張才奎所託管中國山水投資有限公司股份 AND ANOTHER v. 張才奎 AND ANOTHER

HCA 1661, 1766, 2191/2014 &
HCA 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 20 August 2015)

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D E C I S I O N

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1. This is yet another attempt on behalf of the 1^st defendant to prevent the court and its officers from doing its best to preserve the assets of a company pending the resolution of a dispute between shareholders.

2. For a comprehensive review of the tortuous and wasteful interlocutory litigation in these proceedings, it is necessary to refer to my reasons for Decision of 9 October 2015 following my Decision of 30 September 2015.

3. Within that document is a consideration, in some detail, of the judgment of Godfrey Lam J following a hearing in May of this year.  My specific paragraphs are 55 to 58 of my Decision.  The 1^st defendant sought Godfrey Lam J’s leave to appeal his judgment in June 2015 — see my paras 59 to 61.

4. Although it ought not to be necessary I nevertheless repeat certain of my sentences (para 61):

“I too have taken account the matters expressed by the judge and made a qualitative assessment of the risk of jeopardy based on evidence before the court. I considered that that risk has increased significantly with serious implications since then, as I will make clear.”

5. I then went on to identify the situation since then.  At this stage it is prudent to point out that, as I have expressed before, the overwhelming impression is that the 1^st defendant has been deliberately obstructive, the sole motivation appearing to be to prevent any erosion of his control and any examination of his financial machinations in relation to one or more of the companies concerned.

6. Before I proceed to deal with the so‑called grounds of appeal it may be helpful to identify what appears to be the platform from which the 1^st defendant’s counsels’ repetitive arguments proceed, mistakenly in my judgment.

7. Parts of the Decision of Godfrey Lam J dated 17 June 2015 read as follows (para 18):

“Even so, on the footing, as it seems to me, that the principal concern appears to be the question of management and specifically the directorship of the listed company, that is a matter that can be addressed by directions about the steps to be taken by the receivers. In my judgment I have expressly given the parties liberty to apply. In any event the receivers as officers of the court have to act in accordance with the court’s directions. The appointment of receivers is a flexible power: Chinese United Establishments Ltd v Cheung Siu Ki [1997] 2 HKC 212 at 223. The primary concern of the court in appointing receivers was to protect and preserve the trust assets including their value, not to achieve a complete change of management of the listed company. The receivers are there to hold the ring, not to act for one of the parties. As can be seen from paragraphs 32, 33, 34, 37, 38 and 39 of my judgment, I had not when appointing receivers contemplated an immediate change of management of all the companies. The shareholding distributions in CSI and Shanshui Cement are delicate, there being other significant shareholders who are not party to this litigation as well as minority shareholders in CSI who are involved in separate litigation with the 1^st defendant. In the circumstances that have arisen it seems to me appropriate at this stage that the court should direct, which I do, that without obtaining further directions of the court, the receivers do not seek to alter the composition of the board of directors of Shanshui Cement.”

8. This is what the 1^st defendant’s counsel has called the “Specific Direction”.  Please note my particular underlining and emphasis. It is of no use for the defendant’s lawyers to be selective about the passages from the Decision of Godfrey Lam J.  The whole context has to be understood.  He was clearly leaving open any future circumstance for the extension of the receivers’ powers.  He was fully alert to that possibility.

9. It is clear that the judge’s order was based on the situation at the time of his Decision although he clearly expressed fears for the future.  He could make Orders only on that basis and he could not make an Order simply upon what in fact he rightly believed to be the risk of future deterioration.  That would have to wait for a future application and evidence.

10. I refer again to paras 22 to 34 of the Decision of 20 May of Godfrey Lam J which I quoted in para 56 of my Decision of 9 October 2015.

11. Since the Decision and Order of Godfrey Lam J, the situation had deteriorated significantly as I set out in my Decision.  Accordingly it was entirely appropriate to consider whether the receivers’ powers could and should be extended to cover precisely the situation that had developed.  I was not bound by the limits in the Order of the learned judge.  It is idle, and bad law, to suggest that I was or am.  The ambit of a court’s discretion is not so fettered.  It has to deal with the situation that exists at the time of its consideration, not some past state of affairs. To argue otherwise lacks logic and sense.

12. As a further example of the defendant’s obstruction was its application for leave to appeal the Decision of Godfrey Lam J which I also dealt with in my Decision (para 59).  Wisely, that speculative appeal action was not pursued.

13. I now turn to what is set out on the 1^st defendant’s second application for leave to appeal against my Decision.  It is in fact predicated on another attempt to suggest that I am bound by the ambit of Godfrey Lam J’s Order in respect of the receivers’ powers — ie that they should not exercise their powers so as to affect or seek to disturb in any way the composition of the boards of CSI and CSC pending the determination of this application for leave before me, etc.  This would in normal circumstances be termed another “bite at the cherry” but it is unworthy even of that term as I will set out.

14. The draft notice of appeal contains the following grounds.

(1)  The 1^st defendant’s request for leave to advance affirmation evidence to answer the receivers’ summons should not have been denied.

The situation reached had become serious. I did not seek to try all the issues on affidavits but to try to hold the ring more securely to preserve the assets.  The 1^st defendant’s application was dealt with in my Decision.  I was not prepared to delay the matter any further.  I made this clear.  This ground, such as it is, was not raised at the earlier application before me, nor before the Court of Appeal.

(2)  Para 7 of the receivers’ summons did not cover the terms of the draft Order.

It did not need to in the same terminology, but I asked for a draft Order to be provided.  This is a thoroughly bad quasi‑technical point.  The hearing was conducted on the basis of the draft Order sought.

(3)(a) This appears to mean that the Decision was based essentially upon the receivers’ summons and accordingly absorbed the basis of the 1^st defendant’s summons.

I shall not attempt to divine the point the 1st defendant seeks to make here.  The hearing was concerned with the merits of both parties’ summonses.  There was no merit in that of the 1^st defendant.

(3)(b) The test of “reasonable necessity” was not applied and the general legal principle of no change in the composition of the board of directors of a listed company on an interim basis etc.

It is clear that my Decision has not been understood or has been misread.

(3)(c) Apparent bias.

This is a repetition of an allegation on which I commented on the last occasion.  It was also raised before the Court of Appeal as “one of the best points”.

(3)(d) Inadequate reasons.

I do not consider this merits any further comment by me.  It was also raised as “one of his best points” before the Court of Appeal.

(4)(a) Varying and discharging the “direction” in para 18 of the Decision of Godfrey Lam J of 17 June 2015.

The point, such as it is, should be varying or discharging, it cannot be both.  In any event this has been dealt with earlier (see paras 7‑11).  It does not merit further consideration.

(4)(b) variation/discharge of “specific direction” could not be done “absent an appeal by the plaintiffs against it” and cannot be effected through the receivers’ summons.

The first part referring to the necessity of an appeal by the plaintiff is another thoroughly bad point — it is, and I do not mince my words — arrant nonsense as a moment’s reconsideration will show.  Even if the receivers were minded to try and extend their powers in face of the careful rulings of Godfrey Lam J, I imagine sound legal advice would say that Order reflected the current situation.  Why should the plaintiffs and receivers be encouraged to adopt the 1st defendant’s obsession with appealing every decision which flows against him?  Their very status would render an appeal impossible.  They had to wait and see how the situation developed.  As for the second part, of course it can be so effected.  This is once more repetitious material.

15. Mr Chan has contrived to produce another four pages by way of expansion of these so‑called grounds.

The Fallback limb

16. Interests of justice are served in this case by ensuring, as far as humanly possible, to the maximum extent, that the powers of the court can be effectively deployed for the purpose of preserving the assets disputed by the parties, pending resolution — that aim and overriding concern has been lost sight of.

17. They do not serve the obstructive aims of a defendant, who appears bent on bleeding those who oppose him, of their means of securing a fair outcome.

Ground 1

18. The 9^th affidavit was more concerned with an abusive attack upon the receivers and independent directors and was unlikely to contribute materially to the position.  There was no reasonable prospect of a further affidavit being constructive even though he had the time in which to prepare it prior to the hearing.  The fact that no affirmation or affidavit has seen the light of day since is added conformation of that, if it be needed.

19. In any event I decided that this was likely to be a delaying tactic.

Ground 2

20. It is nonsense to suggest there should be a formal application to amend the summons to bring it in line with draft Order.  It is not necessary to function in such a pedantic and impractical way.  The Court has, and always has had, jurisdiction and discretion to mould its Order to the circumstances prevailing, in order to do justice.  The very fact of the 1^st defendant’s opposition to powers being extended for receivers and independent directors and the past history was sufficient to put the situation clearly.  The 1^st defendant well knew what was being sought for the court’s officers.

Ground 3

“Reasonably necessary” test

21. To the extent that this was applicable generally, this was applied as is obvious from the language I used, though my approach was and is that it was both reasonable and necessary.  The receivers were well aware of their purpose and obligations on their appointment.  There was no revocation of any direction or Order.  It was an extension to meet the deteriorating circumstances.  No further comment by me is necessary.

Ground 4

22. Paras 10 and 11 just do not make sense.  Their content is clearly shown to be baseless by counsel’s own reliance upon the extract from Young J’s judgment in Glazier Holdings Pty Ltd v Australian Mans Health Pty Ltd:

“The receiver ... is to be a neutral party holding assets in such a way as will not disadvantage one party or the other [pending the accounting exercise].

... There is another matter that must be considered and that is what is the receiver’s real aim ... [it] cannot be to benefit one party rather than the other.”

23. The necessary steps, which my Order was and is to facilitate, is to preserve the assets from any corporate activity which threatens them.  That is in the interest of both parties.

24. I have accorded a degree of respectability to the matters put forward — I will not designate them “arguments” — which they do not merit.

25. These matters were put before the Court of Appeal, as the priority decided by counsel for the 1^st defendant, he having been invited by it to identify one or two of his best points.  If some of those now mentioned to me were regarded as new, they could and should have been advanced then.  The same applies to the application for leave made before me on 26 October 2015.

26. This is an extreme example of cynical attritional litigation.  It is both sad and worrying to see a band of lawyers for a party being manipulated to participate in a wasteful and nonsensical exercise, or lending themselves to that end.  Regurgitating hollow arguments which have already been identified as such, and rejected as baseless, is not advocacy.

27. The degree of obtuseness is almost breathtaking, but in view of the 1^st defendant’s litigious activities, now approaching a condition known as “vexatious litigation”, albeit interlocutory, steps must be taken to stop it.

28. Vast sums are being wasted in costs.  I referred to a war of attrition.  There may be a calculated effort on the part of the 1^st defendant to bleed his opponents dry.  That can be stopped too.

29. What is relevant has been, and is being, ignored.  The purpose of the court and its properly appointed officers is to ensure that the cupboard is not stripped bare whilst the merits of the case of both sides are considered. The defendant and those arguing on his behalf have utterly failed to grasp this situation.  They have persistently sought to sidestep this, hence my earlier reference to filibuster to which I will add, having listened to a total of more than five hours of that nature, the American term, “snowjob”. That indicates a complete lack of respect for the judicial process but that itself, though persistent in this case, is not the most important aspect.

30. To conclude:

(1)  This application is dismissed.

(2)  It is entirely misconceived.

(3)  It is an abuse of process.

(4)  It is a waste of time and cost.

(5)  The defendant will pay the costs of all the parties on an indemnity basis on summary assessment forthwith.