ACHIEVE GOAL HOLDINGS LTD v. ZHONG XIN ORE-MATERIAL HOLDING CO LTD

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1987 OF 2005

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REASONS  FOR  DECISION

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Introduction

1.  The 2nd and 3rd defendants (by counterclaim) (“the Angola defendants”) took out an application seeking:-

(a)     the discharge of the interim receivers of the 1^st plaintiff (by counterclaim), Zhong Xin Ore-Material Holding Co. Ltd. (“Zhong Xin”), appointed pursuant to the order of the court of appeal dated 7 November 2008;

(b)    alternatively, an injunction restraining the interim receivers from ratifying the capital injection by the 2^nd plaintiff (by counterclaim) (“Bai Jun”) into Yulin Changlebao Mining Co. Ltd. (“the Yulin company”) in February 2008 for the 5^th defendant (by counterclaim) (“the ratification decision”);

(c)     further or alternatively, the interim receivers do withdraw and/or terminate the implementation of the ratification decision.

2.  Before the hearing, the Angola defendants indicated they would not pursue the application for the discharge of the interim receivers.  At the end of the hearing, the remainder of the application was dismissed with costs.  The following are the brief reasons.

Background

3.  The interim receivers were appointed by order of the court of appeal.  The background leading to that appointment, and hence to this application, has helpfully been summarized in the court of appeal’s judgment dated 24 November 2008.  The relevant parts are quoted below:-

“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 1^st instalment being RMB 20 million payable upon the registration of CLB, the 2^nd 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 1^st instalment was due to be provided by 18 January 2005, the 2^nd instalment 18 January 2006, and the 3^rd 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 1^st 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 1^st 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 2^nd and 3^rd instalments:

“By 1^st and 2^nd February 2008, Bai Jun injected US$ 4,172,590 (equivalent to RMB 29,567,600) into CLB as injection in respect of the 2^nd and 3^rd Capital Instalments in satisfaction of the balance capital of CLB to be injected by Zhong Xin pursuant to the CLB JV Contract.”

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:

「若甲方（Angola）未能按期支付合资公司注册资本金余额，将由乙方（Bai Jun）出资补上，甲方在中信矿业公司（Zhong Xin）的股份则按比例相应降低。」

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 2^nd and 3^rd 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 1^stdefendant, Bai Jun the 2^nd 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 2^nd and 3^rd 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 3^rd 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:

「…根据《公司法》第199条、第200条的规定，原告要求法院判决百浚天成的出资为虚假出资，出资无效，同时确认中信矿业违约出资、转让出资的情况下，原告根据《公司法》第72条之规定，享有股东的优先购买权。原告为此诉之法院，请法院依法受理，公正判决。」

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.”

4.  It is undisputed the interim receivers’ ratification decision (dated 6 March 2009) concerns the capital injection referred to in para. 10 of the court of appeal’s said judgment (“the Purported Capital Contribution”).

Merits of this Application

5.  The essence of the Angola defendant’s first complaint was that the ratification decision was not made in the interest of Zhong Xin.  This complaint was based on an alleged offer to settlement earlier made by the Yulin company.

6.  The ratification decision was made by the interim receivers to meet the claim pursued by the Yulin company in the Mainland (for details of the claim, see para. 10 and 12 to 14 of the court of appeal’s said judgment).  In November 2008, the first instance court in Shaanxi decided the claim in favour of Bai Jun (and against the Yulin company) (it should be noted the first instance court’s decision did not rely on the ratification decision).  The Yulin company has lodged an appeal which is pending hearing and determination by the higher courts in Shaanxi.

7.  The Angola defendants argued in this application that because the Yulin company had offered to settle its Mainland claim (since the first instance decision), the interim receivers ought not have rejected the offer and continued to resist the claim.

8.  I agree with the interim receivers (and Bai Jun) that this complaint should fail essentially because the facts on which it was supposedly based were incorrect:-

(1)     the alleged offer to settle was nothing more than an open acknowledgement and admission by the Yulin company its claim is weak:-

“根據 … 我公司律師的論証，認為我公司根據<合資經營合同> … 提出優先出資權 … 法律依據不是很充分 …

鑒於以上情況，我公司擬向陝西高院提出撤回 … 優先購買權的訴訟請求 … ” (letter from the Yulin company dated 20 March 2009 to Angola and Bai Jun);

(2)     the alleged offer was addressed to Angola and Bai Jun and not to Zhong Xin or the interim receivers;

(3)     the alleged offer was made by the Yulin company after the ratification decision has been made;

(4)     it did not contain any clear terms of an offer for settlement which were capable of consideration (or of being accepted);

(5)     any acceptance of a settlement offer must have Bai Jun’s prior consent (there has not been any consent);

(6)     the interim receivers have never rejected any offer from the Yulin company.

9.  The thrust of the Angola defendants’ second complaint in this application was that the ratification decision would prejudice their claim in this action.  The complaint was put forth as follows:-

“The Purported Capital Contribution is one of the core disputed issues in [this action].  Bai Jun alleges that since it has validly made the Purported Capital Contribution, it is entitled to reduce Angola’s (i.e. D2) shareholdings in [Zhong Xin] from 50% to approx. 20% pursuant to the provisions of the JV Agreement”;

“Although in correspondence, the [interim receivers have] claimed that [they had] not taken any stance on the parties’ respective rights and interests in [this action], the consequences of [the ratification decision] is such that Angola’s case would be irreversibly prejudiced at trial”

(para. 7 and 27, skeleton submissions of the Angola defendants).

10.  The complaint is unjustified.  As the interim receivers correctly pointed out, the ratification decision was made expressly without prejudice to the parties’ rights in this action.  The following statements in the document evidencing the ratification decision are relevant:-

“經接管人詳細研究及考慮上述百浚代中信出資行為之背景事實 … 及百浚同意如接管人追認上述代出資行為，並不代表接管人同意百浚因此可在中信內享有更多的股份或股權，亦不影響百浚或安哥拉各方或其他方於上述香港法院提出之訴訟內之任何爭議 … 一切仍須留待香港法院於該訴訟中作出的最後判決而定 … ” (para. 8 thereof).

Bai Jun has confirmed its agreement to the without prejudice nature of the ratification decision during the hearing of this application.

11.  The Angola defendants’ third complaint was in short the interim receivers lacked the authority to make the ratification decision.  The complaint can be summarized as follows.

12.  The contractual deadline for capital injection by Bai Jun was 5 February 2008.  The ratification decision itself was only made after the deadline has expired.  Where it was essential for an act to be done within a certain time, prejudice would be caused to third parties if the act could be ratified after that time has expired.

13.  Again, there is no merit in the third complaint.  Any right which might have arisen out of the capital injection delay would have belonged to the Yulin company; the Yulin company could have relied on it to terminate the CLB JV contract.  Not only has the Yulin company not done so, in its letter dated 9 December 2008, the Yulin company has invited the interim receivers to fulfill the capital contribution obligation.  It was not open to the Angola defendants to raise any complaint about this; no right has accrued to them prior to the ratification decision.

14.  The interim receivers have also put forth other arguments in their skeleton argument in answer to this complaint (especially at para. 3.13 thereof).  There is no need to set them out save to say I also agree with them.

15.  During the hearing, the Angola defendants raised another argument concerning the interim receivers’ authority.  This argument was premised on clause 3.2(2), 3.2(6) and 3.2(7) of the joint venture agreement.

16.  There is again no need to set out the last argument in detail except to observe that it overlooked the very purpose of the joint venture agreement which can be gathered from:-

(a)     the relevant surrounding circumstances at the time of the joint venture agreement (see especially para. 4, 7 to 11 of the court of appeal’s said judgment);

(b)    the other contractual provisions of the joint venture agreement (especially clauses 1.1 to 1.6 and 2.1 to 2.6 thereof).

There is no substance in the argument.

Procedural Defect

17.  The interim receivers also raised objection based on procedural deficiency in this application.  Strictly there is no need to deal with them because this application could be determined on the merits (see  above).

18.  The injunction orders sought were in nature final orders.  They were not directed against any of the parties to this action as such, but against the interim receivers only.  The interim receivers contended there were two possible ways to challenge a receiver’s improper act(s).

19.  The first possible mode of application is based on RHC Ord. 30 r. 7(1) which provides:-

“Where a receiver fails to attend for the examination of any account of his, or fails to submit any account, provide access to any books or papers or do any other thing which he is required to submit, provide or do, he and any or all of the parties to the cause or matter in which he was appointed may be required to attend in chambers to show cause for the failure, and the Court may, either in chambers or after adjournment into court, give such directions as it thinks proper including, if necessary, directions for the discharge of the receiver and the appointment of another and the payment of costs”.

20.  The second possible mode of application is to seek the court’s leave to bring an action against a receiver: Picarda: The Law Relating to Receivers, Managers and Administrators (2006) 4^th Ed., p. 494; Kerr and Hunter on Receivers and Administrators (2005) 18^th Ed., para. 6-52 (p. 162).

21.  If it were necessary to decide this aspect, I would have agreed with the interim receivers’ above contention.

Other Matters

22.  The stance adopted by the other parties in this application was:-

(1)     the plaintiffs (by counterclaim) supported the interim receivers;

(2)     the 1^st and 4^th defendants (by counterclaim) were neutral.