Far from supporting Zhang Snr’s case, the fact that this draft was created on 28 April 2005 (as, apparently, a third draft) and was still being put forward on 21 October 2005 for signature is, in my view, strong evidence that there was no prior intention to create any discretionary trust. There is no evidence as to when, how or why the idea of setting up a discretionary trust appeared after 21 October 2005 which led to the abandonment of the Paul Weiss draft and the eventual adoption of the BVI trust deeds (which were prepared instead by the law firm Maples & Calder).

75. The clear conclusion to which the evidence overwhelmingly points is that there was no specific and express declaration of the BVI trusts or, indeed, any discretionary trust, in April 2005, and I so find.

(b) Retrospective declaration of BVI trusts

76. Mr Lam submitted that by executing the BVI trusts on 28 November 2005, with the trust deeds containing the recital referred to in §72(3) above, the BVI trusts were “retrospectively declared” with effect from 11 April 2005. No authority was cited for the proposition that one can retrospectively alter the history of the legal rights and obligations as existed between the parties in this manner. As a matter of principle I am unable to accept the submission.

77. In addition, for the reasons given below, it seems to me that a different trust, and one that was more favourable to the participating employees than the BVI trusts, had come into being in April 2005. It was not open to the defendants in November 2005 to declare a less favourable trust of the same assets, retrospectively or otherwise.

(2) Whether fixed trusts were set up under Hong Kong law

78. While there is no direct evidence of an express declaration of trust on 11 April 2005 over the 617,669 CSI shares, the plaintiffs are in my opinion correct in submitting that, as a matter of Hong Kong law, a trust can be inferred in appropriate circumstances. There is no dispute that this is a question governed by Hong Kong law.[20] As stated in Snell’s Equity (33^rd ed) at §22–013:

“No particular form of expression is necessary for the creation of a trust if, on the whole, it can be gathered that a trust was intended. … Indeed, the settlor need not even understand that his words or conduct have created a trust if they have this effect on their proper legal construction.”

79. Mr Lam argued that the plaintiffs’ case went beyond Paul v Constance [1977] 1 WLR 527, which was cited in Snell’s as authority for the last sentence in the quotation above. He pointed out that Paul v Constance was a case where the court found there were frequent utterings to the plaintiff by the deceased, referring to the money in a bank account in his name, that “The money is as much yours as mine”. It was held that, although it was not easy to pin‑point a specific moment of declaration, in all the circumstances it was the intention of the deceased and the plaintiff to create a trust in which both of them were interested and the use of those words constituted an express declaration of trust.

80. While there were express utterances in Paul v Constance, a trust may also in my view be inferred from conduct, the transaction and the whole of the circumstances including the relationship between the parties (there being no formal requirement for the creation of a trust over shares in Hong Kong law). The matter is one of intention, and it is the intention collected from an objective approach that is material. What is required is evidence in the nature of an outward manifestation of an intention to create a relationship that the law recognises as one of trust. The unexpressed subjective intentions of the settlor are irrelevant: Twinsectra Ltd v Yardley [2002] 2 AC 164 at §71 per Lord Millett; Bellis v Challinor [2015] EWCA Civ 59 at §58 per Briggs LJ.

81. In this context the following matters are of significance:

(1) Under the ESO Scheme, as concluded in section VI.A above, neither Zhang Snr nor Li YM was the real owner of the 61.7669% interest in Jinan Innovation as a matter of Mainland law. They were only the nominal shareholders (名義股東). The share ownership belonged to each of the participating employees as the “actual contributor” (實際出資人) in respect of the shareholding attributable to his investment.
(2) As evidenced in the 2005 entrustment declaration, they mutually agreed and intended that the share ownership remained with the employees.
(3) As is common ground, CSI was set up and transferred to the 9 Management Shareholders on 11 April 2005 as a vehicle for a restructuring which was intended to be an extension of and to mirror the substance of the ESO Scheme. Liu Xianliang’s evidence also shows that the general understanding was that the same relationship, where shares were held on behalf of the employees, would in substance continue. For the portion beyond their personal entitlement, Zhang Snr’s and Li YM’s acquisition of the shares in CSI was, from the outset, coloured by the entrustment arrangement.
(4) Of the few restructuring documents adduced in evidence, one was a draft memorandum on the offshore re‑organisation as at 17 February 2005, which broadly reflected the shape of the transactions that eventually took place. It referred to the setting up of a Hong Kong company with 1,000,000 shares (obviously CSI) as part of the first step, and the transfer of such shares to members of the management for HK$1 as the second step. It was stated that they would hold shares in this Hong Kong company in accordance with the beneficial ownership of the shares in Jinan Innovation.[21] It was also stated that the interests of the registered and unregistered shareholders in Jinan Innovation would be held by Zhang Snr and Li YM by way of trust.[22] Having regard to the table in §16 above, this in my view demonstrated an intention that 523,668 shares and 94,001 shares would be held by Zhang Snr and Li YM respectively on trust for the participating employees. The third step was to involve a formal declaration of trust by Zhang Snr and Li YM, the timing of which was to be confirmed and would depend on accounting requirements.

82. It seems to me clear that the intention was that from the inception of the holding of the CSI shares, Zhang Snr and Li YM should have the 523,668 shares and 94,001 shares in their custody and administration on behalf and for the benefit of the participating employees — in other words, as their trustees in the ordinary sense: Taylor v Davies [1920] AC 636, 651.

83. It is not open to Zhang Snr to argue that the shares were beneficially held by him and Li YM until a formal, written declaration of trust was made, since (i) it was his pleaded case that the CSI shares were settled on trusts, albeit the BVI trusts; (ii) it was accepted on behalf of Zhang Snr at trial that from the moment the CSI shares were transferred to him and Li YM, they did not hold any beneficial interest in those 617,669 shares; and (iii) any such argument would be contrary to their admission in the BVI trust deed (see §72(3) above) that, since 11 April 2005, the shares had been held by them on trust.

84. Given the evidence of intention, and the admission that the relevant CSI shares had from 11 April 2005 never been held by Zhang Snr or Li YM beneficially, the conclusion seems to me inevitable that the equitable interest was from the outset vested in the participating employees, for (i) it could not “remain in the air” (see Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, 329C); (ii) it could not have remained with MS Cement Ltd as the transferor, which has not been suggested by anyone and would be contrary to the intention of all the parties involved at the time; and (iii) it was not the subject of discretionary trusts for all the participating employees as a class, as concluded above. It follows that an aliquot number of CSI shares, in proportion to his interest under the ESO Scheme, were held on trust for each participating employee. The precise numbers were set out in the schedules attached to the Paul Weiss draft as well as the schedules attached to the letters of wishes that accompanied the BVI trusts.

85. For completeness, I should mention that although only part of the CSI shares transferred to Zhang Snr and Li YM were held on trust for the participating employees and those shares were indistinguishable from the shares beneficially owned by Zhang Snr and Li YM, no argument has been raised that there was want of certainty of subject matter. As stated by Yuen J (as she then was) in Re CA Pacific Finance Ltd [1999] 2 HKLRD 1 at 17G–18F, in the case of shares which are all the same ranking pari passu, it is unnecessary to have segregation of each beneficiary’s shares for there to be sufficient certainty of subject matter, so long as the quantity of shares to which each beneficiary is entitled is known.

C. 5 September 2005 to 28 November 2005

86. This is the period from the Equity Transfer Agreement dated 5 September 2005 whereby the 9 Management Shareholders agreed to sell the shareholding interests in Shandong Shanshui to Pioneer until the date of the BVI trust deeds.

87. On the above analysis, what took place on 9 September 2005 (see §26 above) was simply the injection into CSI of the shares in CSHK, which held Pioneer, which in turn had only 4 days earlier (on 5 September) entered into the Equity Transfer Agreement to acquire the entire shareholding of and in Shandong Shanshui (see §25 above). These transactions in no way altered the beneficial entitlement to the shares of CSI, which had since 11 April 2005 been held in the same proportions as Shandong Shanshui as set out in the table in §16 above, but had the effect of augmenting the value of the trust assets, ie CSI shares.

88. Upon completion of the Equity Transfer Agreement, Shandong Shanshui became wholly owned by Pioneer, and the ESO Scheme came to an end. The price of RMB 162.8 million was paid by Pioneer but it was, as explained above, ploughed back into the group. Value was derived by the beneficial owners in the disposition of Shandong Shanshui not so much from the price as from the increased worth of CSI, which now indirectly held Shandong Shanshui. The overall effect was akin to a share swap (in which Shandong Shanshui shares were given up in return for CSI shares) albeit the CSI shares had been acquired some 5 months earlier.

89. In this way the participating employees’ beneficial interests in Shandong Shanshui under the ESO Scheme were seamlessly transposed to CSI and transformed into proportionate beneficial interests in CSI’s shares.

D. 28 November 2005 to 7 April 2008

90. This is the period from the execution of the BVI trust deeds to the 2008 Confirmation.

91. It follows from the above analysis that insofar as the 617,669 CSI shares held for the participating employees were concerned, what Zhang Snr and Li YM did on 28 November 2005 was to attempt to re‑settle on discretionary trusts assets that were already subject to fixed trusts in favour of the participating employees.[23]

92. At §58 of the decision of mine dated 13 May 2015 on the jurisdictional challenges of Zhang Snr in the first 3 actions herein (“jurisdiction decision”), I stated:

“There is no dispute that under a discretionary trust such as the BVI trusts, individual ‘beneficiaries’ have no proprietary interest in the trust assets or capital, and no right to a definable part of the trust income. They merely have a hope or expectancy that the trustee will exercise his discretion and make a disposition of property in his favour. It is meaningless to speak of a duty to act impartially between the beneficiaries: PLTO v KLK [2013] 2 HKLRD 1089, §40.[24] Indeed, the expert opinion on BVI law adduced by Mr Zhang himself states that under a discretionary trust, no beneficiary or beneficiaries have any entitlement to any trust property. From the point of view of the participating employees, the letters of wishes issued by Mr Zhang and Mr Li, which are expressly stated to be non‑binding and can be revoked or changed at any time, are worth little more than the paper they are written on.”

This passage still seems to me to be a broadly accurate statement of the position.

93. As Ribeiro PJ stated in Kan Lai Kwan v Poon Lok To Otto (2014) 17 HKCFAR 414 at §70, trustees of discretionary trusts are entitled to take account of settlors’ wishes while not being bound by them. The letters of wishes here are therefore of very limited comfort to the plaintiffs. Mr Lam submitted that there is no evidence Zhang Snr intended to depart from the letters of wishes and there is no dispute that the participating employees received dividends for the years 2011, 2012 and 2013 in the proportions set out in the letters of wishes.[25] The problem, however, is that under a discretionary trust they would have no right but have to depend on the trustee’s exercise of discretion. As Ms Eu submitted, the repurchase plan in 2013 illustrated what could happen if the shares were held on discretionary trust.

94. In a submission that sought to highlight the rights of the participating employees under the BVI trusts, Mr Lam said the trustees cannot remove any of the beneficiaries from the list unilaterally. That is true, but under clause 3.2 of the BVI trusts the trustee has the power to transfer any trust property to be held on another trust for the benefit of any one or more of the original beneficiaries, to be held on the terms of the new settlement, freed and released from the terms of the BVI trusts. In effect, therefore, any person can be removed by the trustee from the list of objects by a re-settlement that leaves him out.

95. While it has been said that what the object of a discretionary trust has is an expectancy or a mere spes, this is not intended to suggest that the trustee has no duty whatsoever: see Re Estate of Mui Yim Fong [2010] 4 HKLRD 69 at §§13, 64–67. In In re Munro’s Settlement Trusts [1963] 1 WLR 145 at 148, Wilberforce J approved the following sentence in Snell’s Equity (25^th ed), p 129:

“The beneficiary thus has no more than a hope that the discretion will be exercised in his favour”.[26]

Nevertheless, in Gartside v Inland Revenue Commissioners [1968] AC 553 at 617–618, Lord Wilberforce explained that an object of a discretionary trust:

“… has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity. Certainly that is so, and when it is said that he has a right to have the trustees exercise their discretion ‘fairly’ or ‘reasonably’ or ‘properly’ that indicates clearly enough that some objective consideration (not stated explicitly in declaring the discretionary trust, but latent in it) must be applied by the trustees and that the right is more than a mere spes.”

96. Mr Lam further relied on Lewin on Trusts (19^th ed) §1–061 to submit that:

“A discretionary interest includes a right to be considered for the exercise of the trustees’ discretion; a right to compel the due administration of the trust; a prima facie right to obtain information and accounts from the trustees; and a right to bring a claim for breach of trust, including a right to compel a third party recipient of trust assets to restore them to the trustees. It has been suggested that an object of a discretionary trust may have a legitimate expectation of being consulted before a regular payment is stopped, or at least given the opportunity to persuade the trustees to continue the payments.”

I do not dispute these propositions but in my view there is a world of difference between a right to be considered for the exercise of discretion and equitable ownership under a fixed trust.

97. Mr Lam further submitted that a discretionary interest could be assigned for value. This is suggested in Lewin on Trusts (19^th ed) §1‑062, but the statement is heavily qualified in §§33–010 and 33–011 of the same work. Thus, for instance, it is stated at §33–011(3) that despite the assignment, any exercise of discretionary power by the trustee for the purpose of benefitting the assignee (as opposed to the original beneficiary) would be void as a fraud on the power: see also Ong v Ping [2015] EWHC 1742 (Ch) at §§106–112. This is not surprising because the assignment does not make the assignee an object of the discretionary trust in place of the assignor. Whether in reality a beneficiary can obtain significant value by assigning an expectancy under a discretionary trust must therefore be questionable. Moreover, as Mr Lam had to admit, a beneficiary’s expectancy under the BVI trusts terminates upon his death and does not pass by succession to persons interested in his estate.

98. Mr Lam sought to argue that the rights of the participating employees under the BVI trusts were not all that different from their rights under the ESO Scheme. The simple point, however, which is incontrovertible in my view, is that under the BVI trusts, as full discretionary trusts, the participating employees had no right to a fixed portion of the capital and income and the trustees had the absolute discretion to appoint any part of the capital or income to any beneficiaries in any proportion they see fit. This would have been abhorrent to the participants in the ESO Scheme.

99. In fact, the effect of the BVI trusts was the subject of enquiry from the Stock Exchange of Hong Kong prior to the listing. The Listing Division raised some highly pertinent questions including whether Zhang Snr and Li YM could effectively take over the equity interests and economic benefits of the participating employees and whether the participating employees were fully aware that the equity interests and economic benefits attributable to them were subject to variation by the trustees so that they could be varied to nil at the trustees’ discretion. Although the sponsors’ answers at the time suggested there was some limit on the trustees’ powers in light of their “common law fiduciary duties as trustees”, Mr Lam has not been able to identify any such restriction, especially given that Zhang Snr and Li YM were both themselves members of the class of beneficiaries under the two BVI trusts respectively.

100. In my judgment, in the absence of authority from the participating employees, there was simply no power on the part of Zhang Snr and Li YM, as trustees of the pre‑existing trusts arising under Hong Kong law, to “re‑settle” the CSI shares on the BVI trusts. This purported exercise therefore had no effect, at any rate as between trustees and beneficiaries, so that the CSI shares in question remained in the hands of Zhang Snr and Li YM subject to the original trusts created in April 2005: Bond (Inspector of Taxes) v Pickford [1983] STC 517, 522–3.

101. Zhang Snr relied on the fact that Zhao YK knew of the establishment of the BVI trusts. There is, however, nothing to show that he was acting as agent of the plaintiffs at the time or that he notified the plaintiffs of the fact or that his knowledge should somehow be imputed to them. On the contrary, the evidence shows that as the contact person with CFLO, Zhao YK was acting as representative of the group rather than the participating employees. In addition, as the email of 6 April 2008 referred to in §104(3) below shows, he had not passed on his knowledge of the BVI trusts to the employees. There was hardly any informed consent after full and proper disclosure: Lewin on Trusts (19^th ed), §§20‑105 – 20‑107, 20‑140 & 39‑123.

E. After 7 April 2008

102. This is the period after the date of the 2008 Confirmation. Zhang Snr placed great store on that document. The version that was eventually adopted and presented to the participating employees for signature was as follows (using the version relating to Zhang Snr) (in English translation):

“I, XXX, being an employee participating in the Employees Stock Ownership Scheme, hereby confirm the entrustment of the employee shareholding representatives and related matters as follows:
1. On 15 December 2004, the original employee shareholding representatives of Shandong Shanshui Cement Group Ltd (‘Shanshui Group’), Jinan Shanshui Lixin Investment Management Ltd (‘Shanshui Lixin’) and Jinan Shanshui Jianxin Investment Management Ltd (‘Shanshui Jianxin’) had already transferred the equity rights of the abovementioned three companies, which had been entrusted to them, to the new employee shareholding representatives: Mr Zhang Caikui and Mr Li Yanmin. Mr Zhang Caikui and Mr Li Yanmin, as new employee shareholding representatives, have been entrusted with the relevant shareholders’ rights previously held by the original employee shareholding representatives as registered shareholders of the above three enterprises;
2. I, as an employee participating in the Employees Stock Ownership Scheme of the Shanshui Group, have appointed Mr Zhang Caikui, as a shareholding representative of Shanshui Group, Shanshui Lixin and Shanshui Jianxin, to inject the capital paid by me into Shanshui Group, Shanshui Lixin and Shanshui Jianxin as capital contributed by me to the abovementioned three enterprises. Mr Zhang Caikui as an entrusted registered shareholder of the abovementioned three enterprises is entitled to all rights and interests of a shareholder including, inter alia, substantial policy making, distribution of profit from assets and selection of management personnel and so on. I am entitled to the same financial benefits as the shareholding representatives proportionate to the contribution of capital delivered.
3. The amounts of capital I contributed in the abovementioned three enterprises are respectively:
(1) RMB_______ contributed to Shanshui Group, partaking in dividend distribution on the basis of a contribution of RMB______;
(2) RMB_______ contributed to Shanshui Lixin, partaking in dividend distribution on the basis of a contribution of RMB_______;
(3) RMB_______ to be contributed to Shanshui Jianxin, partaking in dividend distribution on the basis of a contribution of RMB_______;
4. The above entrustment took effect from 15 December 2004 and was valid until the replacement of this entrustment with a new relevant arrangement. Such entrustment was an irrevocable trust arrangement during the above effective period.
5. I understand and agree that the aforesaid entrustment ceased as Shandong Shanshui changed its status to a wholly foreign‑owned enterprise in 2005. Mr Zhang Caikui and Mr Li Yanmin therefore set up a trust scheme overseas to enable me to maintain all the capital contributions owned (by me) in Shandong Shanshui and continue enjoying all the corresponding economic benefits.
6. I understand and agree that Mr Zhang Caikui is responsible for managing all the matters relating to all the capital contributions made by me to Shandong Shanshui. I believe that Mr Zhang Caikui, being the person to whom entrustment is made, will manage and protect my economic interests in a fair, just and selfless manner.”[27]

103. It was contended that, by signing this document, each of the participating employees was to be taken to have ratified the settlement of the relevant CSI shares on the BVI trusts.

104. To assess whether the document did have that effect, it is necessary to have regard to its context and history. It appears that the document was prepared as part of the legal due diligence for the listing of CSCG. The first draft, prepared by CFLO, appeared on 5 March 2008. Thereafter it underwent various amendments until early April. The significant amendments for present purposes are the following which took place shortly before the final version was settled.

(1) As at 31 March 2008, clauses 5 and 6 of the draft confirmation read as follows (in English translation):
“5. … I also understand that since the entrustment in Shanshui Group has been terminated, Mr Zhang Caikui and Mr Li Yanmin set up discretionary trust overseas, and the main purpose of the trust is, when the laws and regulations concerned are complied with, to have the spirit and essence of the trust arrangement in the territory continued, so that I can continue to enjoy the outcome from the operation of Shanshui Group and the relevant economic benefits.
6. I understand and agree that Mr Zhang and Mr Li have full power in the management of my interests in Shanshui Group (including altering in their discretion my distribution of economic benefits in Shanshui Group). I believe that Mr Zhang and Mr Li as trustees of the trust would do their utmost to manage and safeguard my interests in Shanshui Group in a fair, just and selfless manner.”[28] (emphasis added)
(2) On 4 April, these 2 clauses were revised to the following (in English translation):
“5. … I also understand that since the entrustment in Shanshui Group has been terminated, Mr Zhang Caikui and Mr Li Yanmin set up discretionary trust overseas, and the main purpose of the trust is, when the laws and regulations concerned are complied with, to have the spirit and essence of the trust arrangement in the territory continued, so that I can continue to enjoy all the contributed capital owned in Shanshui Group and all the corresponding economic benefits.
6. I understand and agree that Mr Zhang has full power in the management of all my contributions in Shanshui Group. I believe that Mr Zhang Caikui as trustee of the trust would do his utmost to manage and safeguard my interests in Shanshui Group in a fair, just and selfless manner.”[29] (emphasis added)
(3) On 6 April, Zhao YK circulated a further amended draft which was adopted as the final version as set out in §102 above. At the same time, Zhao YK wrote to Tang Boxian, stating (in English translation):
“Lawyer Tang: With a view to having the employees sign smoothly without objection, the entrustment letter has been amended again as the company advised. Please examine and forward it to the agent concerned. …”[30]

105. What strikes one from this history is that all express references to the discretionary nature of the trusts and to the power of the trustees to vary the distributions, which was the hallmark of a discretionary trust, were deleted from the final version. Far from setting out the full position in order to obtain the participating employees’ informed consent, the 2008 Confirmation presented a partial picture in which critical information was suppressed.

106. The reason it was suppressed was, as Zhao YK’s email of 6 April 2008 shows, that the rank and file participating employees would have been surprised by, and would have dissented from, any suggestion that the trusts were discretionary in nature or that the trustees had power to vary the proportion of their entitlements.

107. There was plainly no full informed consent on the part of the participating employees when they signed the 2008 Confirmation. They could not be expected or assumed to have any knowledge of the features of the BVI trusts. Even Tang Boxian, trained as a lawyer, admitted that he had no idea of the technicalities of the BVI trusts at the time.

108. Nor was the 2008 Confirmation, objectively construed, a clear ratification of the BVI trusts. There was no mention whatsoever of BVI or discretionary trust. The statement in clause 5 that there was an overseas trust plan to enable the participating employee in question to “maintain all the capital contributions owned [by him] in Shandong Shanshui”[31] was, in my view, equally consistent with there being a Hong Kong trust, and indeed more consistent with a fixed trust than a discretionary trust because an object of a discretionary trust can hardly be said to “own” any part of the capital or income.

109. Mr Lam relied on Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 at §84 to submit that the 2008 Confirmation was legally binding on the participating employees, there being nothing pleaded or proved to vitiate it. With respect, this missed the point. The issue is not whether the participating employees could repudiate the document, but what effect it has on its proper construction and in particular whether it is an effective ratification of the BVI trusts. For the reasons already given, I find that it is not.

110. Finally, when the IPO Prospectus was published in June 2008, the only references to “discretionary trust” that Mr Lam could point to in the 500‑page tome were a few sentences under “History and Corporate Structure”, and even there, the Chinese version did not describe the trusts with the phrase “酌情” (discretionary) but instead used the phrase “全權” (fully authorised). Anyhow, there is no evidence that any of the participating employees were asked to or did read the IPO Prospectus in any detail. Nor was there any act thereafter on their part which could unequivocally be taken as ratification of the BVI trusts.

VII. An alternative analysis

111. On behalf of the SH plaintiffs, Mr Westbrook offered an alternative analysis, alluded to in §96 of the jurisdiction decision. Assuming that by September 2005, the CSI shares were already held on trust in terms of the BVI trusts, the result of the dispositions on 5 and 9 September 2005 (see §§25–26 above) was to place the participating employees’ shareholding interest in Shandong Shanshui into a vehicle (namely, Pioneer) in which the employees were only indirectly interested (via CSHK, CSI and the BVI trusts) as objects of a discretionary trust.

112. Such disposition without the consent and approval of the participating employees, according to the argument, was a breach of the duties of the defendants arising from the ESO Scheme under Mainland law. In this regard I prefer the opinion of the plaintiffs’ expert, which accords with logic and common sense, because the BVI trusts purported to turn the hitherto fixed entitlement of the employees into an expectancy for a favour at the absolute discretion of the trustees. The contrary opinion of the defence expert was based on his view that there was no material difference between the rights of the participating employees under the ESO Scheme and their rights under the BVI trusts, which I cannot accept.

113. As explained in the Annotations, the nominal shareholder is not entitled to dispose of the shares without the consent of the actual contributor.[32] Mr Westbrook submitted that, therefore, the Hong Kong court should impose a constructive trust over the relevant CSI shares, which, he argued, represented the traceable substitute of the Shandong Shanshui shares if one regards the overseas restructuring as in substance one coordinated transaction overall: Brazil v Durant [2016] AC 297.

114. The problem with the argument is that, as the Court of Appeal held in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd [2011] 2 HKLRD 45 at §71.6 and Hong Jing Co Ltd v Zhuhai Kwok Yuen Investment Co Ltd [2013] 1 HKLRD 441 at §§72.6–72.8, in this context the plaintiffs have to demonstrate that Mainland law imposed on the defendants an obligation to disgorge the benefit they obtained from the breach of duty. I do not think the plaintiffs have sufficiently discharged this burden. The evidence of Mainland law adduced shows that the actual contributor might be able to recover the shares disposed of without authority,[33] or, if property in the shares had validly passed to the transferee, to recover compensation from the nominal shareholder[34] (see Article 106 of the Property Law), but nowhere does the evidence state that the nominal shareholder could be required to disgorge the benefit obtained (such as the consideration received) as a result of the disposition of the shares in breach of duty. It follows that this alternative argument of the plaintiffs is not established.

VIII. Conclusion and orders

115. In summary, I find that the participating employees in the ESO Scheme were actual contributors and owners of relevant shareholding interests in Shandong Shanshui and that Zhang Snr and Li YM were merely nominal shareholders under Mainland law. When the relevant CSI shares were transferred to Zhang Snr and Li YM on 11 April 2005, they became trustees thereof for the participating employees in the same proportion as their interests under the ESO Scheme. The transfer of Shandong Shanshui shares to Pioneer (held by CSHK) and the transfer of CSHK shares to CSI in September 2005 augmented the value of the trust assets but did not alter the nature or structure of the trusts. By November 2005, Zhang Snr and Li YM lacked power to re‑settle on the BVI trusts CSI shares which were already held on fixed trusts under Hong Kong law in favour of the participating employees, and the BVI trusts were therefore not valid as against them. Zhang Snr has failed to prove any ratification of the BVI trusts by the participating employees with informed consent, whether by way of the 2008 Confirmation or otherwise.

116. For these reasons, there will be:

(1) a declaration that Zhang Snr held 456,325 shares of and in CSI on trust for the plaintiffs individually in the proportion set out in the schedules to the statements of claim;
(2) an order that the Receivers (and Zhang Snr to any extent necessary) do take steps forthwith to transfer the 456,325 shares in CSI currently registered in the Receivers’ name to the plaintiffs or to persons nominated by them;[35]
(3) liberty to apply for the purpose of carrying out the orders.

117. Since the Receivers were appointed until the final determination of the consolidated actions, their appointment should now cease.

118. There will be an order nisi that the plaintiffs do have the costs of the action and of the strike out application referred to in §§44–46 above, limited however to one set of costs, with a certificate for two counsel.

	(Godfrey Lam)
	Judge of the Court of First Instance
	High Court

Ms Audrey Eu SC and Mr Law Man Chung, instructed by K & L Gates, for the Plaintiffs in HCA 1661, 1766, 2191/2014 & 623, 939, 1564/2015 (Consolidated)

Mr Simon Westbrook SC, Mr Alexander Tang and Mr Kevin Lau, instructed by Stephenson Harwood, for the Plaintiffs in HCA 1282/2017

Mr Paul Lam SC and Mr Jean‑Paul Wou, instructed by Deacons, for the 1^st Defendant

The 2^nd Defendant was not represented and did not appear

[1] “兹委託個人股東理事會 XXX 同志，代理行使股東權力，但投資收益和風險歸委託人所有。”

[2] “Chuangxin” (創新) means innovation in Chinese. The company was later renamed Shandong Shanshui; see §19 below.

[3] The last paragraph read in Chinese: “以上股權的所有權歸本人所有，對以上股權的管理，本人自願委託張才奎代為辦理。”

[4] The company was named China Pioneer Cement Group Company Limited (中國先鋒水泥集團有限公司) upon incorporation, but the name was changed on 16 February 2005.

[5] See my Decision dated 14 July 2017 giving directions for the resolution of that dispute.

[6] 5 + 1,073 + 6 + 935

[7] 2,631 – 2,019

[8] “同時，也使職工變為既是勞動者又是資產所有者”

[9] “股東以出資額所佔比例，享有權利和承擔義務。”

[10] “個人持股以股東理事會的方式體現，委託理事會代理行使股東權利，股利分紅歸個人所有。”

[11] “股權可以在公司內部股東之間相互轉讓，不得向公司以外人員轉讓。… 個人股東的股權，可依據《繼承法》向繼承人轉讓”

[12] “第二十四條 有限責任公司的實際出資人與名義出資人訂立合同，約定由實際出資人出資並享有投資權益，以名義出資人為名義股東，實際出資人與名義股東對該合同效力發生爭議的，如無合同法第五十二條規定的情形，人民法院應當認定該合同有效。

前款規定的實際出資人與名義股東因投資權益的歸屬發生爭議，實際出資人以其實際履行了出資義務為由向名義股東主張權利的，人民法院應予支持。名義股東以公司股東名冊記載、公司登記機關登記為由否認實際出資人權利的，人民法院不予支持。

實際出資人未經公司其他股東半數以上同意，請求公司變更股東、簽發出資證明書、記載於股東名冊、記載於公司章程並辦理公司登記機關登記的，人民法院不予支持。

第二十五條 名義股東將登記於其名下的股權轉讓、質押或者以其他方式處分，實際出資人以其對於股權享有實際權利為由，請求認定處分股權行為無效的，人民法院可以參照物權法第一百零六條的規定處理。

名義股東處分股權造成實際出資人損失，實際出資人請求名義股東承擔賠償責任的，人民法院應予支持。”

[13] Article 71 of the Company Law.

[14] “另外的一點，我們還要為咱們職工謀福利，從無產者變為有產者，成為企業真正的主人。2001年，我們組建了創新投資管理有限公司，集團在崗職工都參與了投資。… 運作兩年之後，去年大家也拿到了第一筆紅利，並對此充滿信心，紛紛繼續增資擴股。”

[15] “因為，改制後的山水，幾乎所有的職工都是其中的股東，企業與個人已經緊密地聯繫在了一起。”

[16] “我們的註冊資金來源就是濟南創新投資管理有限公司2003年度的分紅，也就是說，我們幾乎全部職工都是作為收購主體的兩家公司的股東，是改制後山水集團資產的間接持有者，實現從無產者到有產者的轉變。”

[17] “名義股東雖與實際出資人約定由其行使股權，但是由於該股權之取得乃實際出資人出資所致，股權最終歸屬於實際出資人，名義股東可以行使股東權利，但並不能擅自處分該股權，股權的處分必須得到實際出資人同意。當實際出資人沒有授權名義股東處分股權時，名義股東對該部份股權不享有處分權，其所為之處分行為為無權處分。”

[18] It is unnecessary to deal with the question (which was not argued before me) as to whether and to what extent Shephard v Cartwright [1955] AC 431 should still be applied in Hong Kong: see Leung Wing Yi Asther v Kwok Yu Wah (2015) 18 HKCFAR 605, §§55‑56; Law Pak Fun & Law Raymond Pak Ying v Tai Lee Fat International Ltd [2015] 4 HKLRD 339, §§32‑41, per Ng J; Nanyang Commercial Bank Ltd v Personal Representative of Vannee Nativivat, deceased [2013] 2 HKLRD 749, §§48‑51, per To J; contrast Overseas Trust Bank v Lee See Ching Jong [1999] 3 HKC 197.

[19] Page 85 of the IPO Prospectus.

[20] Paras 76–103 of the jurisdiction decision.

[21] “各位主要管理層成員與投資者公司訂立的買賣協議，他們將會按照本身在創新投資的實益權益的比例，持有礦石管理層香港公司的股權”

[22] “山水集團和創新投資目前所有其他登記和非登記股東的權益，將由主要管理層成員中的張總及李總以信託方式持有”

[23] There is no dispute that Zhang Snr and Li YM were entitled to settle on the BVI trusts the 131,851 shares and 67,901 shares held by them beneficially.

[24] The decision of the Court of Appeal was reversed on appeal without affecting the principles stated in relation to discretionary trusts: see Kan Lai Kwan v Poon Lok To Otto (2014) 17 HKCFAR 414.

[25] No dividends were declared by CSI for the years 2008, 2009 and 2010.

[26] which still remains in the current, 33^rd edition, at §22–005; see also ASIC v Carey (2006) 153 FCR 509, §36.

[27] “本人 XXX 作為參與山水集團員工持股計劃職工，現就委託職工持股代表及相關事宜確認如下：

1. 2004年12月15日，山東山水水泥集團有限公司（下稱“山水集團”）、濟南山水立新投資管理有限公司（下稱“山水立新”）及濟南山水建新投資管理有限公司（下稱“山水建新”）原職工持股代表已將其受託持有的上述三家企業的股權分別轉讓給了新的職工持股代表張才奎先生及李延民先生，張才奎先生及李延民先生作為新的職工持股代表已受託持有了原職工持股代表作為上述三家企業登記股東所擁有的相關股東權利；

2. 本人作為參與山水集團員工持股計劃職工，委託了張才奎先生作為山水集團、山水立新及山水建新的持股代表將本人支付的資金作為本人對上述三家企業的出資投入山水集團、山水立新及山水建新，張才奎先生作為上述三家企業的受託登記股東對企業享有包括重大決策、資產收益分配和選擇管理者等在內的全部股東權利及權益，而本人根據交付的出資額所占的比例享有與持股代表相同的經濟利益。

3. 本人在上述三家企業的出資額分別為：

(1) 於山水集團出資人民幣__________元，該等出資按__________元參與分紅； (2) 於山水立新出資人民幣__________元，該等出資按__________元參與分紅； (3) 於山水建新出資人民幣__________元，該等出資按__________元參與分紅。

4. 上述委託事項自2004年12月15日起生效，有效期至新的相關安排取代本委託事宜時終止，該等委託事項在上述有效期間是不可撤銷的委託安排。

5．本人明白並同意：上述委託事項因山水集團於2005年變為外商獨資企業時终止；張才奎先生及李延民先生因此於海外建立信託計劃，使本人可繼續享有在山水集團所擁有的全部出資及對應的全部經濟利益。

6．本人明白並同意：由張才奎先生全權管理本人在山水集團的全部出資，本人相信張才奎先生作為託管人會公平、公正及無私地管理和維護本人的經濟利益。”

[28] “5. … 本人亦明白由於山水集團委託事項已被終止，張才奎先生及李延民先生因此於海外成立酌情信託，信託的主要目的是在合乎有關法律法規的情況下延續境內委託安排的精神及本質，令本人可繼續享有山水集團的經營成果及相關經濟利益。

6. 本人明白及同意張先生及李先生有全權管理本人於山水集團的利益（包括可對本人於山水集團的經濟利益分配作出酌情更改），本人相信張先生及李先生作為信託的託管人會竭盡所能並公平、公正及無私地管理及維護本人於山水集團的利益。”

[29] “5. … 本人亦明白由於山水集團委託事項已被終止，張才奎先生及李延民先生因此於海外成立酌情信託，信託的主要目的是在合乎有關法律法規的情況下延續境內委託安排的精神及本質，令本人可繼續享有於山水集團所擁有的全部出資及對應的全部經濟利益。

6. 本人明白及同意張先生有全權管理本人於山水集團的全部出資，本人相信張才奎先生作為信託的託管人會竭盡所能並公平、公正及無私地管理及維護本人於山水集團的利益。”

[30] “唐律師：為使職工順利簽署，沒有異議，根據公司意見將委託函又作修改，請審閱並轉發有關中介。…”

[31] “可繼續享有在山水集團所擁有的全部出資”

[32] “不能擅自處分該股權，股權的處分必須得到實際出資人同意。”

[33] “無處分權人將不動產或者動產轉讓給受讓人的，所有權人有權追回”

[34] “受讓人依照前款規定取得不動產或者動產的所有權的，原所有權人有權向無處分權人請求賠償損失。”

[35] The articles of CSI limit the number of members to 50.

LI MING AND OTHERS v. ZHANG CAIKUI AND ANOTHER

Related cases with same parties

Files (8)

Name		Shareholding interests (in Rmb) out of the registered capital of Rmb 105,287,161	Equivalent Percentage of shareholding interests	Remarks
1	Zhang Snr	69,017,760	65.5519%	52.3668% held for 2,548 participating employees
1	Zhang Snr	69,017,760	65.5519%	13.1851% held for Zhang Snr himself
2	Li YM	17,046,170	16.1902%	9.4001% held for 1,390 participating employees
2	Li YM	17,046,170	16.1902%	6.7901% held for Li YM himself
3	Yu Yuchuan (于玉川)	4,584,384	4.3542%	beneficially held for himself
4	Dong Chengtian (董承田)	4,397,266	4.1765%	beneficially held for himself
5	Zhao Liping (趙利平)	3,209,068	3.0479%	beneficially held for himself
6	Zhao Yongkui (趙永)	2,921,023	2.7743%	beneficially held for himself
7	Mi Jingtian (宓敬田)	1,645,349	1.5627%	beneficially held for himself
8	Li Maohuan (李茂桓)	1,606,686	1.5260%	beneficially held for himself
9	Wang Yongping (王永平)	859,455	0.8163%	beneficially held for himself
Total		105,287,161	100%