Achieve Goal Holdings Ltd v. Zhong Xin Ore-material Holding Co Ltd
Read the full judgment text of CACV 324/2008 on BabelCite. This Court of Appeal judgment was delivered on 7 November 2008 before Tang VP, Cheung JA, Lam J.
Civil procedure – appointment of interim receivers and managers – deadlock in board of directors – joint venture company – Zhong Xin Ore-Material Holding Company Limited held 50% by Clarigain Enterprises Limited and 50% by Angola Group Holdings Limited – Zhong Xin held 70% of Yulin Changlebao Mining Corporation Limited (CLB) under CLB JV contract – mainland proceedings commenced by Yulin company alleging invalidity of capital contribution and claiming right of pre-emption – directors Xie and Gao detained in mainland China since May 2008 – applicants sought appointment of interim receivers and managers to protect Zhong Xin's interests – Chung J dismissed application on ground that undertaking by opposing parties to instruct PRC lawyers was adequate alternative remedy – whether appointment of PRC lawyers is adequate alternative remedy to appointment of interim receivers – held no, because conflicting instructions could be given and no board resolution could be obtained due to deadlock – whether deadlock justifies appointment of interim receivers – held yes, having regard to all circumstances including imminent mainland hearing and risk of default judgment – High Court Ordinance Cap 4 s.21L – O. 30 r. 8 – Re Full Billion Shipping Ltd distinguished – appeal allowed – interim receivers and managers appointed – costs to applicants.
Legal issues: Whether appointment of PRC lawyers is an adequate alternative to appointing interim receivers and managers · Whether deadlock alone justifies appointment of interim receivers and managers
Outcome: Appeal allowed; interim receivers and managers appointed for Zhong Xin Ore-Material Holding Company Limited.
Cited by 4 cases · Cites 1 case
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CACV 324/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 324 OF 2008 (ON APPEAL FROM HCA NO. 1987 OF 2005) ---------------------- BETWEEN
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---------------------- Before: Hon Tang VP, Cheung JA and Lam J in Court Date of Hearing: 7 November 2008 Date of Judgment: 7 November 2008 Date of Reasons for Judgment: 24 November 2008 ---------------------------------------- REASONS FOR JUDGMENT -------------------------------------- Hon Tang VP (giving the reasons for judgment of the Court): Introduction 1.On 27 October 2008, Chung J dismissed the application by Clarigain Enterprises Limited (“Clarigain”), Zhong Xin Ore-Material Holding Company Limited (“Zhong Xin”) and Bai Jun Tian Cheng Limited (“Bai Jun”) (hereinafter referred to collectively as “the applicants”), for the appointment of interim receivers and managers of Zhong Xin. After the application was dismissed, the court was asked as a matter of urgency to hear the appeal. At the time we were informed that the mainland had adjourned the matter for a month from 14 October 2008. We agreed to hear this appeal on 7 November 2008 at 10.00 am. 2.The applicants were represented by Mr. Alan Leong, SC and Mr. Lee Tung-ming. Mr. Dennis W. H. Kwok, appeared for the 2nd and 3rd defendants. Mr. Lawrence Cheung, appeared for the 1st and 4th defendants. The 1st defendant Achieve Goal was neutral in the appeal as well as on the application. 3.The applicants’ appeal was allowed by us on 7 November 2008. These are our reasons. Background 4.Clarigain holds 50% of the shares in Zhong Xin. The other shareholder is Angola Group Holdings Limited (“Angola”). There is a joint venture agreement dated 1 December 2004 but signed on 21 December 2004 (“the joint venture agreement”) under which in return for a 50% interest in Zhong Xin, Angola agreed to provide the equivalent in USD of RMB 50 million to Zhong Xin. An important dispute between Clarigain and Angola is over the nature of the RMB 50 million to be provided. According to Clarigain, the RMB 50 million was capital. According to Angola, they were only obliged to provide finance to the extent of RMB 50 million. This is not the occasion to decide which version is correct. For the purpose of the appeal, we cannot and do not make any finding of fact. 5.The persons behind Angola are Zhao Bing (“Zhao”) and Ng Chi Kong (“Ng”) and those behind Clarigain are Xie Her Ping (“Xie”) and his wife Madam Gao Hai Yan (“Gao”). 6.Xie and Madam Gao held the entire shareholdings in Zhong Xin on trust for Bai Jun. They were appointed by Bai Jun to act as directors of Zhong Xin. Since about 30 December 2004 and pursuant to the joint venture agreement, 50% of the shareholdings in Zhong Xin were transferred to Angola, and Zhao and Ng were appointed by Angola to act as directors of Zhong Xin. Xie and Gao, and, Zhao and Ng, are the only directors. It is common ground that there is a deadlock. 7.The joint venture agreement envisaged the established a sino-foreign joint venture company in the Shaanxi Province, namely, Yulin Changlebao Mining Corporation Limited (“CLB”). 8.There is a sino-foreign joint venture agreement dated 12 December 2004 (“the CLB JV contract”) made between 榆林巿榆陽區常樂工貿有限責任公司 (“the Yulin company”) and Zhong Xin. Under the CLB JV contract, the parties agreed to invest a total of RMB 71 million into CLB, of which the Yulin company was to contribute RMB 21.3 million for 30% of the capital, and Zhong Xin RMB 49.7 million for a 70% share. Zhong Xin’s share of RMB 49.7 million was to be contributed by 3 instalments. The 1st instalment being RMB 20 million payable upon the registration of CLB, the 2nd instalment to be provided after the establishment of CLB, and the remaining RMB 9.7 million to be provided two years after the establishment of CLB. According to the applicants, the 1st instalment was due to be provided by 18 January 2005, the 2nd instalment 18 January 2006, and the 3rd 18 January 2007. 9.Under clause 2.2 of the joint venture agreement, Angola was to provide the equivalent of RMB 20 million to Zhong Xin for the 1st instalment payment under the CLB JV contract. Although the joint venture agreement was not explicit about when the remainder of the RMB 50 million was to be paid, presumably they were to be provided in time for the payments under the CLB JV contract. To cut a long story short, the 1st instalment was provided to Zhong Xin, but by way of a loan from Achieve Goal Holdings Limited (“Achieve Goal”). This is the subject of Achieve Goal’s claim in the present action against Zhong Xin. 10.We will not go into the detail regarding Achieve Goal’s claim nor the counterclaim which it has spawned in relation to the provision of the RMB 20 million. Sufficient to state that in the applicants’ counterclaim, for example para. 29A(d), they have complained that because of the failure by Angola to provide any further finance for the 2nd and 3rd instalments:
11.Para. 29A(e) of the counterclaim went on to claim, inter alia, that pursuant to clause 4.3 of the JV agreement, which provided that:
Angola was holding 59.49% of the 50% of the shareholdings in Zhong Xin on trust for Bai Jun. 12.The legitimacy of the payment of the 2nd and 3rd instalments by Bai Jun to CLB is the subject of dispute in the mainland. The Yulin company has started proceedings in July 2008 in the陝西省榆林巿中級人民法院 (“the mainland proceedings”), with Zhong Xin as the 1stdefendant, Bai Jun the 2nd defendant, where the Yulin company claimed that the capital contribution in the sum of USD 3,560,000 made by Bai Jun in the name of Zhong Xin was invalid and that the Yulin company had the right to acquire 42% of Zhong Xin’s shares. 13.Briefly stated, in the mainland proceedings, the Yulin company alleged that Angola had never given up its right （Angola公司從來沒有放棄其出資權利）nor authorise Bai Jun to provide capital on behalf of Zhong Xin. It was also alleged that because Madam Gao had not given to CLB the外匯登記證, the 2nd and 3rd instalments had never been paid into the account of CLB and they were never available to CLB. Furthermore, because of the failure to provide the 2nd and 3rd instalments, Zhong Xin had already lost its right to provide the capital, and that the Yulin company had a right of pre-emption under certain mainland legislation as follows:
14.Not surprisingly, Bai Jun wishes to contest the Yulin company’s claim. Angola has also been made a party to the mainland proceedings. There is a deadlock over what role Zhong Xin should play. Also, as will be seen, because of the deadlock, Zhong Xin was not in a position to instruct lawyers to defend its interests, should it be proper to do so. 15.That there is a deadlock in Zhong Xin is common ground. The applicants have also alleged that Angola has sided with the Yulin company in trying to obtain control of CLB. 16.Under the CLB JV contract, Zhong Xin was entitled to nominate 5 out of 7 directors and the legal representative of CLB and hence control. Of the 5 directors nominated by Zhong Xin, 2 were from the applicants and 3 from Angola. Because of the deadlock, the 2 directors in CLB from the Yulin company became the “critical minority”. 17.The applicants alleged that in or about November 2005, Ng and one 汪新生, the financial controller of CLB who was allegedly appointed upon the insistence of Ng and Zhao, had filed certain documents which led Xie to being replaced as the legal representative of CLB. The applicants alleged that those documents contained, inter alia, a forged signature of Xie. According to the 5th affirmation of Siu Yat Fung Anthony (“Anthony Siu”), the applicants’ solicitor, dated 29 September 2008, following complaints to the relevant mainland authorities a penalty notice was issued:
18.According to Anthony Siu, there was allegedly a second attempt to remove Xie. Anthony Siu said in his 5th affirmation:
19.We were told that both Xie and his wife have been detained since May 2008. 20.According to the affirmation of Chan Mok Wo (a director of Angola) dated 16 October 2008, Angola had received legal advice that CLB could appoint a legal representative, alternatively, a deputy managing director and that a board meeting of CLB has been convened for 14 November 2008 for that purpose and that:
21.In his 5th affirmation Anthony Siu also said:
22.At the hearing in the mainland on 14 October 2008, Angola had indeed challenged the authority of mainland lawyer engaged to act for Zhong Xin. As a result of this challenge, the mainland court agreed to adjourn the matter. According to the statement of Mr 馮波 dated 15 October 2008 of HAN Horizon Law Firm, who was then acting for Zhong Xin:
23.As noted, the mainland hearing had been adjourned to enable Zhong Xin to appoint lawyers. The application 24.It was against such background that the applicants applied on 30 September 2008 for, inter alia, the appointment of interim receivers and managers which was supported by, inter alia, the 5th affirmation of Anthony Siu. The need to protect Zhong Xin’s interest in CLB which included the proper appointment of a legal representative, as well as the defence of the mainland proceedings were the main reasons for the application: 25.The application was heard by Chung J on 20 October 2008. By his decision dated 27 October 2008, the application was dismissed. 26.Essentially, the learned judge dismissed the application because he believed there was an adequate alternative remedy. This is what he said:
27.In response to the applicants’ submission that the undertaking was inadequate because conflicting instructions would be given by opposing parties, making it impossible for any lawyer so appointed to present a proper defence in the mainland, the learned judge said:
28.The learned judge also thought that:
29.Although interim receivers are typically appointed when there is a deadlock, we agree that if there is a satisfactory alternative, the court may in its discretion refuse to appoint an interim receiver. 30.The power to appoint interim receivers is found in section 21L of the High Court Ordinance, Cap. 4:
31.According to The Law of Administrators and Receivers of Companies(4th ed), 2007 by Lightman and Moss at para 29-003:
And:
32.The learned judge also said:
33.But, the interim receivers may apply to the court for direction under O. 30 r. 8. We agree with Mr Leong that the interim receivers are bound to do whatever is necessary to protect the interests of the company, if necessary, with the assistance of directions from the court. 34.The learned judge also noted that the management had been in a deadlock since at least May 2008 if not earlier, and he said:
35.It is quite clear from Mr Alan Leong’s submission that there has been no delay in the application. As Mr Leong submitted:
36.We will not go into the details of the various matters referred to by Mr Leong in his aforesaid submission. They show the depth of the deadlock and the degree of mistrust between the parties. 37.Since the hearing before the learned judge, Angola has submitted the 2nd affirmation of Chan Mok Wo dated 5 November 2008. It appeared that the mainland court had given notice that the hearing will resume on 7 November 2008 at 8.30 am. We were given to understand that lawyers instructed on behalf of Bai Jun would attend the mainland hearing. At the time of our hearing we did not know what might have happened in the mainland proceedings. In any event, whatever might have happened before the mainland court, Mr Leong has informed us that the appointment of an interim receiver would nevertheless be necessary because in the event of any adverse finding, the interim receiver might wish to consider appealing. 38.In the 2nd affirmation of Chan Mok Wo, we were provided with a copy of an advice given by Messes King & Wood, mainland lawyers. Mr Yu Feng of King & Wood has said by way of preliminary advice that the Yulin company’s claim that the 2nd and 3rd instalments had not been properly provided might be correct. As for the claim for the right of pre-emption, in King & Wood’s preliminary view such a claim was unlikely to succeed, although Zhong Xin might be liable for damages for failure to contribute the capital timorously. 39.Mr Dennis Kwok, for the 2nd and 3rd defendants by counterclaim, submitted that insofar as Yulin’s claim is based on a right of pre-emption, there is no or little conflict of interest between the applicants and Angola. However, we note that in King & Wood’s advice, it appeared Angola had also put forward a claim to a right of pre-emption. Insofar as Angola does not seem to have abandoned that claim, the potential for conflict continues. 40.Furthermore, so far as the legitimacy or validity of the provision of the 2nd and 3rd instalments is concerned, there is a real conflict between the applicants’ and Angola’s stance. We understand that Angola was of the view that the payment by Zhong Xin was invalid. 41.There is, also, of course, the question of the appointment of the legal representative or deputy managing director for CLB. 42.Having regard to all the circumstances, we had no doubt that this was a suitable case for the appointment of interim receivers and managers. We felt able to disagree with the learned judge because, with respect, we believe he erred when he thought that the appointment of lawyers to represent Zhong Xin in the mainland proceedings was an adequate alternative remedy. We also believe he had also underestimated the ability of the interim receivers, supported by directions of the court, if necessary, to do what is in the best interest of Zhong Xin notwithstanding the deadlock. 43.For the above reasons, we allowed the appeal and made the necessary appointments with costs.
Mr. Alan Leong, SC & Mr. Lee Tung-ming instructed by Messrs Anthony Siu & Co., for 1st and 2nd Plaintiffs by Counterclaim (The Applicants) Mr. Dennis W. H. Kwok instructed by Messrs Wong & Chan for the 2nd & 3rd Defendants by Counterclaim Mr. Lawrence Cheung instructed by Messrs LCP for the 1st and 4th Defendants by Counterclaim |
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