Relevant Employees Whose Shares in China Shanshui Investment Company Limited Held By Zhang Caikui on Trust (Please Refer To Schedule 1 Attached To the Writ of Summons for Names of the Relevant Employees) and Another v. Zhang Caikui and Another

HCA 1661, 1766, 2191/2014 &
 623, 939, 1564/2015 (Consolidated)

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

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(Consolidated pursuant to the Order of
The Honourable Mr Justice G Lam dated 21 August 2015)

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Before: Hon G Lam J in Chambers

Date of Hearing: 10 November 2017

Date of Decision: 10 November 2017

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D E C I S I O N

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1.In the interest of time, I shall give my reasons now, as briefly as practicable, for refusing this joinder application made so close to trial.

2.In this case, there is a risk that the interlocutory battles overshadow the trial.  The court file is already brimming with voluminous affirmations for interlocutory applications, with 509 folios to date, but the action itself is quite self‑contained.  The only principal issue for determination at trial is whether, as a result of the restructuring, culminating in the listing of China Shanshui Cement Group Ltd (“CSCG”) in Hong Kong in 2008, the 1^st Defendant held and still holds 456,325 shares, representing a 45.63% interest, of and in China Shanshui Investment Co Ltd (“CSI”), which holds 25.09% in the listed company, on absolute trust for the plaintiffs, notwithstanding two BVI discretionary trust deeds made in November 2005.  The action was set down in July this year, and the trial is to start in 20 days’ time, and expected to last 6 days, with 4 factual witnesses and 2 experts.

3.Mr Chen Hongqing (“Chen”), the applicant in this application, claims that back in August 2015, he had, through 11 representatives, purchased 2,078 plaintiffs’ interests in CSI with an interest amounting to 30.95% of the shareholding in CSI, and paid 70% of the purchase price (amounting to some RMB 737.5 million), and that in March 2017, he had paid those plaintiffs the remaining 30%.  Chen also says he purchased another 170 employee‑plaintiffs’ interests amounting to 5.65% in CSI in March 2017.  So, in total, he claims to have acquired the interests of 2,248 employee‑plaintiffs in CSI. 

4.The present position is that the plaintiffs represented by K & L Gates have not disputed or admitted Chen’s allegations because, according to a statement of Gao Yong, he was unable to confirm instructions from the 1,175 employee‑plaintiffs represented by K & L Gates in relation to the alleged purchase of shares by Chen; but the plaintiffs represented by Stephenson Harwood and the 11 representatives hotly dispute Chen’s entitlement, while the defendant, Mr Zhang, says that dispute has nothing do with him.  Indeed, the 11 representatives say that they had never met Chen, and did not know of his existence before March 2017.  It is also said that whatever money had come from Chen, it had been tendered to him by way of repayment, which Chen disputes.

5.It was only on 25 September this year that Chen filed a summons to apply to be joined as an intervener or as an additional defendant.  At the 9:30am hearing on 7 October, Chen sought to be joined to assert his alleged proprietary rights as purchaser of the plaintiffs’ interests, with pleadings and witness statements to be filed. 

6.Ms Winnie Tam SC, appearing on behalf of Chen this morning, now seeks a more limited order.  As stated in her skeleton argument, Chen seeks to be joined on these terms:

“(a) Chen would not cross‑examine any witnesses called by the other parties at trial;

(b) Chen would not file any pleadings or witness statements in this present action; and

(c) Chen would only require copies of the parties’ filed pleadings and not the witness statements or affidavits or underlying documents.”

7.In my view, nevertheless, the application should not be acceded to. 

8.First, I consider that Chen is not a person “whose presence before the court is necessary to ensure that all matters in dispute and the course of matter may be effectually and completely determined and adjudicated upon” within the meaning of O 15 r 6(2)(b)(i).  This is consistent with the acceptance now made that Chen’s claims should play no part in the trial.  Nor is it necessary for him to be joined to be bound by the outcome of the trial, because, if, as he says, he has acquired interests from the plaintiffs, he is clearly their successors‑in‑title, and therefore their privy and, as such, would be bound by the court’s determination under the principles of res judicata and issue estoppel. 

9.Chen also claims to be to be a person “between whom and any party to the cause or matter, there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter”, within the meaning of the first part of O 15 r 6(2)(b)(ii). Even reading the words “arising out of or relating to or connected with” very widely for the moment, however, it is to be noted that Chen is not seeking for that question or issue relating to his entitlement to be “determined” in the trial as between him and the parties to the action, as the latter part of r 6(2)(b)(ii) envisages.  I have grave doubt whether the application as such falls within the terms of r 6(2)(b).

10.In any event, even if r 6(2)(b)(i) or (ii) is engaged, the power to allow joinder is discretionary.  In particular, I bear in mind that while O 15 contains rules to avoid the proliferation of actions arising out of a single cause, it also, at the same time, as Deputy Judge Hartmann said in Chong Kai Man v Kwan Yau Hang (HCA 1298/2011, 30 September 2013), at §2, seeks “…to ensure that an action brought by a plaintiff should not be overburdened by the adding of layers of a dispute, thereby turning a clearly defined cause of action into something far greater, and in practice, amorphous”.  While, on a high level of generality, Chen’s claims also relate to shares in CSI, which are the subject matter of the present action, the facts material to his claim long post‑date and are wholly different from those material to this action as constituted.  Further, Chen’s interests, as far as the existing issues in the action are concerned, are exactly the same as the interests of the two camps of plaintiffs who are already represented by two teams of leading and junior counsel respectively. I see no point in having a third team to argue the same matter on behalf of the same interests against Zhang.

11.Ms Tam submitted that “in the event that it emerges at trial that Chen is entitled to any such interest in the CSI shares, Chen would need to be a party to the proceedings so as to enable an order to be made in his favour, or to bind him”.  Even if the plaintiffs succeed at trial, I do not think any such thing will “emerge” at trial, in relation to the plaintiffs‑vendors who dispute Chen’s entitlement, because that dispute is not an issue in the trial.  In relation to the plaintiffs‑vendors who do not dispute Chen’s entitlement, there is no need for Chen to be a party to get an order in his favour, because those plaintiffs can ask for an order that Zhang do transfer the relevant shares in CSI to persons they nominate, which is indeed a relief prayed for in the statement of claim.

12.It is said that Chen is an equitable assignee effectively, and should, as such, be joined.  But, first, no plaintiff has as yet accepted that Chen is his assignee; many of them hotly dispute it. Secondly, any interests the plaintiffs may have in the shares are the subject matter of receivership.  As I said when appointing receivers in May 2015, at paragraph 34 of my decision:

“…By an order for the appointment of receiver the court assumes control of the property affected, both in terms of the legal estate and any equitable title. No transfer of the relevant shares in CSI could take place without the involvement of the receivers. Any transfer of any equitable interest under the trust, if it could take place at all, would also properly have to involve the receivers who would have temporarily displaced the trustee. The receivers would of course be officers of this court. Any interference with them or with property in their possession would be a contempt of court...”

I do not know whether these purported acquisitions by Chen by all these documents in 2015 were done with the receivers’ knowledge, but they were clearly not done with their participation, and were carried out certainly without the court’s knowledge.  It is therefore surprising for Chen to say that his position is effectively that of an equitable assignee.

13.Further, as shown by the decision of Deputy Judge Hartmann in Chong Kai Man, supra, the fact that a third party has a claim to or an interest in a property, the beneficial ownership of which is in litigation between the parties, does not mean the third party should necessarily be joined.  There, the plaintiff claimed a beneficial one‑half share in certain land which was registered in the sole name of the 2^nd Defendant. The third party, a Taoist temple, claimed that the plaintiff and defendants had agreed that the land should be retained always for the use of the temple and indeed, would be donated to it, and apparently claimed certain proprietary interest in the land by way of estoppel or constructive trust.  Even though it was still before the action was set down for trial, the judge refused to join the temple.  Insofar as the temple had interest in the land, his Lordship said:

“The issue really is should those interests be protected by joining the Koon in the present action as an intervener, and therefore as a defendant, or can those actions, and indeed, should those actions, more properly be dealt with consequent upon the present action?” (§16)

and:

“The subject matter of the action is whether the plaintiff is entitled to a half interest in the piece of land, that is all. What happens to the land thereafter is another matter entirely” (§18)

and:

“[The ‘Koon’’s] interest really lies in what happens if the plaintiff, having obtained his interest in the land, then seeks to undertake certain actions as a consequence of having obtained that interest. That is really the issue. The would‑be intervener seeks to limit that by bringing a counterclaim.” (§19)

14.Since Chen has now accepted that he cannot hope to plead a claim to be tried at the trial of this action to assert any interests arising from his alleged acquisition of the plaintiffs’ interests, what happens to the shares if the plaintiffs win the action thereafter is really another matter altogether.

15.Ms Tam submitted that unless Chen is made a party for the purposes of being bound by this court’s order, there would be no guarantee that the plaintiffs would transfer the relevant CSI shares to Chen in accordance with what Chen has called the “Share Acquisition and Loan Agreement” (in the event of the plaintiffs’ successful action against Zhang).  It would seem that what Chen wants to get his foot in this action for is a platform for obtaining some protective relief pending the resolution of his dispute with the elected representatives and those plaintiffs‑vendors who do not accept his interest.  I do not think this would be an appropriate basis for allowing the joinder.  The pending receivership was appointed up to the determination of the action, which is solely about the disputes between Zhang and the employees‑plaintiffs as regards the nature of their interests in the CSI shares following the Hong Kong restructuring and IPO.  If the action is determined in the plaintiffs’ favour, it would be up to Chen, then, to see what protection, post‑judgment in the trial, he may be entitled to, based on what he asserts to be his title and rights, pending the resolution in some other proceedings (perhaps in some other forum), of any dispute he may have with those plaintiffs‑vendors who do not accept his claims.  It is not necessary or just and convenient for him to be joined in this action now to do so.

16.Then it is said by Chen that there is a “withdrawal scheme” on the part of certain plaintiffs.  But it is at best speculative for Chen to seek to join on the ground that there will be massive withdrawals from the action by the plaintiffs.  There is no evidence that the plaintiffs represented by K & L Gates are likely to withdraw.  As for those represented by Stephenson Harwood, there is no settlement with Zhang, and no attempt to withdraw.  Any withdrawal would have to be with leave of the court. Moreover, no one has suggested that, among the individual plaintiffs, there is any difference in the merits of their case as against Zhang.

17.Insofar as Chen wants to attend the trial, he can of course attend as member of the public.  Insofar as he wishes to have a set of the pleadings, there is no suggestion that he has any difficulty getting them from K & L Gates.  Alternatively, he can apply under O 63 r 4(1)(c) for inspection of the file. 

18.Chen also says if he were to bring a fresh action, the procedural requirement for service on the individual plaintiffs would be almost insurmountable.  Given that Chen has accepted he will not plead a claim in this action now against any disputing plaintiffs to establish or to seek to establish his asserted rights over any CSI shares, if he wants to pursue that claim against such plaintiffs, he will have to bring proceedings somewhere and presumably serve them on those plaintiffs anyway.

19.Ms Tam also submitted that “even if it were viable for Chen to start a fresh action, it cannot be conducive to proper case management for Chen to do so, as it would only have the undesired effect of “separating but duplicating the agony”.”  I do not agree, given that as Chen has accepted he will not bring a claim for trial in this action based on his asserted right as against the disputing plaintiffs.  To resolve that dispute, some proceedings would have to be brought somewhere anyway.

20.It is obvious that the application is made extremely late.  Chen had, on his case, acquired interests in August 2015. It has been public knowledge since at least my decision in this action on another interlocutory application on 20 February 2017 that certain plaintiffs represented by Stephenson Harwood took a position vis-à-vis Chen’s claim that was at variance with his.  In particular, the position advanced on behalf of the 11 representatives was that they, not Chen, had purchased the relevant plaintiffs’ interests.  Yet there was no attempt by Chen to join at all, even when the action was set down.  Even assuming Chen was in fact waiting for a decision of the Ruzhou court (as to which there are doubts), it is not an excuse for the delay in the present action.  On the arguments now presented on behalf of Chen, that decision is neither necessary nor sufficient for the purpose of his joinder application.  The potential disruption and distraction to the trial and preparation therefor in addition to that which has by now been occasioned by this application itself, is already prejudice to the existing parties. 

21.There are other matters raised by Mr Maurellet and Mr Wou, such as alleged inconsistencies between various affirmations of Chen filed in different proceedings regarding the nature of the transactions with the 11 representatives, whether he in fact is acting as a front‑man for Tianrui (which is already a substantial shareholder in CSCG), whether the RMB 1 billion used for the acquisition in fact came from Tianrui (as the banking documents suggest at least in relation to the RMB 737.5 million paid in 2015), whether the Ruzhou proceedings were in fact not arm’s length litigation, and whether Chen’s claims were covered by an arbitration clause in the loan agreement and share pledge agreements and should be referred to arbitration.  In the light of what I have said, I need not deal with or rest my decision on them, although that does not mean they are not matters of concern.

22.Chen’s summons is therefore dismissed.

Mr Law Man Chung, instructed by K & L Gates, for the Plaintiffs

Mr Jose Maurellet SC and Mr Alexander Tang, instructed by Stephenson Harwood, for the Plaintiffs in HCA 1282/2017

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

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

Mr Winnie Tam SC and Mr Martin Kok, instructed by Stevenson, Wong & Co, for the Intended Intervener