Read the full judgment text of HCA 1661, 1766, 2191/2014 & HCA 623, 939, 1564/2015 on BabelCite. This Court of First Instance judgment was delivered on 31 January 2018 before Hon G Lam J.
Civil procedure – interim receivership – discharge – material change of circumstances – whether basis for appointment of receivers over CSI shares continued after most plaintiffs had sold their beneficial interests – company law – interim receivership as akin to interlocutory injunction – revisitation on new evidence or material change – cross-undertaking as to damages – split voting direction – interim receivership's function to preserve the asset, not to reform the company's constitution – conflict of interest of receivers holding triple roles as receivers of CSI shares, directors of CSI, and directors of CSCG – strike-out of affirmations – whether rulings needed where application heard without cross-examination. China Shanshui Investment Co Ltd ("CSI") held 25.09% of China Shanshui Cement Group Ltd ("CSCG"), a Hong Kong-listed company. Prior to the listing, 3,947 Mainland employees participated in a stock ownership scheme, the relevant shares of which were purportedly held by Zhang Snr and Li Yanmin as trustees of two BVI trusts; seven senior officers (the "Minority Shareholders") directly held CSI shares. Disputes arose as to whether the shares were held on discretionary or fixed trusts. Six actions were commenced in 2014-2015 by 2,631 of the participating employees. Receivers were appointed over 45.6325% of CSI's issued shares in May-July 2015 to protect the plaintiffs' interests and to insulate them from pressure to sell. In August 2015, 2,142 of the 2,631 plaintiffs signed SPAs drafted by KLG selling their CSI interests, with 2,090 paid 70% of the price (about RMB700 million originating from Tianrui, the largest shareholder of CSCG) and the remaining 30% paid in March 2017; a further 343 signed MOUs with ACC. Material facts regarding these transactions and the funding of KLG's legal fees by an undisclosed "friend" of Tianrui's chairman were not disclosed in earlier hearings before Deputy Judge Seagroatt. On Zhang Snr's application to discharge the receivership, the court held that an interim receivership order is akin to an interlocutory injunction and may be revisited for material change of circumstances (Chu Hung Ching v Chan Kam Ming; Wong Pak Sum). A material change had occurred: the selling plaintiffs were no longer real stakeholders in the CSI shares and did not require further protection, and the protective purpose of the receivership had not been achieved. The court further held that, absent the plaintiffs' consent, a split voting direction (which would fundamentally alter CSI's constitution) could not be made (Eclairs Group Ltd v JKX Oil & Gas considered as to shareholders' voting rights). The SH plaintiffs' application to replace the Receivers for alleged conflict of interest was not determined as moot. The Receivers' strike-out application was disposed of without ruling on the evidential objections. Orders: receivership discharged; SH plaintiffs' summonses dismissed with costs nisi against them; no order on the Receivers' strike-out summons with their costs to be paid out of the assets in receivership.
Legal issues: Whether the interim receivership should be discharged for material change of circumstances · Whether a split voting direction over CSI's shares in CSCG should be made · Whether the SH plaintiffs' application to replace the Receivers should be granted on conflict of interest grounds · Whether the Receivers' strike-out application regarding passages in the SH plaintiffs' affirmations should be determined
Outcome: Receivership discharged; SH plaintiffs' two summonses dismissed; Receivers' strike-out summons disposed of with no order as to costs (nisi).
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