Beijing Hantong Yuzhi Convention Centre Lid v. Lao Yuan Yi

CACV 163/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 163 OF 2014

(ON APPEAL FROM HCA NO. 1208 OF 2010)

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JUDGMENT
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Hon Cheung JA :

I. The appeal

1.This is an appeal against the judgment of ToJ who decided against the defendant in a trial of a preliminary issue, namely, whether the plaintiff has the locus standi to sue in this action.

II. The parties

2.1I will respectfully adopt the Judge’s summary of the relevant parties in this case.

2.2China Venture Tech Investment Corp (中國新技術創業投資公司) (‘VTI China’) is a state-owned financial enterprise established in 1986 by and accountable to the Ministry of Science and Technology and Ministry of Finance of the People’s Republic of China (‘the PRC’). With the consent of the State Council (國務院), the People’s Bank of China (‘People’s Bank’) passed a resolution to have it closed down on 22 June 1998 because of mismanagement and breaches of rules and regulations.

2.3China Venture Tech International Investment Corporation Shanghai (上海中創國際投資公司) (‘VTIShanghai’) is a wholly owned subsidiary of VTIChina set up on 18 March 1993. It is a state-owned non-financial enterprise.

2.4The defendant, Lao Yuan Yi (勞元一) was a vice president of VTI China. He was appointed the officer-in-charge and legal representative (法定代表人) of VTIShanghai in April 1993.

2.5China Huarong Asset Management Corporation (中國華融資產管理公司) (‘Huarong’) is one of four specialist asset management corporations set up by the State Council under article 2 of Regulation on Financial Asset Management Corporations (‘RFAMC’) (《金融資產管理公司條例》). The principal function of these asset management corporations is to acquire and manage non-performing loans (不良貸款) advanced by state-owned banks and assets created by such loans, including wholly state-owned non-banking financial institutions, for the purpose of their eventual disposal.

2.6Praiseup Limited (幹喜有限公司) (‘Praiseup’) is a company incorporated in Hong Kong by Chau Ngai Ming (‘Chau’). The defendant and Chau are its only two directors and shareholders, each holding one share in the company. Praiseup entered into an agreement to purchase the whole of the thirteenth floor of a commercial building in Shanghai known as Guanglu Huangpu Centre (港陸黃埔中心) (the ‘Guanglu Centre property’).

2.7The plaintiff, Beijing Hantong Yuzhi Convention Centre Limited (北京瀚通譽智會議中心有限責任公司) is a company incorporated in the PRC.

III. Background of the case

3.1Likewise, I would adopt the summary of the background of the case by the Judge.

3.1In 1995, VTI China decided to invest in the property market in Shanghai through its subsidiary, VTIShanghai. VTI Shanghai used Praiseup, a company incorporated in Hong Kong, as a joint investment vehicle to invest in properties in Shanghai which could only be sold to overseas investors. The defendant was appointed as a director of Praiseup on 19 April 1994 and holds one of its two issued shares. The share was formally transferred to him on 9 December 1994.

3.1Between September 1994 and July 1995, VTI China remitted $3,234,375.91 (‘the remittance’) to VTI Shanghai which was used to pay Chau, representing 50% of the down payment already made by Praiseup for the purchase of the Guanglu Centre property.

3.4On 2 January 1996, the defendant and Chau signed a shareholding confirmation agreement confirming, inter alia, that each was holding one share of Praiseup on behalf of VTIShanghai.

3.5On 21 June 1998, the People’s Bank issued a determination to close down VTI China with effect from 22 June 1998, pursuant to articles 30 and 31 of Law of the People’s Republic of China on the People’s Bank of China　(《中華人民共和國中國人民銀行法》); article 192 of Company Law of the People’s Republic of China (《中華人民共和國公司法》) (‘Company Law’) and Provisions on the Management of Financial Institutions (《金融機構管理規定》) issued by the People’s Bank. The People’s Bank ordered, inter alia, VTI China’s wholly owned subsidiary enterprises to continue their business but VTIChina’s investments (投資) in and loans (貸款) to those subsidiaries shall be disposed of by the winding up committee (the ‘Windingup Committee’). On or about 26 October 1999, the Windingup Committee took over all management of VTIShanghai. Since that date, the defendant ceased to have any function in VTIShanghai, though he remained in name as its legal representative.

3.6On 6 September 2001, the defendant, in his capacity as director of Praiseup, signed an agreement allegedly entered into between VTI Shanghai and VTI China to the effect that the remittance has been set off by VTI Shanghai transferring its 18.53% shareholding in Praiseup to VTI China. But this agreement was not signed by anyone for and on behalf of VTIChina or VTI Shanghai.

3.7On or about 1 January 2002, the Windingup Committee delegated the furtherance of the winding up of VTIChina to Huarong. On 30 July 2003, it signed a management agreement with Huarong authorising Huarong to manage and dispose of assets of VTI China. By the end of 2005, some residual assets of VTI China remained undisposed of. On 28 February 2006, the Windingup Committee entered into an agreement to sell the residual assets as a package to Huarong for RMB5,020 million (the ‘Huarong Agreement’). The residual assets as stated in the schedule to that agreement included VTI China’s investments in VTIShanghai of RMB24,854,936.55 and receivables of RMB1,000,000.

3.8On 23 October 2007, Huarong entered into an agreement to sell the residual assets of VTI China situated in Jiangsu and Shanghai to the plaintiff (the ‘Hantong Agreement’). The residual assets as stated in the schedule to that agreement also included VTI China’s investments in VTIShanghai of RMB 24,854,936.55 and receivables of RMB1,000,000. As shown in the balance sheet of VTIShanghai, the investments represent VTI China’s amount of contribution to equities (according to the defendant’s expert’s terminology) or VTIChina’s shareholding in VTIShanghai.

3.9By a letter dated 15 September 2009, the plaintiff’s then solicitors demanded the defendant to transfer his one share in Praiseup to the plaintiff and to provide copies of financial accounts of Praiseup since 1April 2007. The defendant did not respond.

3.10On 3 October 2009, the Pudong District Branch of Shanghai Industry & Commerce Administrative Management Bureau (上海市工商行政管理局浦東分局) (the ‘Bureau’) suspended (吊銷) the business licence of VTIShanghai. However, VTI Shanghai’s registration as a legal person was not revoked (未注銷). Its status then became one of a suspended but unrevoked (吊銷未注銷) entity.

3.11On 10 August 2010, the plaintiff commenced these proceedings seeking a declaration that the defendant was holding 50% of the shareholding in Praiseup on trust for the plaintiff. On 14 December 2011, the defendant amended his defence to include a plea that the plaintiff could have no locus standi and no legal bases to claim against him.

3.12On 26 June 2012, the defendant took out a summons seeking to strike out the plaintiff’s statement of claim or alternatively for an order that the issue of the plaintiff’s locus standi be tried as a preliminary issue. On 1 February 2013, AuYeungJ made an order that this issue be tried as a preliminary issue.

3.13To J heard the matter and decided against the defendant.

IV. The position of the parties

1) The plaintiff’s case

4.1The plaintiff claims that it has lawfully acquired the assets of VTI Shanghai from Huarong under the Hantong Agreement on 23 October 2007. Huarong had in turn acquired the VTI Shanghai assets (which was part of VTI China’s investment) when it acquired the assets of VTI China from the Windingup Committee on 28 February 2006 under the Huarong Agreement. The plaintiff claims that the defendant is holding the 50% shareholding in Praiseup on trust for the plaintiff and seeks an order for its transfer to the plaintiff.

2) The defendant’s case

4.2The defendant’s challenge to the plaintiff’s locus standi to sue is on the ground thatthere is no reason why the plaintiff could have become the beneficiary of the trust when according to its case the shareholding in Praiseup is held on trust for VTI Shanghai and not the plaintiff. He further argued that even if the plaintiff has become a shareholder of VTI Shanghai, it has no standing to enforce VTIShanghai’s interest in the trust.

V. Grounds of appeal

5.The determination of whether the plaintiff has the locus standi to sue is based entirely on the PRC law applicable to the Mainland. Both parties have adduced expert evidence on this issue. The two grounds of appeal identified by MrBernard ManSC and MrJames Man for the defendant are:

i) whether the plaintiff has validly become the shareholder of VTI Shanghai; and

ii) even if the plaintiff is a shareholder of VTIShanghai, whether it has the standing to enforce VTIShanghai’s cause of action against the defendant without joining VTI Shanghai.

VI. Is the plaintiff a valid shareholder of VTI Shanghai?

1) Specialised scheme against general scheme

6.1Although MrMan addressed the second issue first in his submissions, I think it is more logical to deal with the first point as to whether the plaintiff has validly become the shareholder of VTI Shanghai. This involves the question of whether there was a valid transfer from VTI China to Huarong and from Huarong to the plaintiff.

1.1) The plaintiff’s experts

6.2It is not disputed that the Windingup Committee has power to dispose of the assets of VTI China. The Judge accepted the evidence of MrSun, the plaintiff’s expert that VTI China’s shareholding in VTI Shanghai was sold by the Windingup Committee to Huarong pursuant to the Regulations on the Cancellation of Financial Institutions (‘RCFI’) (‘《金融機構撤銷條例》’). The RCFI and the RFAMC are subsidiary legislations issued by the State Council. The Ministry of Finance also issued administrative directions to these four asset management corporations on how to regulate their operation in the management and disposal of such state-owned assets. The administrative directions were issued pursuant to the RFAMC. The applicable direction is the ‘Measures for the Administration of the Asset Disposal of Financial Asset Management Corporations (Revision)’ (‘The Direction’) (《金融資產管理公司資產處理管理辦法(修訂)》).

6.3Mr Sun stated that the disposal by Huarong of this type of assets is pursuant to a specialised scheme. Under The Direction the asset management corporations are required to set up their own specialised organs to examine proposals for disposal of such assets. The composition of these specialised organs must be reported to the Ministry of Finance. The Direction also contains detailed instructions as to the evaluation and disposal of such assets which include the sale of such assets as a package which was the manner in which the shareholding in VTI Shanghai was sold to Huarong and thence to the plaintiff.

1.2) The defendant’s expert

6.4Mr Pu, the defendant’s expert was of the view that VTI Shanghai was a state-owned asset held by VTIChina. The relevant laws concerning the disposal of the shares in VTI Shanghai are as follows:

i) The Interim Measures for the Management of the Transfer of State-Owned Property Rights of Enterprises (‘Interim Measures’) (《企業國有產權轉讓管理暫行辦法》) which provide that the transferor has to instruct and approve appraisal agency to evaluate the state-owned property to be disposed of. The estimated value would have to be advertised in the prescribed manner;

ii) The Administrative Measures for State-owned Assets Assessment (‘The Administrative Measures’) (《國有資產評估管理辦法》and Interim Provisions of Shanghai Municipality on the Administration of Assessment Projects of State-owned Assets (‘The Interim Provisions’) (《上海市國有資產評估項目管理暫行規定》) which provide for the need and mechanism of evaluation and approval.

iii) Rules on the Management of Property Right Registration of the State Assets of Financial Enterprises (‘The Management Rules’) (《金融類企業國有資產產權登記管理辦法》) which provide for the need and mechanism of registration and approval.

6.5The non-compliance with the requirements of evaluation or approval would mean that the sale would be void by reason of the provisions of the Detailed Rules for the Implementation of The Administrative Measures for State-owned Assets Assessment (‘The Detailed Rules’) (《國有資產評估管理辦法施行細則》). This is consistent with the view expressed by the Supreme People’s Court (‘SPC’) in Interpretation No. 1 of 2003.

1.3) The Judge’s view

6.6The Judge rejected the defendant’s expert’s view. The Judge held that the legislations of general applications to which the defendant’s expert had referred to did not apply to the transfer because they were overridden by the special scheme relating to asset management corporations. The Judge held that:

‘ 79. The non-compliance with requirements under those general legislations had no effect on the validity and effectiveness of the transfer. In any event, the requirements are administrative requirements only. Non-compliance of those requirements and non-registration with the [Industry and Commerce Administrative Management] Bureau did not prevent the transfer from taking effect. In accordance with the law of the PRC, the interest in the shareholding in VTI Shanghai was vested in Huarong upon execution of the Huarong Agreement on 28 February 2006.’

6.7Likewise, the Judge held that the transfer of the shareholding in VTIShanghai by Huarong to the plaintiff was a disposal under the three special legislations. There is no need for the formalities of asset evaluation, approval or registration of the transfer by the Bureau. He held that this is all the more so because the transfer of the shareholding of VTIShanghai was not with a view to continuing the business as VTIShanghai’s business licence had been suspended by the Bureau on 3October 2009 and its status as an enterprise legal person was destined for revocation.

2) Change of economic nature of VTI Shanghai and the lack of registration

2.1) The defendant’s argument

6.8It is against this background that MrMan developed his specific complaints against the judgment. He referred to Grupo Torras SAv Al Sabah (No.1) [1995] CLC 1025 at 1037 and reminded the Court that questions of foreign law are facts of a peculiar kind, and as such the appellate court would in appropriate cases be more ready to question the trial judge’s conclusions on an issue of foreign law than it is on other questions of fact. This is more so when the Judge below only considered the written opinions of the experts without hearing their oral evidence.

6.9MrMan argued that the plaintiff cannot assert rights as a shareholder of VTI Shanghai because of the lack of registration of the change of its economic nature. MrMan referred to article 17 of the Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations (‘Legal Corporation Administrative Regulations’) (《中華人民共和國企業法人登記管理條例》) issued by the State Administration For Industry & Commerce (中華人民共和國國家工商行政管理總局) which provides that:

「企業法人改變名稱、住所、經營場所、法定代表人、經濟性質、經營範圍、經營方式、注冊資金、經營期限、以及增設或撤銷分支機構，應當申請辦理變更登記。」

(Translation:

‘Enterprise legal person that changes [its] name, place of operation, legal representative, economic structure, scope of operation, mode of operation, registered capital, period of operation, [or] adds or cancels branch organisation, shall apply to make change(s) to the registration.’)

6.10There is no dispute that registration under the Legal Corporation Administrative Regulations has not been done. MrPu stated that the lack of registration does not affect the validity of the contract (such that the contract is still enforceable between the parties interse). But it means that the property in the subject matter of the contract is not transferred. He relied on clause 9 of Interpretation (I) of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China (‘Judicial Interpretation 19/1999’) (《最高人民法院關于適用《中華人民共和國合同法》若干問題的解釋(一)》) which provides that:

「依照合同法第四十四條第二款的規定，法律、行政法規規定合同應當辦理批准手續，或者辦理批准、登記等手續才生效，在一審法庭辯論終結前當事人仍未辦理批准手續的，或者仍未辦理批准、登記等手續的，人民法院應當認定該合同未生效；法律、行政法規規定合同應當辦理登記手續，但未規定登記後生效的，當事人未辦理登記手續不影響合同的效力，合同標的物所有權及其他物權不能轉移。」

(Translation:

‘Under paragraph 2 of Article 44 of Contract Law, [where] the laws, administrative regulations provide that [a] contract shall undergo approval procedure, or undergo approval, [and] registration procedures for [it] to take effect, [if] before the conclusion of argument in the first instance court the party has not undergone approval procedure, or has not undergone approval, [and] registration procedures, the People’s Court shall rule the contract has yet to take effect; [where] the laws, administrative regulations provide that [a] contract shall undergo registration procedure, but does not provide for [it] to take effect after registration, the party’s failure to undergo registration procedure does not affect the validity of the contract, [but] the ownership and other property rights of the subject matter of the contract cannot be transferred.’)

2.2) The Judge’s view

6.11This argument had been dealt with by the Judge:

‘ 36. There is no dispute that the transfer of the shareholding in VTI Shanghai to Huarong and thence to the Plaintiff have not been registered with VTI Shanghai or the Bureau. As at the date of the experts’ joint statement in 2013, VTI China was on record the sole owner of the shareholding in VTI Shanghai. In gist, Mr Pu’s opinion is that the Huarong Agreement is required to be registered under article 17 of《Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations》; and as it was not so registered, according to 《Judicial Interpretation 19/1999》 the shareholding in VTI Shanghai did not pass to Huarong. The same applies to the transfer of the shareholding under the Hantong Agreement.

37. As was rightly pointed out by Mr Sun, article 17 does not require registration of transfer of ownership in shareholding in a state-owned enterprise. It only requires registration of changes in modes of operation and share capital. Mr Pu’s argument was obviously not supported by the plain language of article 17. As his argument was premised on his misinterpretation　of　《Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations》, that argument must fail.

38. Mr Sun further demonstrated the fallacy of MrPu’s argument by referring to an opinion of the Shanghai Higher People’s Court, 《Opinions (I) of the Higher People’s Court of Shanghai Municipality on Some Issues Concerning Litigation Involving Companies》(《上海市高級人民法院關于審理涉及公司訴訟案件若干問題的處理意見(一)》) (‘《Judicial Opinion 216/2003》’) and an article, 《Comprehension and Application of the Interpretation (III) of the Supreme People’s Court on Company Law and the Summary of Minutes of the Symposium on Liquidation》(《最高人民法院關于公司法解釋(三) 、清算紀要理解和適用》) written by Vice President Xi Xiaoming (奚曉明) of the Supreme People’s Court (the ‘Article’).

39. In《Judicial Opinion 216/2003》, the Shanghai Higher People’s Court opined that the formation and effect of a share transfer agreement are governed by《Contract Law》; that the purpose and effect of registration by the Bureau are to give public notice of change of shareholding for the protection of innocent third parties; and that registration is not a condition for formation and the entering into effect of a share transfer agreement. This opinion was applied by the Shanghai Intermediate People’s Court in a judgment in 2003. In that case, the court held that whether a litigant has obtained shares and become a shareholder is dependent on the intention of the parties to the transaction. Those issues do not fall within the ambit of the Bureau. Registration by the Bureau is not a condition imposed by law in order that one may become a shareholder. It is only a procedure for giving public notice of ownership of the shareholding and serves as a means of proof of ownership. That was how the Intermediate People’s Court construed and applied the Judicial Opinion issued by the Shanghai Higher People’s Court.

40. In the Article, the Vice President was construing clauses 24 and 25 of《Interpretation (III) of the Supreme People’s Court on Company Law》(《最高人民法院關于適用《中華人民共和國公司法》若干問題的規定(三)》) (‘《Judicial Interpretation 3/2011》’). Clauses 24 and 25 of that Judicial Interpretation read as follows:

「24. 當事人依法履行出資義務或者依法繼受取得股權後，公司未根據公司法第三十二條、第三十三條的規定簽發出資證明書、記載於股東明冊並辦理公司登記機關登記，當事人請求公司履行上述義務的，人民法院應予支持。

25. 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效有效。」

Clause 24 provides that if a party has fulfilled his obligation to contribute to share capital or has succeeded shareholding right in accordance with the law, but the company does not issue the certificate of contribution or process his registration with the appropriate registration authorities in accordance with articles 32 and 33 of the《Company Law》, the People’s court should support the party’s application requiring the company to perform the above obligations. Clause 25 provides that the People’s Court shall give effect to the agreement between the actual contributor providing the capital contribution of a limited liability company and the nominee contributor in whose name the contribution was paid, if the agreement is not contrary to article 52 of《Contract Law》.

41. The Vice President opined that share transfer is a mode of share succession and takes effect upon the parties reaching agreement on the transfer. Once agreement is reached, the transferee becomes the beneficial owner of the share. He further said that registration by the Bureau is declaratory only. Its effect is to give notice to the public of the shareholder’s right. That effect is directed at non-parties for the purpose of protecting innocent third parties. Registration does not create or confer any right in respect of the shares; and non-registration does not affect therights of the shareholder.

42. Mr Man rightly pointed out that《Judicial Interpretation 3/2011》is about interpretation of certain provisions of the《Company Law》which applies to corporate legal persons and not to enterprise legal persons created by other legislations before the promulgation of《Company Law》. However, the incidents of corporate identity under the two concepts are essentially similar. The rationale applicable to corporate legal persons are equally applicable to enterprise legal persons. Not only did the Defendant’s PRC law expert, Mr Pu, not argue otherwise, he actually applied the principles applicable to corporate legal persons to enterprise legal persons in his opinion. In the joint expert statement, he said in practice, the meaning of the terms, shareholder and equities, in a corporation is the same as that of the terms, contributor and amount of contribution to equities, in an enterprise legal person. He used these terms interchangeably in the joint expert statement.

43. Lastly, on this issue, Mr Sun repeated his argument that the requirement of registration under article 17 is an administrative requirement and not normative; and non-compliance does not have the effect of rendering the Huarong Agreement or the Hantong Agreement void.

44. I accept Mr Sun’s argument that Mr Pu was plainly wrong. Mr Pu’s argument is premised on his mis-interpretation of article 17 of《Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations》and is inconsistent with the spirit of 《Judicial Opinion 216/2003》and《Judicial Interpretation 3/2011》. I find that under PRC law share transfer takes effect upon conclusion of the share transfer agreement by the parties and not upon registration in the share register of the company or the Bureau. The purpose of registration is to give notice to the public of the shareholder’s right. Registration does not create or confer any rights; and non-registration does not affect the rights of the shareholder. At least, as between the parties to the transfer, the transfer is valid and binding for all intents and purposes. The same must also apply to a contributor and the amount of equity contribution in an enterprise legal person. Non-registration of the transfer with the Bureau did not have the effect of preventing VTI China’s shareholding in VTIShanghai from passing to Huarong and thence to the Plaintiff. ’

2.3) My view on change of economic nature

6.12Although the Judge did not in these paragraphs expressly refer to the ‘change of economic nature’, clearly this aspect is part of the discussion under article17 of the Legal Corporation Administrative Regulations which ‘does not require registration of transfer of ownership in shareholding’ (see paragraph37 of the Judgment). To argue that the Judge had not specifically dealt with this point would be too restrictive a reading of his judgment.

6.13MrMan then argued that the Shanghai Judicial Opinion 216/2003 and the article written by the Vice-president were concerned with the requirements for registration with the Bureau under the Company Law but it is common ground that the Company Law does not apply to an enterprise legal person (企業法人) such as VTI Shanghai. There was no explanation by the plaintiff’s expert as to why the same consideration should apply to these two different types of entities. In my view this point has been covered by the Judge in paragraph42 of his judgment which I have quoted.

6.14Mr Man further argued that in respect of the Shanghai Judicial Opinion 216/2003, the issue there was the failure to register with the Bureau the change of ownership of shareholding/equity contribution, which was not a requirement under article17. It certainly does not concern a change of economic nature from state-owned to private-owned. Hence, the Shanghai Judgment cannot stand for the proposition that the lack of registration with the Bureau of a change of economic nature of an enterprise legal person does not affect the transfer of the property in the shares of that enterprise legal person.

6.15In my view this point has been covered by the Judge in paragraphs 43 and 44 of his judgment. This point in fact was first dealt with by the Judge in paragraph31 of his judgment:

‘ 31. The alternative limb of Mr Sun’s argument is that such non-compliance with registration requirement did not affect the validity of the transfer. He quoted《Interpretation II of the Supreme People’s Court of Several Issues concerning the Application of the Contract Law of the People’s Republic of China》(《關于適用《中華人民共和國合同法》若干問題的解釋(二)》) (“《Judicial Interpretation 5/2009》”). Judicial interpretations of the Supreme People’s Court are made under the authority of the Standing Committee of the National People’s Congress. They are authoritative statements on interpretation of law. In article 14 of this Judicial Interpretation, the Supreme People’s Court referred to the mandatory requirement (強制性規定) under article 52(5) of the《Contract Law》and explained that there are two categories of mandatory requirements: normative (效力性規範); and administrative (管理性規範). Normative requirements are those in which the legislation laying down the requirements expressly stipulates that non-compliance has the effect of rendering the contract null and void. Absence such stipulations in the legislation, the requirements are administrative only. The purpose of such administrative requirements is regulatory and punitive, ie to punish parties entering into contract in breach of the law, but not prohibitive. Non-compliance does not annul the contract or affect its validity. Mr Sun submitted that the mandatory requirements quoted by Mr Pu are typical examples of administrative requirements, non-compliance of which did not have the effect of rendering the Huarong Agreement void. Mr Pu did not dispute that Judicial Interpretation is inapplicable to the Huarong Agreement, or the distinction between the two categories of mandatory requirements, or identify any provision in the legislations he relied on which stipulates that non-compliance would render the contract void.’

6.16In paragraph 32 of the judgment the Judge expressly found that:

‘ 32. …..But even if the Huarong Agreement and Hantong Agreement did not comply with the statutory requirements, those requirements are administrative and not normative, the non-compliance of which did not have the effect of rendering the agreements void.’

6.17As pointed out by the plaintiff, there is no challenge in the defendant’s notice of appeal against the Judge’s finding in paragraph 32 of the judgment. In my view the contention of the defendant on this point had been rightly rejected by the Judge.

3) Transfer of state-owned assets

3.1) The defendant’s argument

6.18Mr Man argued that there was no valid transfer of the shares in VTI Shanghai to the plaintiff as the requirements for transferring state-owned assets had not been complied with. He submitted that shares in VTI Shanghai are state-owned assets. This is because VTI China is a state-owned financial enterprise and Huarong is also a state-owned enterprise, hence VTI Shanghai (being wholly owned by VTI China and/or Huarong) was state-owned before the transfer to the plaintiff.

6.19Mr Man argued that the disposal of shares in VTIShanghai must comply with the relevant legislations concerning state-owned assets in terms of evaluation or approval and the non-compliance with the requirements under these legislations would mean that the corresponding sale would be void.

3.2) The Judge’s decision

6.20This is a repetition of the argument raised in the Court below and the Judge had addressed this in paragraph48 of the judgment:

‘ 48. Lastly, Mr Pu argued that as VTI Shanghai is a state-owned non-financial institution, a number of legislations, such as《Interim Measures》and a number of other legislations which are inapplicable to VTI China as a state-owned financial institution are applicable to VTI Shanghai which is not a financial institution. Hereferredtoarticles13and14ofthe 《Interim Measures》, article 3 of 《The Administrative Measures for State-owned Assets Assessment》 [《Administrative Measures》] (《國有資產評估管理辦法》), article 5 of 《Detailed Rules for the Implementation of the Administrative Measures for State-owned Assets Assessment》 [《Detailed Rules》] (《國有資產評估管理辦法施行細則》), and《Interim Provisions of Shanghai Municipality on the Administration of Assessment Projects of State-owned Assets》 [《Interim Provisions》] (《上海市國有資產評估項目管理暫行規定》). In essence, these provisions require state-owned enterprises to conduct proper evaluation of the assets to be disposed of. However, the shareholding in VTI Shanghai, which is the subject matter of the transfer under the Huarong Agreement and Hantong Agreement, is the asset of its holding entity or shareholder, namely VTI China, and not the asset of VTI Shanghai. These provisions do not apply to the transfer of the shareholding in VTI Shanghai by the Committee or by Huarong. Mr Pu also referred to article 8 of《Rules on the Management of Property Right Registration of the State Assets of Financial Enterprises》 [《Rules on Property Right》] (《金融類企業國有資產產權登記管理辦法》)which requires registration of transfer of shareholding in a state-owned financial enterprise. As VTI Shanghai is not a financial institution, this statute does not apply to the transfer under the Huarong Agreement and Hantong Agreement. Furthermore, as analysed above, it is PRC law that such requirements as registration and evaluation of assets are administrative (or at least it has not been shown to be normative), the non-compliance of which do not render the transfer void. The focal point of this locus standi argument is the transfer of VTI China’s shareholding in VTI Shanghai and not the transfer of the assets of VTI Shanghai. Mr Pu wholly missed the issue by arguing on the requirements applicable to transfer of assets of VTI Shanghai.’

3.3) The defendant’s criticism

6.21A number of legislations relied upon by the defendant’s expert were referred to in paragraph48 of the judgment. The first one is the Interim Measures. As the Judge had stated at paragraph22 of the judgment, the parties’ Mainland law experts have reached consensus including that the Interim Measures is inapplicable to VTI China as it is a state-owned financial institution. This is based on the views of the experts in their final joint statement.

6.22MrMan argued that the Judge had misunderstood the position of the defendant’s expert. The defendant’s expert only agreed that the Interim Measures did not apply to the disposition of the shares in VTIChina (because it is a state-owned financial enterprise), not the disposition of the shares in VTI Shanghai (which is a state-owned non-financial enterprise). I do not consider that the Judge had misunderstood the defendant’s expert at all. The concession was clear. Article 2 of the Interim Measures provides that:

「國有資產監督管理機構、持有國有資本的企業（以下統稱轉讓方）將持有的企業國有產權有償轉讓給境內外法人、自然人或者其他組織（以下統稱受讓方）的活動使用本辦法。

金融類企業國有產權轉讓和上市公司的國有股權轉讓，按照國家有關規定執行。」

(Translation:

‘Organization responsible for the supervision and management of state-owned assets, or enterprise which holds state-owned capital (hereafter collectively referred to as transferor) when transferring for value property rights held in state-owned enterprise to legal person, natural person or other organization in or outside the territory (hereafter referred to transferee) [shall] adopt these Measures.

The transfer of state-owned property rights of financial enterprise and the transfer of state-owned shareholding of listed company [shall be] implemented in accordance with the relevant requirement of the country.’)

6.23The provision for transfer of state-owned assets of financial enterprise is stated in the article to be subject to other statutory provisions.

6.24As to the argument whether the Interim Measures (articles 13 and 14), The Administrative Measures, The Detailed Rules, The Interim Provisions and The Management Rules applied to the transfer of the shareholding in VTIShanghai which is not a financial institution, the Judge had rightly pointed out the shareholding in VTIShanghai which is the subject matter of the transfer under the Huarong Agreement and Hantong Agreement, is the assets of its holding entity or shareholder, namely, VTI China, and not the assets of VTIShanghai. These provisions do not apply to the transfer of the shareholding in VTIShanghai by the Windingup Committee or by Huarong. The focal point of the locus standi argument is the transfer of VTI China’s shareholding in VTIShanghai and not the transfer of the assets of VTIShanghai. The Judge was correct that the defendant’s expert had wholly missed the issue by arguing on the requirements applicable to the transfer of assets of VTIShanghai.

6.25Mr Man further argued that whilst the RCFI provides for the constitution, power and duties of the Windingup Committee, it does not mean that it is an exhaustive source of laws and rules for all aspects of the Windingup Committee’s conduct. Articles 19 and 20 of the RCFI make this clear. They provide for the Windingup Committee’s power to value and sellthe assets being liquidated in accordance with the law. This clearly contemplates that the valuation and sale will be governed by other laws, which have to be complied with. He further submitted that there is no indication whatsoever in the specialised legislations that the usual requirements for the disposition of the state-owned assets of a state-owned non-financial enterprise are overridden or displaced, and there is no reason in principle why that should be so. It is wrong to say, because these legislations are administrative regulations and may, according to the plaintiff’s expert, have ‘higher effect’ than the departmental regulation such as the Interim Measures, the latter shall be overridden or displaced. The critical question is whether the relevant departmental regulation was ‘even purported to be displaced’.

6.26The Judge in fact had addressed this issue in detail in the following parts of his judgment:

‘ 28. VTI China’s shareholding in VTI Shanghai was sold to Huarong pursuant to《Regulations on the Cancellation of Financial Institutions》. Huarong, together with three other specialist asset management corporations are state-owned corporations set up by the State Council to acquire non-performing loans granted by state-owned banks and non-performing assets including wholly state-owned non-banking financial institutions acquired by those loans for the purpose of their proper disposal and not for their continued operation. The operation of these asset management corporations are governed by《Regulation on Financial Asset Management Corporations》. Both《Regulations on the Cancellation of Financial Institutions》 and《Regulation on Financial Asset Management Corporations》are subsidiary legislations issued by the State Council. In addition, pursuant to the《Regulation on Financial Asset Management Corporations》, the Ministry of Finance also issued administrative directions to these four asset management corporations on how to regulate their operation in the management and disposal of such state-owned assets. The applicable direction at the material times was the《Measures for the Administration of the Asset Disposal of Financial Asset Management Corporations (Revision) 》 (the “《Directions》”). Clause 4 of the Directions requires the asset management corporations to set up their own specialised organ to examine proposals for disposal of such assets. The organ comprises of personnel from its asset financing, asset management, asset disposal, asset evaluation and legal departments. These asset management corporations shall report the composition of their specialised organs to the Ministry of Finance. The 《Directions》 contain detail instructions as to the evaluation and disposal of such assets. Clause 17 specifically provides for sale of such assets as a package, which was the manner in which the shareholding in VTI Shanghai was sold to Huarong and thence to the Plaintiff.

29. These three pieces of subsidiary legislations together constitute a specialised scheme. This scheme has limited operation. It applies only to non-performing loans advanced by state-owned banks and non-performing assets and state-owned non-banking financial institutions acquired by such loans which are to be sold to the four specialist asset management corporations for their disposal and not for their continued operation. These four specialist asset management corporations have their own organs for evaluating the assets and supervising their disposal. Until their ultimate disposal, the assets remained state-owned assets. The transfer to these asset management corporations and thence to the ultimate buyers are authorised by law. In the circumstances, evaluation of the assets and approval by government department in respect of their transfer to the four asset management corporations and thence to the ultimate buyers would serve no useful purpose.I accept MrSun’s submission that the above quoted subsidiary legislations are special legislations created for a specialised regime applicable to specific circumstances of sale of state-owned assets and they override the legislations of general application relied on by Mr Pu, which are also subsidiary legislations. Mr Pu had not quoted the particular legislations requiring approval or identified the approving department. I can only assume those are subsidiary legislations of general application. As the sale by the Committee of VTIChina’s shareholding in VTI Shanghai to Huarong and thence to the Plaintiff were made pursuant to these special legislations, separate evaluation or approval from government department are not required. Furthermore, as both experts agreed that the《Interim Measures》, do not apply to VTI China which was a financial institution, all the requirements of evaluation, including the evaluation of its shareholding in VTI Shanghai, and approval for the sale under that subsidiary legislation are inapplicable.

30. Mr Pu argued that if transfer of non-financial state-owned assets required evaluation and approval, common sense would dictate such requirements in respect of transfer of assets of state-owned financial enterprises which the state views with more jealousy. I respectfully differ. These requirements are statutory. If they are not written in the legislation, they are not applicable. They are not requirements to be imposed by common sense. Besides, the Huarong Agreement was made pursuant to the above special legislations.’ (emphasis added)

6.27As the Judge had rightly pointed out, as the four specialist asset management corporations (which include Huarong) have their own organs for evaluating the assets and supervising their disposal until their ultimate disposal, the assets remain state-owned assets, and the transfer to these asset management corporations and hence to the ultimate buyers are authorised by law. In the circumstances, evaluation of the assets and approval by government department(s) in respect of their transfer to the four asset management corporations and hence to the ultimate buyers would serve no useful purpose. Furthermore the plaintiff’s experts have provided an authority for his view that the administrative regulations override the departmental regulations by reference to article 79 of the People’s Republic of China Legislative Law. More importantly, the Judge accepted the evidence of the plaintiff’s expert that the non-compliance of this general legislation did not affect the validity of the transfer. The Judge found that the defendant’s expert had not disputed the authorities relied upon by the plaintiff’s expert namely, Judicial Interpretation 5/2009 or the distinction between the two categories of mandatory requirement. I have already referred to paragraph31 of the judgment below which deals with this point.

6.28In respect of the last sentence of paragraph 31 of the judgment below, MrMan submitted that the Judge erred in saying that the defendant’s expert did not refer to any provision to the effect that non-compliance with the requirements for the dispositions of state assets was normative and would render the transfer void. He submitted that the Judge had overlooked the defendant’s expert’s reference to article10 of The Detailed Rules and article17 of the Supreme People’s Court Judicial Interpretation No. 1 of 2003.

6.29In my view, even if the Judge had overlooked these two provisions, he was plainly right in his conclusion that these regulations have no application to the present disposition of the assets. In any event, the application of article 17 will depend on whether the contract in question requires the necessary approval or not.

VII. Plaintiff has no standing to sue even if it had validly acquired VTIShanghai?

1) The issue

7.1Article33 of the Legal Corporation Administrative Regulations provides that when an enterprise legal corporation has its operation licence suspended, its right as a creditor and its debts shall be liquidated by its supervising unit or by a liquidation unit. As the business licence of VTIShanghai had been suspended, its affairs could only be conducted by the body responsible for its liquidation. The issue here is who was the person responsible for the liquidation of VTI Shanghai? Who in turn would have the capacity to sue in the present action?

2) The Shanghai Court Opinion

7.2MrMan relied on an opinion issued by the Higher People’s Court of Shanghai, namely, Opinions of the Higher People’s Court of Shanghai Municipality on Some Issues Concerning the Subject of Action and the Assumption of Liabilities after an Enterprise Legal Person in a Civil Litigation Ceased to be in Operation (‘Shanghai Judicial Opinion 369/2000’) (《上海市高級人民法院關于在民事訴訟中企業法人終止後訴訟主體和責任承擔的若干問題的處理意見》). The opinion relates to who should be the proper party in litigation after the business licence of an enterprise legal person has been suspended. In Part1[一] of article3[三] , the opinion identifies as the proper party in litigation upon the suspension of the business licence of an enterprise legal person as follows, namely,

(i) the liquidation committee（清算組織）set up by law,

(ii) if the liquidation committee has not been set up in accordance with the law, then the Court will treat the ‘person responsible for the liquidation’（清算責任人）as confirmed by the Industry and Commerce Management Bureau as the party in liquidation,

(iii) if the ‘person responsible for liquidation’ has not been confirmed by the Bureau, then in respect of non-company state-owned enterprise legal person, the ‘person responsible for liquidation’ would be the superior unit in charge, as confirmed by the Bureau.

7.3This is what this opinion said of the third situation:

「　 3. 企業為非公司的國有企業法人的，其清算責任人為工商登記確定的上級主管單位。［依據：

[1] 《企業法人登記管理條例》第33條：“企業法人被吊銷《企業法人營業執照》，登記主管機關應當收繳其公章，並將注銷登記情況告知其開戶銀行，其債權債務由主管部門或者清算組織負責清理。”

[2] 國家工商行政管理局工商企字[1999]第173號《關於企業登記管理若干問題的執行意見》第10條規定 “……非公司企業法人被吊銷《企業法人營業執照》的,由主辦單位、投資人或清算組織負責清算。」

7.4MrMan said that situation (iii) applied and that the ‘person responsible for liquidation’ is the superior unit in charge as confirmed by the Industry and Commerce Bureau Registration. The superior unit in charge in this case was VTI China. He relied on the view of the defendant’s expert who claimed that the ‘person responsible for liquidation’ is VTIChina. His evidence is summarised by the Judge:

‘ 65. Mr Pu referred to《Judicial Opinion 369/2000》which was a Judicial Opinion issued by the Shanghai Higher People’s Court for guidance to other courts on 3 July 2000. He relied particularly on Part一clauses (一), (二) and (三)3. The effects of these clauses are that in an action involving an enterprise legal person whose business licence has been suspended, the court should treat the winding up committee; or the person responsible for liquidation as confirmed by the Bureau, if the winding up committee has not been constituted; or the superior responsible unit (上級主管單位), if no such person has been confirmed by the Bureau as the party in a legal action. Hence, Mr Pu argued that according to these clauses, VTI China should be regarded as the party and the Plaintiff has no capacity to participate in this litigation.’

3) The Supreme People’s Court Opinions

7.5The plaintiff’s expert said that the proper person to sue was the shareholder of VTI Shanghai, namely, the plaintiff. He was of the view that VTI China was VTI Shanghai’s superior unit in charge by virtue of its investment in VTI Shanghai, thereby becoming its shareholder. As a result of the transfer of the shares by VTI China, the role of VTI China as the superior unit in charge of VTI Shanghai, was transferred to the plaintiff. The plaintiff’s expert relied on two judicial opinions (referred to as Judicial Reply 23/2000 and 24/2000 respectively in the Court below) issued by the Supreme People’s Court of China. The Judge referred to the evidence of the plaintiff’s expert and the two judicial opinions as follows :

‘ 66. Mr Sun’s short answer to Mr Pu’s argument is that 《Judicial Opinion 369/2000》is inconsistent with 《Judicial Reply 23/2000》and《Judicial Reply 24/2000》which provided that the establishing unit including a shareholder may in that capacity or in the capacity as the person responsible for liquidation participate in litigation of the enterprise legal person. He said that in case of conflict, the Judicial Replies which are Judicial Opinion issued by the Supreme People’s Court must as a matter of precedent override 《Judicial Opinion 369/2000》 issued by the Shanghai Higher People’s Court. That proposition is not disputed by Mr Pu and is supported by《Several Opinions of the Supreme People’s Court on Regulating the Judicial Work Relations between the People’s Courts at Different Levels》(《最高人民法院關于規範上下級人民法院審判業務關系的若干意見》).’

‘ 59. 《Judicial Reply 23/2000》was a reply by the Supreme People’s Court to the Gansu Higher People’s Court issued on 29 January 2000. The Gansu Higher People’s Court sought the opinion of the Supreme People’s Court on a case in which a creditor sued the defendant enterprise. The defendant’s business licence was suspended, but no winding up committee was appointed. The People’s Court refused the creditor’s application to join all the shareholders as defendants and dismissed the action on the ground that the defendant had no capacity to participate in civil legal action (民事訴訟主體資格). The Supreme People’s Court replied as follows:

“甘肅省高級人民法院：

你院〔1999〕甘經终字第193號請示報告收悉。經研究，答覆如下：

吊銷企業法人營業執照，是工商行政管理局對實施違法行為的企業法人給予的一種行政處罰。根據《中華人民共和國民法通則》第四十條、第四十六條和《中華人民共和國企業法人登記管理條例》第三十三條的規定，企業法人營業執照被吊銷後，應當由其開辦單位（包括股東）或者企業組織清算組依法進行清算，停止清算範圍外的活動。清算期間，企業民事訴訟主體資格依然存在。本案中人民法院不應以甘肅新科工貿有限責任公司（以下簡稱新科公司）被吊銷企業法人營業執照，喪失民事訴訟主體資格為由，裁定駁回起訴。本案債務人新科公司在訴訟中被吊銷企業法人營業執照後，至今未組織清算組依法進行清算，因此，債權人蘭州岷山制藥廠以新科公司為被告，後又要求追加該公司全體股東為被告，應當准許，追加該公司的股東為共同被告參加訴訟，承擔清算責任。”

60. In gist, the Supreme People’s Court opined that when thebusiness licence was suspended, the establishing unit of the enterprise(開辦單位), including its shareholders, or the winding up committee shall proceed with liquidation and cease all non-liquidation activities. As no winding up committee has been appointed, the creditor should be allowed to join all the shareholders in the action so that they could discharge the obligation of liquidation. What was in dispute between the experts is whether the underlined part in the above quoted text was in the original text of the Judicial Reply. The opinion contained in the underlined part is that during the course of liquidation, the enterprise’s capacity to participate in civil legal action still exits and that the People’s Court should not have dismissed the action for want of capacity. In my view, without the underlined part, the language of that particular sentence would be fragmented and the meaning it conveys ambiguous. The content in the underlined part that the People’s Court should not have dismissed the action also blends in neatly with the rest of the Judicial Reply. It is most probable that the underlined part was left out due to an inadvertent mis-connection between the lines when re-typing the text from the original document. I accept Mr Pu’s version of the text of the Judicial Reply.

61. Based on that version, I also accept Mr Pu’s opinion that under PRC law an enterprise legal person retains its capacity to participate in civil legal action during the course of its winding up despite its business licence was suspended. It definitely has the right to be sued. However, that Judicial Reply did not state that the right to sue and be sued is vested exclusively in enterprise the legal person. On the contrary, it provided that the establishing unit including the shareholders or the winding up committee shall proceed with liquidation. That must of necessity include calling in assets and enforcing the enterprise legal person’s rights through litigation. To do so, the establishing unit including the shareholders, in default of appointment of the winding up committee must have capacity to sue and be sued in civil legal action. Hence, I accept MrSun’s argument that the establishing unit in its own right or as the person responsible for liquidation, may also participate in the litigation. This proposition is not disputed by MrPu. 《Judicial Reply 23/2000》does not have the effect of limiting the right to sue exclusively to the enterprise legal person during the time between suspension and revocation.

62. 《Judicial Reply 24/2000》was a reply by the Supreme People’s Court to the Liaoning Higher People’s Court issued on the same date as《Judicial Reply 23/2000》. The Supreme People’s Court replied as follows:

“ 遼寧省高級人民法院：

你院《關于企業法人營業執照被吊銷後，其民事訴訟地位如何確定的請示》收悉。經研究，答覆如下：

吊銷企業法人營業執照，是工商行政管理機關依據國家工商行政法規對違法的企業法人作出的一種行政處罰。企業法人被吊銷營業執照後，應當依法進行清算，清算程序結束並辦理工商注銷登記後，該企業法人才歸于消滅。因此，企業法人被吊銷營業執照後至被注銷登記前，該企業法人仍應視為存續，可以自己的名義進行訴訟活動。如果該企業法人組成人員下落不明，無法通知參加訴訟，債權人以被吊銷營業執照企業的開辦單位為被告起訴的，人民法院也應予以准許。該開辦單位對被吊銷營業執照的企業法人，如果不存在投資不足或者轉移資產逃避債務情形的，僅應作為企業清算人參加訴訟，承擔清算責任。你院請示中涉及的問題，可參照上述精神辦理。”　

63. The Supreme People’s Court opined that upon suspension of its business licence, an enterprise legal person should proceed with liquidation and is extinguished when liquidation proceedings were concluded and its registration revoked. It further opined that if the persons constituting the enterprise legal person could not be located or could not be served with notice of the legal action, the People’s Court should allow creditors to sue the establishing unit of the enterprise as defendants. Except where the establishing unit had not contributed the required capital or had transferred assets to evade liability, it shall only participate in the litigation as person responsible for liquidation and be liable as such. Again, the experts were in dispute as to whether the two underlined phrases in the quoted text was in the original text. The opinion contained in those two phrases is that between suspension and revocation, the enterprise legal person is treated as still subsisting and may conduct litigation activities in its own name. Mr Sun argued that the sentence was a commentary by someone. I disagree. Those two phrases flow naturally from the preceding one that the enterprise legal person is only extinguished upon revocation of its registration. I accept Mr Pu’s argument that those two phrases were in the original text.

64. On the basis of that text, I also accept Mr Pu’s opinion that between the time of suspension of business licence and revocation of registration an enterprise legal person continues its existence and may participate in litigation in its own name. Again, the Judicial Reply did not stipulate this principle as an exclusive principle. The use of the words “可以” (“may”) clearly indicates that the principle is non-exclusive. Indeed, the Judicial Reply further provided that if the persons constituting the enterprise legal person could not be located or could not be served with notice of the legal action, the establishing unit of the enterprise may participate in the litigation as defendant. By the same rationale, under similar circumstances it may also participate as plaintiff. I therefore accept Mr Sun’s argument that the establishing unit may in its own right or as the person responsible for liquidation participate in the litigation. As I have mentioned, this proposition is not disputed by Mr Pu. The effect of 《Judicial Reply 23/2000》and《Judicial Reply 24/2000》is the same.’

4) Difference in views in the judicial opinions

7.6There is a difference in view between the Shanghai Judicial Opinion 369/2000 and Judicial Reply 23/2000 and 24/2000 by the Supreme People’s Court in that the Shanghai Court was of the view that during the period of liquidation, an enterprise lost its capacity to litigate whereas the Supreme People’s Court took the contrary view that the enterprise’s capacity to litigate remained. The Judge addressed the difference between the Shanghai Judicial Opinion 369/2000 and two Judicial Replies in paragraph67 of his judgment. He emphasized that for the purpose of the trial before him these opinions are consistent with regard to right of the shareholder or the person responsible for liquidation to sue.

‘ 67. 《Judicial Opinion 369/2000》was issued by the Shanghai Higher People’s Court six months after the issue of the two Judicial Replies by the Supreme People’s Court. That was about ten years before the issue of《Several Opinions of the Supreme People’s Court on Regulating the Judicial Work Relations between the People’s Courts at Different Levels》. Despite that, I doubt if the Shanghai Higher People’s Court would have issued an opinion which was so inconsistent with the views of the Supreme People’s Court expressed just six months ago. I would hesitate to find 《Judicial Opinion 369/2000》as being inconsistent with the Judicial Replies. For the purpose of this hearing, it is not necessary for me to decide on that issue. Insofar as the non-exclusive right of the shareholder or the person responsible for liquidation to sue is concerned, 《Judicial Opinion 369/2000》is consistent with the two Judicial Replies. This is sufficient for my decision.’

5) The Judge’s acceptance of the plaintiff as the proper person to sue

7.7The judge accepted the view of the plaintiff’s expert that the plaintiff is the proper person to litigate:

‘ 68. Returning to Mr Pu’s opinion, I am unable to see why Part一of《Judicial Opinion 369/2000》is applicable. There are nine parts in《Judicial Opinion 369/2000》, each dealing with a particular situation. Part一　is about capacity to participate in litigation after termination of the enterprise legal person (企業法人終止後). The situation which the parties are concerned is the capacity between suspension of business licence (吊銷營業執照) and revocation of registration (撤銷) of the enterprise legal person, not after its termination. I would have thought the relevant provisions are Part二(一) and (二) which deal with capacity after suspension (企業法人被吊銷營業執照後). Paragraphs (一) and (二) provide as follows:

“ (一) 企業法人被依法吊銷營業執照後，其法人資格與經營資格終止，在民事訴訟中也不具備訴訟主體資格，應當變更該企業的清算組織為訴訟當事人參加訴訟。如未依法成立清算組織的，應當變更企業的清算責任人為訴訟當事人。

(二) 對以被吊銷營業執照的企業名義提起的訴訟，人民法院應當告知原告依法成立清算組織或確定清算責任人，並以清算組織或清算責任人的名義提起的訴訟。原告堅持起訴的，裁定不予受理。已經受理的，經其清算組織或清算責任人申請，法院應當變更清算組織或清算責任人為訴訟當事人繼[續]審理。清算組織或清算責任人不申請的，裁定駁回起訴。”

Under paragraph (一), upon suspension, the status as an enterprise legal person and its right to continue business ceased. The enterprise legal person has no capacity to participate in civil litigation; and the party in the litigation shall be changed to the winding up committee or, if no such committee has been constituted, the person responsible for liquidation. Paragraph (二) provides that if the enterprise whose business licence has been suspended commences legal proceedings, the court should inform it to set up its winding up committee or identify the person responsible for liquidation and commence proceedings in either of those names. If the enterprise insists to commence proceedings, it shall be refused. The court should allow an application by the winding up committee or the person responsible for liquidation to substitute themselves as party to the action. If no application is made, the action shall be dismissed. Thus the Shanghai Higher People’s Court unequivocally indicated that upon suspension, the enterprise legal person loses its capacity to litigate which is exclusively vested in the winding up committee or person responsible for liquidation. I would not rely on this paragraph as giving the Plaintiff the exclusive right to sue. Rather, I would construe it consistently with the two Judicial Replies as giving the Plaintiff a non-exclusive right to sue without deciding if《Judicial Opinion 369/2000》is inconsistent with the two Judicial Replies. That would be sufficient for the present purpose.

69. An interesting observation in relation to the experts’ opinion on《Judicial Opinion 369/2000》is that both experts sought to rely on parts of it in support of their argument, but both sought to argue that it is inconsistent with the Judicial Replies for the purpose of demolishing the opponent’s reliance on《Judicial Opinion 369/2000》.’

6) Enterprise legal person and shareholder

7.8MrMan argued that the Judge was wrong to hold that Part1[一] , article3[三] in Shanghai Judicial Opinion 369/2000 does not apply and he was wrong to hold that the plaintiff as the shareholder is the proper party to sue. He submitted that Judicial Reply 23/2000 states that where a company’s licence has been suspended, it is legitimate to join both the company and all shareholders as parties because during the liquidation period the company still has the capacity to sue. A similar view was expressed in Judicial Reply 24/2000. MrMan submitted thatJudicial Reply 23/2000 concerns a case in Ganzu. Hence one could see why the Shanghai Opinion was not considered. Also, given that the subject company appears to be a private limited company, even under the Shanghai Opinion, the person responsible for liquidation would be its shareholders. Hence there is no surprise that the shareholders were joined as parties. On the basis of Judicial Reply 23/2000, the proper course is for the company also to be joined as a party to any litigation as well. Otherwise the Supreme People’s Court would have advised that the company should be struck out. The obvious good sense of the joinder of the company is to ensure that the company is bound by any judgment that the Court may render. The corollary of this point is that, if the plaintiff has the title to the shares in VTI Shanghai, why does it not register itself as the superior unit in charge or constitute itself as the liquidation unit or ‘person responsible for liquidation’ of VTIShanghai?

7.9In my view even assuming that Part1[一] , article3[三] applies, Mr Man’s submissions did not begin to show that the Judge’s adoption of the plaintiff’s expert evidence was wrong. The two Judicial Replies proceeded on the basis that the enterprise legal person retained the right to sue but, as the Judge observed, they did not state that the right to sue or be sued is vested exclusively in the enterprise legal person. On the contrary they provided that the establishing unit, including the shareholders, shall proceed with liquidation. That must of necessity include calling in assets and enforcing the rights of the enterprise legal person through litigation. Likewise the Judge observed that under Judicial Reply 24/2000, the right of the enterprise legal person to litigate is not exclusive and if the persons constituting the enterprise legal person could not be located, the establishing unit of the enterprise legal person may participate in the litigation and the Judge accepted the view of the plaintiff’s expert that the establishing unit may participate in litigation in its own right or as the ‘person responsible for liquidation’. I can find no fault with the Judge’s reasoning.

7) The Shanghai Putuo People’s Court judgment

7.10What is more important is that the Judge also relied on a judgment of the Shanghai Putuo People’s Court (‘the Putuo Court’) in 2013 in respect of a litigation brought by the plaintiff against a defendant (not the defendant in this case) for the return of a motorcar leased by VTI Shanghai to that defendant. The plaintiff in that action sued in its capacity as the ‘person responsible for liquidation’. The Putuo Court after conducting its own enquiries, confirmed that, in the absence of contrary evidence, the plaintiff was the ‘person responsible for liquidation’ of VTI Shanghai to whom the motorcar should be returned. The Judge was of the view that this decision must be taken as how the Supreme Court Judicial Replies and Shanghai Judicial Opinion 369/2000 are to be construed and how the law is applied in the Mainland in practice.

7.11MrMan argued that the Putuo judgment should be produced by the plaintiff’s expert and not by its lawyer in the present action. In my view this point does not assist the defendant. The importance of this judgment lies in its content and not on the way of its production. Certainly there is no challenge that this judgment was not a judgment delivered by the Putuo Court.

7.12The plaintiff in its amended respondent’s notice contended that the effect of the decision by the Putuo Court was to render all the expert evidence redundant for the following reasons:

‘ 1.1) In Hong Kong the court accepts the judgment of the courts in the mainland as evidence of the law in the mainland.

1.2) The PRC Court in the PRC Judgment has decided that the plaintiff was VTI Shanghai’s 清算責任人and entitled to sue to recover assets belonging to VTI Shanghai. This is the very same issue before the Learned Judge.

1.2A) The Court is invited to take judicial notice that PRC courts adopt an inquisitorial approach to the resolution of issues before them.’

7.13Mr Man argued that the Putuo Court has not considered or decided any of the points raised in this appeal.

7.14The Putuo judgment was delivered after the last joint opinion of the experts was produced and therefore the experts did not have the opportunity to comment on the Putuo judgment. In my view, whilst the Putuo Court had not discussed the legal arguments raised in this appeal, it dealt directly with the capacity of the plaintiff to sue. In coming to its decision on this point, it had considered the following documents:

i) People’s Bank’s determination to close down VTIChina,

ii) audit report,

iii) the Huarong Agreement,

iv) the Hantong Agreement, and

v) record of business registration of the Industry and Commerce Bureau.

7.15The Shanghai Judicial Opinion 369/2000 was issued to all courts in Shanghai. One has to proceed on the basis that the Putuo Court was aware of this opinion. By having examined the record of business registration, the Putuo Court must have been aware that the business record still shows VTIChina as the establishing unit (contributor). Nonetheless it came to the conclusion that the plaintiff had the title to sue.

7.16I further agree with MrEdward Chan SC (together with MrNelson Miu and Ms Ann Lui) for the plaintiff that when the Putuo Court referred to the ‘absence of contrary evidence’, such evidence would only mean evidence that someone else was or might be the person responsible for the liquidation of VTI Shanghai or was otherwise entitled to enforce the rights instead of the plaintiff. In the present case the defendant had adduced no such contrary evidence.

7.17MrMan submitted thatthe Hong Kong Court is not bound to apply a foreign decision if it is satisfied, as a result of all the evidence, that the decision does not accurately represent the foreign law: see Dicey, Morris & Collins (15^th edn, 2012) at §9―020. There is no reason why a foreign court, however inferior in the foreign system, and however insignificant in the foreign system of stare decisis (if any), should irrevocably bind the Hong Kong Court regardless of the strength of the conflicting arguments.

7.18 He further referred to Guangzhou Green-Enhan Bio-Engineering Co. Ltdv Green Power Health Products International Co. Limited [2004] 3 HKLRD 223 at §3, where JLamJ (as he then was) was at pains to emphasise that a foreign decision does not determine the position in Hong Kong ‘where it is clear that a piece of relevant legislation had not been considered’. It is therefore clear that the Putuo Judgment does not preclude this Court from forming its conclusions on the Mainland law.

7.19In my view it is not necessary to discuss whether the Mainland courts assume an inquisitorial role or not. It is sufficient to point out that in Guangzhou Green-Enhan Bio-Engineering Co. Ltd, LamJ adopted the following principles summarised by counsel that:

‘ (a) …

(b) when there was authority [i.e. foreign judgment] directly in point, there was no room for experts to give evidence as to the likely outcome of the foreign court applying the foreign law.

(c) In Hong Kong, the court accepts the judgment of the courts in the Mainland as evidence of the law in the Mainland.

(d) Although there was no specific reference to a particular point in a foreign judgment, so long as the court is satisfied that the point could not have escaped the attention of the foreign court or the parties, the foreign court should be regarded to have decided that point as well.’

7.20In respect of (b), LamJ added the rider that:

‘ In a case where there are conflicting decisions in the foreign court or where it is clear that a piece of relevant legislation had not been considered, I think there might still be scope of expert evidence.’

7.21As Shanghai Judicial Opinion 369/2000 was stated to be directed to all the courts in Shanghai, one has to proceed on the basis that the Putuo Court was aware of the relevant legislation or judicial interpretations on the legislation. This being the case the defendant has failed to show that Putuo Court had in fact not considered all the relevant legislations and materials, such that the Hong Kong Court should not accept the decision of the Putuo Court.

VIII. Conclusion

8.The Judge was correct in his decision. Accordingly the appeal is dismissed.

IX. Costs

9.There will be an order nisi that the plaintiff is entitled to the costs of appeal with certificate for two counsel.

Hon Yuen JA :

10.I agree.

Hon Chu JA :

11.I agree.

Mr Edward Chan SC, Mr Nelson Miu and Ms Ann Lui, instructed by P. H. Chin & Company, for the plaintiff

Mr Bernard Man SC and Mr James Man, instructed by T. H.Koo & Associates, for the defendant