BEIJING HANTONG YUZHI CONVENTION CENTRE LTD v. LAO YUAN YI

HCA 1208/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1208 OF 2010

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is the trial of a preliminary issue of whether the Plaintiff has locus standi to sue in this action.

Dramatis personae

2.  China Venture Tech Investment Corp (中國新技術創業投資公司) (“VTI China”) is a state-owned financial enterprise established in 1986 by and accountable to the Ministry of Science and Technology and Ministry of Finance of the People’s Republic of China (“the PRC”).  With the consent of the State Council (國務院), the People’s Bank of China (“People’s Bank”) passed a resolution to have it closed down on 22 June 1998 because of mismanagement and breaches of rules and regulations.

3.  China Venture Tech International Investment Corporation Shanghai (上海中創國際投資公司) (“VTI Shanghai”) is a wholly owned subsidiary of VTI China set up on 18 March 1993.  It is a state-owned non-financial enterprise. 

4.  Lao Yuan Yi was a vice president of VTI China. He was appointed the officer-in-charge and legal representative (法定代表人) of VTI Shanghai in April 1993.   He is the defendant in this action (the “Defendant”).

5.  China Huarong Asset Management Corporation (中國華融資產管理公司) (“Huarong”) is one of four specialist asset management corporations set up by the State Council under article 2 of《Regulation on Financial Asset Management Corporations》(《金融資產管理公司條例》).  The principal function of these asset management corporations is to acquire and manage non-performing loans (不良貸款) advanced by state-owned banks and assets created by such loans, including wholly state-owned non-banking financial institutions, for the purpose of their eventual disposal.

6.  Praiseup Limited (幹喜有限公司) (“Praiseup”) is a company incorporated in Hong Kong by Chau Ngai Ming (“Chau”).  The Defendant and Chau are its only two directors and shareholders, each holding one share in the company.  Praiseup entered into an agreement to purchase the whole of the thirteenth floor of a commercial building in Shanghai known as Guanglu Huangpu Centre (港陸黃埔中心) (the “Guanglu Centre property”).

7.  Beijing Hantong Yuzhi Convention Centre Limited (北京瀚通譽智會議中心有限責任公司), presumably a company incorporated in the PRC, is the plaintiff in this action (the “Plaintiff”).

The background

8.  In 1995, VTI China decided to invest in the property market in Shanghai through its subsidiary, VTI Shanghai.  VTI Shanghai used Praiseup Limited, a company incorporated in Hong Kong, as a joint investment vehicle to invest in properties in Shanghai which could only be sold to overseas investors.  The Defendant was appointed as its director on 19 April 1994 and holds one of its two issued shares.  The share was formally transferred to him on 9 December 1994.

9.  Between September 1994 and July 1995, VTI China remitted $3,234,375.91 (“the remittance”) to VTI Shanghai which was used to pay Chau, representing 50% of the down payment already made by Praiseup for the purchase of the Guanglu Centre property.

10.  On 2 January 1996, the Defendant and Chau signed a shareholding confirmation agreement confirming, inter alia, that he was holding the one share of Praiseup on behalf of VTI Shanghai. 

11.  On 21 June 1998, the People’s Bank issued a determination to close down VTI China with effect from 22 June 1998, pursuant to articles 30 and 31 of 《Law of the People’s Republic of China on the People’s Bank of China》(《中華人民共和國中國人民銀行法》); article 192 of《Company Law of the People’s Republic of China》(《中華人民共和國公司法》) (“《Company Law》”) and《Provisions on the Management of Financial Institutions》(《金融機構管理規定》) issued by the People’s Bank.  The People’s Bank ordered, inter alia, that VTI China’s wholly owned subsidiary enterprises to continue their business but VTI China’s investments (投資) in and loans (貸款) to those subsidiaries shall be disposed of by the winding up committee (the “Committee”).  On or about 26 October 1999, the Committee took over all management of VTI Shanghai.  Since that date, the Defendant ceased to have any function in VTI Shanghai, though he remained in name as its legal representative.

12.  On 6 September 2001, the Defendant, in his capacity as director of Praiseup, signed an agreement allegedly entered into between VTI Shanghai and VTI China to the effect that the remittance has been set off by VTI Shanghai transferring its 18.53% shareholding in Praiseup to VTI China.  But this agreement was not signed by anyone for and on behalf of VTI China or VTI Shanghai.

13.  On or about 1 January 2002, the Committee delegated the furtherance of the winding up of VTI China to Huarong.  On 30 July 2003, it signed a management agreement with Huarong authorising Huarong to manage and dispose of assets of VTI China.  By the end of 2005, some residual assets of VTI China remained undisposed of.  On 28 February 2006, the Committee entered into an agreement to sell the residual assets as a package to Huarong for RMB 5,020 million (the “Huarong Agreement”). The residual assets as stated in the schedule to that agreement included VTI China’s investments in VTI Shanghai in the amount of RMB24,854,936.55 and receivables in the amount of RMB1,000,000.

14.  On 23 October 2007, Huarong entered into an agreement to sell the residual assets of VTI China situated in Jiangsu and Shanghai to the Plaintiff (the “Hantong Agreement”).   The residual assets as stated in the schedule to that agreement also included VTI China’s investments in VTI Shanghai in the amount of RMB 24,854,936.55 and receivables in the amount of RMB 1,000,000.

15.  By a letter dated 15 September 2009, the Plaintiff’s then solicitors demanded the Defendant to transfer his one share in Praiseup to the Plaintiff and to provide copies of financial accounts of Praiseup since 1 April 2007.  The Defendant did not respond.

16.  On 3 October 2009, the Pudong District Branch of Shanghai Industry & Commerce Administrative Management Bureau (上海市工商行政管理局浦東分局) (the “Bureau”) suspended (吊銷) the business licence of VTI Shanghai.  However, VTI Shanghai’s registration as a legal person was not revoked (未注銷). Its status then became one of a suspended but unrevoked (吊銷未注銷) entity. 

17.  On 10 August 2010, the Plaintiff commenced these proceedings seeking a declaration that the Defendant was holding 50% of the shareholding in Praiseup on trust for the Plaintiff.  On 14 December 2011, the Defendant amended his defence to include a plea that the Plaintiff could have no locus standi and no legal bases to claim against him.

18.  On 26 June 2012, the Defendant took out a summons seeking to strike out the Plaintiff’s statement of claim or alternatively for an order that the issue of the Plaintiff’s locus standi be tried as a preliminary issue.   On 1 February 2013, Au Yeung J made an order that this issue be tried as a preliminary issue and gave directions, pursuant to which the parties’ PRC law experts filed a joint report dated 11 May 2012 and a joint statement dated 5 April 2013.

The issues

19.  In a nutshell, the Plaintiff’s case is that the Defendant is holding 50% of the shareholding in Praiseup as trustee for VTI Shanghai which is a wholly owned subsidiary of VTI China.  Both VTI China and VTI Shanghai are state-owned enterprises.  VTI China was ordered to be closed down on 22 June 1998, while VTI Shanghai was allowed to continue business until its registration as an enterprise legal person was revoked on 3 October 2009.  The Committee was appointed to dispose of the assets of VTI China, including its investment in VTI Shanghai.  On 28 February 2006, the Committee sold the residual assets to Huarong under the Huarong Agreement.  In turn, Huarong sold part of the residual assets, which included VTI China’s investment in VTI Shanghai, to the Plaintiff under the Hantong Agreement on 23 October 2007.  The Plaintiff therefore claims that the Defendant is holding the 50% shareholding in Praiseup on trust for the Plaintiff and seeks an order for its transfer to the Plaintiff.

20.  The Defendant challenges the Plaintiff’s locus standi to sue.   The thrust of Mr Man’s argument on behalf of the Defendant is that there is no reason why the Plaintiff could have become the beneficiary of the trust when according to its case the shareholding in Praiseup is held on trust for VTI Shanghai and not the Plaintiff.  He further argued that even if the Plaintiff has become a shareholder of VTI Shanghai, he has no standing as shareholder to enforce the company’s interest in the trust.

21.  With respect to Mr Man, though the subject matter in this action is shareholding in a company incorporated in Hong Kong, such common law principles are not applicable to a dispute involving how the interest in that subject matter and therefore the right to sue in respect of it devolved from the original beneficiary which is a state-owned enterprise in the PRC in accordance with the laws of the PRC applicable to those state-owned enterprises.  It is common ground that the Committee has power to dispose of the assets of VTI China and that VTI Shanghai is a wholly owned subsidiary of VTI China.  Thus, on this question of locus standi to sue in respect of the shareholding in VTI Shanghai or more specifically its beneficial interest in the shareholding in Praiseup held by the Defendant, the issues as rightly identified by Mr Pu, the Defendant’s PRC law expert, are whether Huarong has lawfully acquired from the Committee the shareholding in VTI Shanghai held by VTI China and lawfully passed that onto the Plaintiff.

22.  The parties’ PRC law experts have reached the following consensus.  First, VTI China and VTI Shanghai are enterprise legal persons (企業法人) and not corporate legal persons (非公司法人).  Hence, 《General Principles of the Civil Law of the People’s Republic of China》(《民法通則》) is applicable to these entities and not《Company Law》. Second, the Committee had the right to dispose of the 100% shareholding in VTI Shanghai held by VTI China.  Third, 《The Interim Measures for the Management of the Transfer of State Owned Property Rights of Enterprises 》(《企業國有產權轉讓管理暫行辦法》) (“《Interim Measures》”) is inapplicable to VTI China as it is a state-owned financial institution.

Terminology

23.  Mr Pu raised a terminology issue.  He drew a distinction between a state-owned enterprise and a company incorporated under the 《Company Law》.  According to Mr Pu, the contributors to the share capital of a company are called “股東” (“shareholders”) and the capital they contribute is called “股權” (“equities”).  But, in a state-owned enterprise, the party contributing to its capital is a state-owned assets administration department (國有資產管理部門) which is a government department and is therefore in law called “出資人” (“contributor”) and its contribution to the equity of the enterprise is called “出資額” (“amount of contribution to equities”).  He said that shareholders of and equities in a company are equivalent to contributors and amount of contribution to equities in a state-owned enterprise, and in practice these terms are used interchangeably.   The distinction was raised by Mr Pu for the purpose of advancing his argument that different laws apply to a state-owned enterprise and a company.  In this decision, I may, out of convenience, use the more familiar terms used in relation to companies for enterprise legal persons, but I take note of the difference.

Whether the shareholding in VTI Shanghai held by VTI China had been lawfully sold by the Committee to Huarong

24.  Part of the subject matter under the Huarong Agreement are the investments (投資) in VTI Shanghai in the amount of RMB24,854,936.55 held by VTI China and its receivables (應收賬款) in the amount of RMB1,000,000.  As shown in the balance sheet of VTI Shanghai, the investments represent VTI China’s amount of contribution to equities in Mr Pu’s terminology or more conveniently, VTI China’s shareholding in VTI Shanghai.  The focal point in dispute is whether this shareholding in VTI Shanghai has been vested in the Plaintiff.  VTI China’s shareholding in VTI Shanghai was an asset belonging to VTI China.  In accordance with article 11(4) of《Regulations on the Cancellation of Financial Institutions》(《金融機構撤銷條例》), a winding up committee has power to dispose of assets of the institution in the course of its winding up. Article 20 expressly provides that a committee may sell assets of a financial institution to be wound up.  As it is accepted by Mr Pu that the Committee has power to dispose of the assets of VTI China,which include its shareholding in VTI Shanghai, the Defendant can hardly dispute that VTI China’s shareholding in VTI Shanghai was lawfully sold to Huarong under the Huarong Agreement. 

25.  The real thrust of Mr Pu’s argument is that in disposing of its shareholding in VTI Shanghai, VTI China as contributor or the Committee in its shoes in winding up should follow the prescribed procedures; and as those procedures had not been followed, the transfer of the shareholding in VTI Shanghai to Huarong has not come into effect.  Hence, and for the same reason, the purported transfer of the shareholding in VTI Shanghai by Huarong to the Plaintiff is also ineffective.  

Whether the usual procedural requirements for disposal of assets of a state-owned financial institution are applicable to disposal by the Committee in winding up

26.  Mr Pu relied on the non-compliance of the following legislations by the Committee when disposing of the shareholding in VTI Shanghai.  First, article 19 of《Regulations on the Cancellation of Financial Institutions》provides that in disposing of the assets of a financial institution to be wound up, a winding up committee should properly evaluate the assets.  Second, PRC laws require that a share transfer can only be effected by following certain procedures.  These include: (1) entering into a share transfer agreement by the parties; (2) approval of the transfer by an appropriate government department; (3) delivery of the shares, ie registration of the transfer internally by the company and externally by the relevant authority; and (4) completion of the transfer upon receipt of the share certificate.  He said that as VTI Shanghai is a state-owned enterprise, its transfer to Huarong requires approval by a state-owned assets administration department to be effective.  He also quoted the opinion of Mr Sun, the Plaintiff’s PRC law expert, that a state-owned enterprise cannot directly dispose of its assets without approval of the relevant department.  The thrust of Mr Pu’s attack on the validity of the transfer under the Huarong Agreement is the lack of approval of the agreement by a relevant government department, evaluation of the asset before sale and registration of the transfer by the relevant government department and VTI Shanghai.  

27.  Mr Sun’s contrary opinion on behalf of the Plaintiff is that the sale under the Huarong Agreement was made pursuant to special legislations applicable to a winding up situation to which the usual requirements under the general legislations quoted by Mr Pu do not apply; and that in any event non-compliance with those requirements does not affect the validity of the agreement.  Mr Sun complained he was being quoted out of context by Mr Pu.  He said he was then referring to disposal of state-owned assets in the ordinary course of business and not disposal under the《Regulations on the Cancellation of Financial Institutions》.  He argued that the procedural requirements mentioned by Mr Pu are only applicable to transfer of shares or shareholding in the ordinary course, for example by way of sale, but not to disposals in a winding up situation pursuant to the《Regulations on the Cancellation of Financial Institutions》.  The winding up of VTI China was ordered by the People’s Bank pursuant to article 30 of the 《Law of the People’s Republic of China on the People’s Bank of China》; and the sale of the shareholding in VTI Shanghai by the Committee was pursuant to the special provisions under《Regulations on the Cancellation of Financial Institutions》,《Regulation on Financial Asset Management Corporations》(《金融資產管理公司條例》) and 《Measures for the Administration of the Asset Disposal of Financial Asset Management Corporations (Revision) 》 (《金融資產管理公司資產處理管理辦法(修訂)》).   He argued that these special legislations which are applicable to specific situations override those mentioned by Mr Pu which are intended for general application or the《Interim Measures》, which both experts had agreed do not apply to state-owned financial enterprise such as VTI China.

28.  VTI China’s shareholding in VTI Shanghai was sold to Huarong pursuant to 《Regulations on the Cancellation of Financial Institutions》.  Huarong, together with three other specialist asset management corporations are state-owned corporations set up by the State Council to acquire non-performing loans granted by state-owned banks and non-performing assets including wholly state-owned non-banking financial institutions acquired by those loans for the purpose of their proper disposal and not for their continued operation.  The operation of these asset management corporations are governed by 《Regulation on Financial Asset Management Corporations》.  Both《Regulations on the Cancellation of Financial Institutions》and《Regulation on Financial Asset Management Corporations》are subsidiary legislations issued by the State Council.  In addition, pursuant to the《Regulation on Financial Asset Management Corporations》, the Ministry of Finance also issued administrative directions to these four asset management corporations on how to regulate their operation in the management and disposal of such state-owned assets.  The applicable direction at the material times was the《Measures for the Administration of the Asset Disposal of Financial Asset Management Corporations (Revision)》[1] (the “《Directions》”).  Clause 4 of the Directions requires the asset management corporations to set up their own specialised organ to examine proposals for disposal of such assets.  The organ comprises of personnel from its asset financing, asset management, asset disposal, asset evaluation and legal departments.  These asset management corporations shall report the composition of their specialised organs to the Ministry of Finance.  The 《Directions》contain detail instructions as to the evaluation and disposal of such assets.  Clause 17 specifically provides for sale of such assets as a package, which was the manner in which the shareholding in VTI Shanghai was sold to Huarong and thence to the Plaintiff. 

29.  These three pieces of subsidiary legislations together constitute a specialised scheme.  This scheme has limited operation. It applies only to non-performing loans advanced by state-owned banks and non-performing assets and state-owned non-banking financial institutions acquired by such loans which are to be sold to the four specialist asset management corporations for their disposal and not for their continued operation.  These four specialist asset management corporations have their own organs for evaluating the assets and supervising their disposal.  Until their ultimate disposal, the assets remained state-owned assets.  The transfer to these asset management corporations and thence to the ultimate buyers are authorised by law.  In the circumstances, evaluation of the assets and approval by government department in respect of their transfer to the four asset management corporations and thence to the ultimate buyers would serve no useful purpose.   I accept Mr Sun’s submission that the above quoted subsidiary legislations are special legislations created for a specialised regime applicable to specific circumstances of sale of state-owned assets and they override the legislations of general application relied on by Mr Pu, which are also subsidiary legislations.  Mr Pu had not quoted the particular legislations requiring approval or identified the approving department.  I can only assume those are subsidiary legislations of general application.  As the sale by the Committee of VTI China’s shareholding in VTI Shanghai to Huarong and thence to the Plaintiff were made pursuant to these special legislations, separate evaluation or approval from government department are not required.  Furthermore, as both experts agreed that the《Interim Measures》, do not apply to VTI China which was a financial institution, all the requirements of evaluation, including the evaluation of its shareholding in VTI Shanghai, and approval for the sale under that subsidiary legislation are inapplicable. 

30.  Mr Pu argued that if transfer of non-financial state-owned assets required evaluation and approval, common sense would dictate such requirements in respect of transfer of assets of state-owned financial enterprises which the state views with more jealousy.  I respectfully differ. These requirements are statutory.  If they are not written in the legislation, they are not applicable.  They are not requirements to be imposed by common sense.  Besides, the Huarong Agreement was made pursuant to the above special legislations. 

31.  The alternative limb of Mr Sun’s argument is that such non-compliance with registration requirement did not affect the validity of the transfer.  He quoted《Interpretation II of the Supreme People’s Court of Several Issues concerning the Application of the Contract Law of the People’s Republic of China》(《關于適用《中華人民共和國合同法》若干問題的解釋(二)》[2]) (“《Judicial Interpretation 5/2009》”).  Judicial interpretations of the Supreme People’s Court are made under the authority of the Standing Committee of the National People’s Congress.  They are authoritative statements on interpretation of law.  In article 14 of this Judicial Interpretation, the Supreme People’s Court referred to the mandatory requirement (強制性規定) under article 52(5) of the《Contract Law》and explained that there are two categories of mandatory requirements: normative (效力性規範); and administrative (管理性規範).  Normative requirements are those in which the legislation laying down the requirements expressly stipulates that non-compliance has the effect of rendering the contract null and void.  Absence such stipulations in the legislation, the requirements are administrative only. The purpose of such administrative requirements is regulatory and punitive, ie to punish parties entering into contract in breach of the law, but not prohibitive.  Non-compliance does not annul the contract or affect its validity.  Mr Sun submitted that the mandatory requirements quoted by Mr Pu are typical examples of administrative requirements, non-compliance of which did not have the effect of rendering the Huarong Agreement void.  Mr Pu did not dispute that Judicial Interpretation is inapplicable to the Huarong Agreement, or the distinction between the two categories of mandatory requirements, or identify any provision in the legislations he relied on which stipulates that non-compliance would render the contract void. 

32.  I therefore accept Mr Sun’s submission that the sale under the Huarong Agreement and Hantong Agreement were disposals pursuant to special legislations under a specific scheme to which the usual requirements under the general legislations do not apply.  But even if the Huarong Agreement and Hantong Agreement did not comply with the statutory requirements, those requirements are administrative and not normative, the non-compliance of which did not have the effect of rendering the agreements void.  

Requirement of registration of transfer of shareholding with the Bureau

33.  The next argument of Mr Pu is that regardless of the validity of the Huarong Agreement and Hantong Agreement, the shareholding in VTI Shanghai did not pass onto Huarong and thence to Hantong for want of registration with the Bureau.  This argument is based on the combined effect of article 17 of 《Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations》(《中華人民共和國企業法人登記管理條例》) issued by the State Administration For Industry & Commerce (中華人民共和國國家工商行政管理總局) and clause 9 of 《Interpretation (I) of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China》[3]  (《最高人民法院關于適用《中華人民共和國合同法》若干問題的解釋(一)》) (“《Judicial Interpretation 19/1999》”). 

34.  Article 17  of 《Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations》provides as follows:

“企業法人改變名稱、住所、經營場所、法定代表人、經濟性質、經營範圍、經營方式、注冊資金、經營期限、以及增設或撤銷分支機構，應當申請辦理變更登記”

(Translation:

“If an enterprise legal person changes its name, residence, place of business, legal person, economic nature, scope of operation, mode of business operation, registered capital, period of operation, addition or reduction of branch offices, it shall apply for registration in respect of the changes.”).

35.  Clause 9 of 《Judicial Interpretation 19/1999》provides as follows:

“依照合同法第四十四條第二款的規定，法律、行政法規規定合同應當辦理批准手續，或者辦理批准、登記等手續才生效，在一審法庭辯論終結前當事人仍未辦理批准手續的，或者仍未辦理批准、登記等手續的，人民法院應當認定該合同未生效；法律、行政法規規定合同應當辦理登記手續，但未規定登記後生效的，當事人未辦理登記手續不影響合同的效力，合同標的物所有權及其他物權不能轉移。”

(Translation:

“In accordance with the provision of article 44(2), where the laws or administrative regulations provide that a contract shall only come into effect upon obtaining approval or approval and registration, if by the conclusion of trial at First Instance, the party responsible has not obtained approval or has not obtained approval and registration, the court shall treat the contract as not having come into effect; where the laws or administrative regulations require registration, but do not stipulate that the contract shall come into effect after registration, that the party responsible has not obtained registration does not prevent the contract from coming into effect, but the ownership right and other property rights to the subject matter of the contract may not pass.”)

36.  There is no dispute that the transfer of the shareholding in VTI Shanghai to Huarong and thence to the Plaintiff have not been registered with VTI Shanghai or the Bureau.  As at the date of the experts’ joint statement in 2013, VTI China was on record the sole owner of the shareholding in VTI Shanghai.  In gist, Mr Pu’s opinion is that the Huarong Agreement is required to be registered under article 17 of《Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations》; and as it was not so registered, according to 《Judicial Interpretation 19/1999》 the shareholding in VTI Shanghai did not pass to Huarong.  The same applies to the transfer of the shareholding under the Hantong Agreement.   

37.  As was rightly pointed out by Mr Sun, article 17 does not require registration of transfer of ownership in shareholding in a state-owned enterprise.  It only requires registration of changes in modes of operation and share capital.  Mr Pu’s argument was obviously not supported by the plain language of article 17.  As his argument was premised on his misinterpretation of《Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations》, that argument must fail. 

38.  Mr Sun further demonstrated the fallacy of Mr Pu’s argument by referring to an opinion of the Shanghai Higher People’s Court, 《Opinions (I) of the Higher People’s Court of Shanghai Municipality on Some Issues Concerning Litigation Involving Companies》[4]  (《上海市高級人民法院關于審理涉及公司訴訟案件若干問題的處理意見(一)》) (“《Judicial Opinion 216/2003》”) and an article, 《Comprehension and Application of the Interpretation (III) of the Supreme People’s Court on Company Law and the Summary of Minutes of the Symposium on Liquidation》[5] (《最高人民法院關于公司法解釋(三) 、清算紀要理解和適用》) written by Vice President Xi Xiaoming (奚曉明) of the Supreme People’s Court (the “Article”).    

39.  In 《Judicial Opinion 216/2003》, the Shanghai Higher People’s Court opined that the formation and effect of a share transfer agreement are governed by《Contract Law》; that the purpose and effect of registration by the Bureau are to give public notice of change of shareholding for the protection of innocent third parties; and that registration is not a condition for formation and the entering into effect of a share transfer agreement.  This opinion was applied by the Shanghai Intermediate People’s Court in a judgment in 2003[6].  In that case, the court held that whether a litigant has obtained shares and become a shareholder is dependent on the intention of the parties to the transaction.  Those issues do not fall within the ambit of the Bureau.  Registration by the Bureau is not a condition imposed by law in order that one may become a shareholder.  It is only a procedure for giving public notice of ownership of the shareholding and serves as a means of proof of ownership.  That was how the Intermediate People’s Court construed and applied the Judicial Opinion issued by the Shanghai Higher People’s Court.

40.  In the Article, the Vice President was construing clauses 24 and 25 of 《Interpretation (III) of the Supreme People’s Court on Company Law》[7] (《最高人民法院關于適用《中華人民共和國公司法》若干問題的規定(三)》)  (“《Judicial Interpretation 3/2011》”).  Clauses 24 and 25 of that Judicial Interpretation read as follows:

“24. 當事人依法履行出資義務或者依法繼受取得股權後，公司未根據公司法第三十二條、第三十三條的規定簽發出資證明書、記載於股東明冊並辦理公司登記機關登記，當事人請求公司履行上述義務的，人民法院應予支持。

25. 有限責任公司的實際出資人與名義出資人訂立合同，約定由實際出資人出資並享有投資權益，以名義出資人為名義股東，實際出資人與名義股東對該合同效力發生爭議的，如無合同法第五十二條規定的情形，人民法院應當認定該合同效有效。”

Clause 24 provides that if a party has fulfilled his obligation to contribute to share capital or has succeeded shareholding right in accordance with the law, but the company does not issue the certificate of contribution or process his registration with the appropriate registration authorities in accordance with articles 32 and 33 of the 《Company Law》, the People’s court should support the party’s application requiring the company to perform the above obligations.  Clause 25 provides that the People’s Court shall give effect to the agreement between the actual contributor providing the capital contribution of a limited liability company and the nominee contributor in whose name the contribution was paid, if the agreement is not contrary to article 52 of《Contract Law》.

41.  The Vice President opined that share transfer is a mode of share succession and takes effect upon the parties reaching agreement on the transfer.  Once agreement is reached, the transferee becomes the beneficial owner of the share.  He further said that registration by the Bureau is declaratory only.  Its effect is to give notice to the public of the shareholder’s right.  That effect is directed at non-parties for the purpose of protecting innocent third parties.  Registration does not create or confer any right in respect of the shares; and non-registration does not affect the rights of the shareholder. 

42.  Mr Man rightly pointed out that 《Judicial Interpretation 3/2011》 is about interpretation of certain provisions of the《Company Law》which applies to corporate legal persons and not to enterprise legal persons created by other legislations before the promulgation of 《Company Law》.  However, the incidents of corporate identity under the two concepts are essentially similar.  The rationale applicable to corporate legal persons are equally applicable to enterprise legal persons.  Not only did the Defendant’s PRC law expert, Mr Pu, not argue otherwise, he actually applied the principles applicable to corporate legal persons to enterprise legal persons in his opinion.  In the joint expert statement, he said in practice, the meaning of the terms, shareholder and equities, in a corporation is the same as that of the terms, contributor and amount of contribution to equities, in an enterprise legal person.  He used these terms interchangeably in the joint expert statement.

43.  Lastly, on this issue, Mr Sun repeated his argument that the requirement of registration under article 17 is an administrative requirement and not normative; and non-compliance does not have the effect of rendering the Huarong Agreement or the Hantong Agreement void.

44.  I accept Mr Sun’s argument that Mr Pu was plainly wrong.  Mr Pu’s argument is premised on his mis-interpretation of article 17 of 《Administrative Regulations of the People’s Republic of China Governing the Registration of Legal Corporations》and is inconsistent with the spirit of 《Judicial Opinion 216/2003》and 《Judicial Interpretation 3/2011》.  I find that under PRC law share transfer takes effect upon conclusion of the share transfer agreement by the parties and not upon registration in the share register of the company or the Bureau.  The purpose of registration is to give notice to the public of the shareholder’s right.  Registration does not create or confer any rights; and non-registration does not affect the rights of the shareholder.  At least, as between the parties to the transfer, the transfer is valid and binding for all intents and purposes.  The same must also apply to a contributor and the amount of equity contribution in an enterprise legal person.  Non-registration of the transfer with the Bureau did not have the effect of preventing VTI China’s shareholding in VTI Shanghai from passing to Huarong and thence to the Plaintiff.

Requirement of registration of transfer of shareholding by VTI Shanghai

45.  The remaining argument of Mr Pu is that the transfer of ownership of the shareholding in VTI Shanghai to Huarong or to the Plaintiff was not effective for want of registration by VTI Shanghai.

46.  It is not clear what was the legal basis of this proposition.  While not disputing this proposition, Mr Sun argued that registration is not necessary in the case of a sale pursuant to the three special legislations.  Those special legislations deal with the power of the winding up committee in disposing of the assets of an entity to be wound up and the sale of the assets.  I cannot find any provisions in the three special legislations that dispense with the requirement of registration, if there is such a requirement, whether statutory or otherwise.  I am not convinced that the special legislations have the effect of dispensing with the requirement of registration by the enterprise itself.  The question is what is the effect of non-registration by the enterprise.

47.  If non-compliance with clear statutory requirement of registration with the Bureau do not have the effect of rendering a share transfer void, it is difficult to see how non-compliance with requirement of internal registration by the enterprise could have that effect. Applying the spirit of the Supreme People’s Court’s in《Judicial Interpretation 3/2011》, the Shanghai Higher People’s Court’s approach  towards non-compliance with registration requirement with the Bureau in《Judicial Opinion 216/2003》and the rationale of the Shanghai People’s Court in (2003) 滬一中民三(商) 終字第319號, I think registration of share transfer by the enterprise itself is also a mere formality.  It is all a matter of internal management.  It is the law of the PRC that transfer of ownership in shares in a company is a civil act which is governed by 《General Principles of the Civil Law of the People’s Republic of China》. The court’s approach is to give effect to the intention of the parties and consider the transfer effective upon conclusion of the transfer agreement by the parties.  Registration does not create right or title in the shares.  It does not even have the effect of giving notice to the public or protecting innocent third parties who could not have access to the internal record of the enterprise.  Non-registration of the transfer of ownership of shares by the corporation itself does not prevent the transfer from taking effect.  I can see no difference in substance between a state-owned enterprise and a company, except that one is state-owned and the other is private-owned.  I have not been referred to any legislation, Judicial Interpretation or Judicial Opinion which suggests that the law on transfer of ownership in the amount of equity contribution to a state-owned enterprise is any different from that for transfer of ownership of shares in a company.  In fact, in his written opinion, Mr Pu also referred to the Judicial Interpretations as if there is no distinction between shares in a company and a contributor’s amount of equity contribution. Accordingly, I accept Mr Sun’s opinion that non-registration of the transfer by the enterprise does not prevent the transfer from taking effect. 

48.  Lastly, Mr Pu argued that as VTI Shanghai is a state-owned non-financial institution, a number of legislations, such as《Interim Measures》and a number of other legislations which are inapplicable to VTI China as a state-owned financial institution are applicable to VTI Shanghai which is not a financial institution.  He referred to articles 13 and 14 of the 《Interim Measures》, article 3 of《The Administrative Measures for State-owned Assets Assessment》(《國有資產評估管理辦法》), article 5 of 《Detailed Rules for the Implementation of the Administrative Measures for State-owned Assets Assessment》 (《國有資產評估管理辦法施行細則》), and《Interim Provisions of Shanghai Municipality on the Administration of Assessment Projects of State-owned Assets》 (《上海市國有資產評估項目管理暫行規定》).  In essence, these provisions require state-owned enterprises to conduct proper evaluation of the assets to be disposed of.  However, the shareholding in VTI Shanghai, which is the subject matter of the transfer under the Huarong Agreement and Hantong Agreement, is the asset of its holding entity or shareholder, namely VTI China, and not the asset of VTI Shanghai.  These provisions do not apply to the transfer of the shareholding in VTI Shanghai by the Committee or by Huarong.   Mr Pu also referred to article 8 of《Rules on the Management of Property Right Registration of the State Assets of Financial Enterprises》(《金融類企業國有資產產權登記管理辦法》) which requires registration of transfer of shareholding in a state-owned financial enterprise. As VTI Shanghai is not a financial institution, this statute does not apply to the transfer under the Huarong Agreement and Hantong Agreement.  Furthermore, as analysed above, it is PRC law that such requirements as registration and evaluation of assets are administrative (or at least it has not been shown to be normative), the non-compliance of which do not render the transfer void.  The focal point of this locus standi argument is the transfer of VTI China’s shareholding in VTI Shanghai and not the transfer of the assets of VTI Shanghai.  Mr Pu wholly missed the issue by arguing on the requirements applicable to transfer of assets of VTI Shanghai.

49.  Though the transfer was not registered with the Bureau and on record VTI China is still the shareholder of VTI Shanghai, failure to register the transfer did not have the effect of rendering the Huarong Agreement or the Hantong Agreement void. 

Transfer of the shareholding in VTI Shanghai to Huarong – Conclusion

50.  In the present case, the Committee had power to dispose of VTI China’s shareholding in VTI Shanghai.  The transfer of VTI China’s shareholding in VTI Shanghai was effected under《Regulations on the Cancellation of Financial Institutions》and related legislations under a special scheme to which legislations of general applications do not apply.  The non-compliance with requirements under those general legislations had no effect on the validity and effectiveness of the transfer.  In any event, the requirements are administrative requirements only.  Non-compliance of those requirements and non-registration with the Bureau did not prevent the transfer from taking effect.  In accordance with the law of the PRC, the interest in the shareholding in VTI Shanghai was vested in Huarong upon execution of the Huarong Agreement on 28 February 2006.

Transfer of the shareholding in VTI Shanghai to the Plaintiff   

51.  The subject matter of the sale under the Hantong Agreement is the same assets as described under the Huarong Agreement.  Hence, Mr Sun argued that for the same reasons Huarong’s interest in the shareholding in VTI Shanghai was validly passed onto the Plaintiff under the Hantong Agreement. 

52.  Mr Pu basically repeated his earlier arguments that the Huarong Agreement has not come into effect, but took an oblique approach focusing on the issue whether the Plaintiff has become an owner of the shareholding in VTI Shanghai.  He said that the Plaintiff has to show from the memorandum and articles of VTI Shanghai, its shareholders’ register, delivery and registration records from the Bureau that it is an owner of the shareholding in VTI Shanghai; and proof of payment of the amount of equity contribution, and approval by the Bureau of the Hantong Agreement.  He further argued that as the sale involved transfer of state-owned assets to a privately owned entity, it has to be approved by a relevant state-owned assets administration department.  He also relied on clause 9 of《Judicial Interpretation 19/1999》[8]. In clause 9 of that Judicial Interpretation, the Supreme People’s Court explained that (1) if the law or administrative regulations provide that a contract requires approval and would come into effect upon registration or receiving approval, and if by the conclusion of trial at first instance, the relevant parties have not proceeded with such formalities, the court should treat the contract as not having come into effect; and (2) if the law or administrative regulations require registration but do not provide that the contract would come into effect upon registration, the failure of the relevant parties to proceed with registration does not affect the effect of the contract, but the ownership (所有權) and other property rights (其他物權) of the subject matter of the contract will not be transferred under the contract.  He therefore argued that the Plaintiff has to require Huarong to deliver the shareholding right to it first before it could be in the position to exercise its shareholding right.

53.  Likewise, Mr Sun repeated his arguments.  Mr Pu’s arguments had been considered and dismissed insofar as the Huarong Agreement is concerned.  The parties to the Hantong are different.  In particular, Huarong is not the winding up committee and the Plaintiff is not a state-own enterprise.  That, however, is immaterial because Huarong is one of the four asset management corporations under the scheme created by special legislations.  Those special legislations override the legislations of general application.  The transfer of the shareholding in VTI Shanghai by Huarong, though not in the capacity as the winding up committee, is nevertheless a disposal under the three special legislations.  There is no need for the formalities of asset evaluation, registration of the transfer by the Bureau, etc.  This is all the more so because the transfer of its shareholding was not with a view for it to continue business as its business licence had been suspended by the Bureau on 3 October 2009 and its status as an enterprise legal person was destined for revocation.

54.  As there was no need for the transfer of the shareholding in VTI Shanghai to the Plaintiff to be registered or approved by the Bureau, Mr Pu cannot rely on clause 9 of 《Judicial Interpretation 19/1999 》for his argument that the ownership right and other property rights in the shareholding could not be passed onto the Plaintiff.

55.  As for the lack of delivery of the shareholding, Mr Sun replied that there is no such concept as delivery under PRC law.  Shares or shareholding are just transferred (轉移) or sold (轉讓). By that term, Mr Pu meant internal registration of the Plaintiff as the party paying the amount of equity contribution and external registration by the Bureau.  These issues have been considered above: see paragraphs 33 to 49.  Registration internally or externally is only declaratory.  Its effect is directed at non-parties and for the protection of innocent third parties.  It does not confer title or create rights.  The transfer takes effect upon conclusion of the agreement to transfer by the parties.  Thus, lack of registration or delivery cannot advance the Defendant’s case at all.

56.  Accordingly, I find that the shareholding in VTI Shanghai having been lawfully vested in Huarong under the Huarong Agreement was therefore lawfully vested in the Plaintiff on 23 October 2007 upon conclusion of the Hantong Agreement, despite the lack of registration and approval by the Bureau. Thus, the Plaintiff has become the sole shareholder or party contributing to the amount of equities of VTI Shanghai.

Whether the Plaintiff has locus standi to sue

57.  The ultimate issue is whether the Plaintiff has locus standi to sue in this action.  Under the decision of the People’s Bank, VTI China was closed down on 22 June 1998, while VTI Shanghai was to continue its operation.   Then on 3 October 2009, the Pudong Branch of the Bureau suspended the business licence of VTI Shanghai. However, VTI Shanghai’s registration as an enterprise legal person was not revoked.  No winding up committee was appointed to wind up VTI Shanghai.  Thus at present, the status of VTI Shanghai is that of a suspended but not revoked enterprise legal person.  This legal status of VTI Shanghai is common ground.

58.  Mr Sun’s opinion is that as the sole owner of the beneficial shareholding in VTI Shanghai, the Plaintiff became the person responsible for liquidation (清算責任人) when the business licence of VTI Shanghai was suspended; and in that capacity it has locus standi to exercise all the rights exercisable by the winding up committee.  Mr Pu took the view that even if the Plaintiff is the sole shareholder of VTI Shanghai, it has no right to enforce the right of the enterprise; it should invoke the winding up procedures and appoint the winding up committee to take legal action to enforce the rights of VTI Shanghai; but the winding up procedures have not been invoked. Both experts rely on the following Judicial Interpretation and Judicial Opinions: 《Opinions of the Higher People’s Court of Shanghai Municipality on Some Issues Concerning the Subject of Action and the Assumption of Liabilities after a Legal Corporation in a Civil Litigation Ceased to be in Operation》[9] (《上海市高級人民法院關于在民事訴訟中企業法人終止後訴訟主體和責任承擔的若干問題的處理意見》) (“《Judicial Opinion 369/2000》”), 《Letter of Reply of the Supreme People’s Court Fa Jing (2000) No. 23 》[10] (《最高人民法院法經 (2000) 23 號覆函》) (“《Judicial Reply 23/2000》”), and 《Letter of Reply of the Supreme People’s Court Fa Jing (2000) No. 24 》[11] (《最高人民法院法經 (2000) 24 號覆函》) (“《Judicial Reply 24/2000》”).  The experts were in dispute as to the application of 《Judicial Opinion 369/2000》and the texts of the two Judicial Replies.  The official texts of the two Judicial Replies were not available from the official web-site of the Supreme People’s Court.  The experts relied on different versions obtained from different web-sites.

59.  《Judicial Reply 23/2000》was a reply by the Supreme People’s Court to the Gansu Higher People’s Court issued on 29 January 2000.  The Gansu Higher People’s Court sought the opinion of the Supreme People’s Court on a case in which a creditor sued the defendant enterprise.  The defendant’s business licence was suspended, but no winding up committee was appointed.  The People’s Court refused the creditor’s application to join all the shareholders as defendants and dismissed the action on the ground that the defendant had no capacity to participate in civil legal action(民事訴訟主體資格).  The Supreme People’s Court replied as follows:

“甘肅省高級人民法院：

你院〔1999〕甘經终字第193號請示報告收悉。經研究，答覆如下：

吊銷企業法人營業執照，是工商行政管理局對實施違法行為的企業法人給予的一種行政處罰。根據《中華人民共和國民法通則》第四十條、第四十六條和《中華人民共和國企業法人登記管理條例》第三十三條的規定，企業法人營業執照被吊銷後，應當由其開辦單位（包括股東）或者企業組織清算組依法進行清算，停止清算範圍外的活動。清算期間，企業民事訴訟主體資格依然存在。本案中人民法院不應以甘肅新科工貿有限責任公司（以下簡稱新科公司）被吊銷企業法人營業執照，喪失民事訴訟主體資格為由，裁定駁回起訴。本案債務人新科公司在訴訟中被吊銷企業法人營業執照後，至今未組織清算組依法進行清算，因此，債權人蘭州岷山制藥廠以新科公司為被告，後又要求追加該公司全體股東為被告，應當准許，追加該公司的股東為共同被告參加訴訟，承擔清算責任。”

60.  In gist, the Supreme People’s Court opined that when the business licence was suspended, the establishing unit of the enterprise (開辦單位), including its shareholders, or the winding up committee shall proceed with liquidation and cease all non-liquidation activities.  As no winding up committee has been appointed, the creditor should be allowed to join all the shareholders in the action so that they could discharge the obligation of liquidation.  What was in dispute between the experts is whether the underlined part in the above quoted text was in the original text of the Judicial Reply.  The opinion contained in the underlined part is that during the course of liquidation, the enterprise’s capacity to participate in civil legal action still exits and that the People’s Court should not have dismissed the action for want of capacity.  In my view, without the underlined part, the language of that particular sentence would be fragmented and the meaning it conveys ambiguous.  The content in the underlined part that the People’s Court should not have dismissed the action also blends in neatly with the rest of the Judicial Reply.  It is most probable that the underlined part was left out due to an inadvertent mis-connection between the lines when re-typing the text from the original document.  I accept Mr Pu’s version of the text of the Judicial Reply.

61.  Based on that version, I also accept Mr Pu’s opinion that under PRC law an enterprise legal person retains its capacity to participate in civil legal action during the course of its winding up despite its business licence was suspended.  It definitely has the right to be sued.  However, that Judicial Reply did not state that the right to sue and be sued is vested exclusively in enterprise the legal person.  On the contrary, it provided that the establishing unit including the shareholders or the winding up committee shall proceed with liquidation. That must of necessity include calling in assets and enforcing the enterprise legal person’s rights through litigation.  To do so, the establishing unit including the shareholders, in default of appointment of the winding up committee must have capacity to sue and be sued in civil legal action.  Hence, I accept Mr Sun’s argument that the establishing unit in its own right or as the person responsible for liquidation, may also participate in the litigation.  This proposition is not disputed by Mr Pu.  《Judicial Reply 23/2000》does not have the effect of limiting the right to sue exclusively to the enterprise legal person during the time between suspension and revocation.

62.  《Judicial Reply 24/2000》was a reply by the Supreme People’s Court to the Liaoning Higher People’s Court issued on the same date as 《Judicial Reply 23/2000》.   The Supreme People’s Court replied as follows:

“遼寧省高級人民法院：

你院《關于企業法人營業執照被吊銷後，其民事訴訟地位如何確定的請示》收悉。經研究，答覆如下：

吊銷企業法人營業執照，是工商行政管理機關依據國家工商行政法規對違法的企業法人作出的一種行政處罰。企業法人被吊銷營業執照後，應當依法進行清算，清算程序結束並辦理工商注銷登記後，該企業法人才歸于消滅。因此，企業法人被吊銷營業執照後至被注銷登記前，該企業法人仍應視為存續，可以自己的名義進行訴訟活動。如果該企業法人組成人員下落不明，無法通知參加訴訟，債權人以被吊銷營業執照企業的開辦單位為被告起訴的，人民法院也應予以准許。該開辦單位對被吊銷營業執照的企業法人，如果不存在投資不足或者轉移資產逃避債務情形的，僅應作為企業清算人參加訴訟，承擔清算責任。你院請示中涉及的問題，可參照上述精神辦理。”　　

63.  The Supreme People’s Court opined that upon suspension of its business licence, an enterprise legal person should proceed with liquidation and is extinguished when liquidation proceedings were concluded and its registration revoked.  It further opined that if the persons constituting the enterprise legal person could not be located or could not be served with notice of the legal action, the People’s Court should allow creditors to sue the establishing unit of the enterprise as defendants.  Except where the establishing unit had not contributed the required capital or had transferred assets to evade liability, it shall only participate in the litigation as person responsible for liquidation and be liable as such.  Again, the experts were in dispute as to whether the two underlined phrases in the quoted text was in the original text.  The opinion contained in those two phrases is that between suspension and revocation, the enterprise legal person is treated as still subsisting and may conduct litigation activities in its own name.  Mr Sun argued that the sentence was a commentary by someone.  I disagree.  Those two phrases flow naturally from the preceding one that the enterprise legal person is only extinguished upon revocation of its registration.  I accept Mr Pu’s argument that those two phrases were in the original text. 

64.  On the basis of that text, I also accept Mr Pu’s opinion that between the time of suspension of business licence and revocation of registration an enterprise legal person continues its existence and may participate in litigation in its own name.  Again, the Judicial Reply did not stipulate this principle as an exclusive principle.  The use of the words “可以” (“may”) clearly indicates that the principle is non-exclusive.  Indeed, the Judicial Reply further provided that if the persons constituting the enterprise legal person could not be located or could not be served with notice of the legal action, the establishing unit of the enterprise may participate in the litigation as defendant.  By the same rationale, under similar circumstances it may also participate as plaintiff.  I therefore accept Mr Sun’s argument that the establishing unit may in its own right or as the person responsible for liquidation participate in the litigation.  As I have mentioned, this proposition is not disputed by Mr Pu.  The effect of 《Judicial Reply 23/2000》and《Judicial Reply 24/2000》is the same.

65.  Mr Pu referred to《Judicial Opinion 369/2000》which was a Judicial Opinion issued by the Shanghai Higher People’s Court for guidance to other courts on 3 July 2000.  He relied particularly on Part 一 clauses (一), (二) and (三)3. The effects of these clauses are that in an action involving an enterprise legal person whose business licence has been suspended, the court should treat the winding up committee; or the person responsible for liquidation as confirmed by the Bureau, if the winding up committee has not been constituted; or the superior responsible unit (上級主管單位), if no such person has been confirmed by the Bureau as the party in a legal action.  Hence, Mr Pu argued that according to these clauses, VTI China should be regarded as the party and the Plaintiff has no capacity to participate in this litigation.

66.  Mr Sun’s short answer to Mr Pu’s argument is that 《Judicial Opinion 369/2000》is inconsistent with 《Judicial Reply 23/2000》and《Judicial Reply 24/2000》which provided that the establishing unit including a shareholder may in that capacity or in the capacity as the person responsible for liquidation participate in litigation of the enterprise legal person.  He said that in case of conflict, the Judicial Replies which are Judicial Opinion issued by the Supreme People’s Court must as a matter of precedent override 《Judicial Opinion 369/2000》 issued by the Shanghai Higher People’s Court. That proposition is not disputed by Mr Pu and is supported by《Several Opinions of the Supreme People’s Court on Regulating the Judicial Work Relations between the People’s Courts at Different Levels》[12](《最高人民法院關于規範上下級人民法院審判業務關系的若干意見》).

67.  《Judicial Opinion 369/2000》was issued by the Shanghai Higher People’s Court six months after the issue of the two Judicial Replies by the Supreme People’s Court.  That was about ten years before the issue of《Several Opinions of the Supreme People’s Court on Regulating the Judicial Work Relations between the People’s Courts at Different Levels》.  Despite that, I doubt if the Shanghai Higher People’s Court would have issued an opinion which was so inconsistent with the views of the Supreme People’s Court expressed just six months ago.  I would hesitate to find 《Judicial Opinion 369/2000》as being inconsistent with the Judicial Replies.  For the purpose of this hearing, it is not necessary for me to decide on that issue.  Insofar as the non-exclusive right of the shareholder or the person responsible for liquidation to sue is concerned, 《Judicial Opinion 369/2000》is consistent with the two Judicial Replies.  This is sufficient for my decision. 

68.  Returning to Mr Pu’s opinion, I am unable to see why Part 一 of《Judicial Opinion 369/2000》is applicable.  There are nine parts in《Judicial Opinion 369/2000》, each dealing with a particular situation.  Part 一is aboutcapacity to participate in litigation after termination of the enterprise legal person (企業法人終止後).  The situation which the parties are concerned is the capacity between suspension of business licence (吊銷營業執照) and revocation of registration (撤銷) of the enterprise legal person, not after its termination.  I would have thought the relevant provisions are Part 二(一) and (二) which deal with capacity after suspension (企業法人被吊銷營業執照後).  Paragraphs (一) and (二) provide as follows:

“(一) 企業法人被依法吊銷營業執照後，其法人資格與經營資格終止，在民事訴訟中也不具備訴訟主體資格，應當變更該企業的清算組織為訴訟當事人參加訴訟。如未依法成立清算組織的，應當變更企業的清算責任人為訴訟當事人。

(二) 對以被吊銷營業執照的企業名義提起的訴訟，人民法院應當告知原告依法成立清算組織或確定清算責任人，並以清算組織或清算責任人的名義提起的訴訟。原告堅持起訴的，裁定不予受理。已經受理的，經其清算組織或清算責任人申請，法院應當變更清算組織或清算責任人為訴訟當事人繼績審理。清算組織或清算責任人不申請的，裁定駁回起訴。”

Under paragraph (一), upon suspension, the status as an enterprise legal person and its right to continue business ceased.  The enterprise legal person has no capacity to participate in civil litigation; and the party in the litigation shall be changed to the winding up committee or, if no such committee has been constituted, the person responsible for liquidation.  Paragraph (二) provides that if the enterprise whose business licence has been suspended commences legal proceedings, the court should inform it to set up its winding up committee or identify the person responsible for liquidation and commence proceedings in either of those names.  If the enterprise insists to commence proceedings, it shall be refused.  The court should allow an application by the winding up committee or the person responsible for liquidation to substitute themselves as party to the action. If no application is made, the action shall be dismissed.  Thus the Shanghai Higher People’s Court unequivocally indicated that upon suspension, the enterprise legal person loses its capacity to litigate which is exclusively vested in the winding up committee or person responsible for liquidation.  I would not rely on this paragraph as giving the Plaintiff the exclusive right to sue.  Rather, I would construe it consistently with the two Judicial Replies as giving the Plaintiff a non-exclusive right to sue without deciding if 《Judicial Opinion 369/2000》is inconsistent with the two Judicial Replies.  That would be sufficient for the present purpose.

69.  An interesting observation in relation to the experts’ opinion on《Judicial Opinion 369/2000》is that both experts sought to rely on parts of it in support of their argument, but both sought to argue that it is inconsistent with the Judicial Replies for the purpose of demolishing the opponent’s reliance on《Judicial Opinion 369/2000》. 

70.  Lastly, I was referred to a decision by the Shanghai Putuo People’s Court in 2013[13]. The Plaintiff was also the plaintiff in that case.  The Plaintiff sued in its capacity as the person responsible for liquidation for return of a motor car leased by VTI Shanghai to the defendant.  The defendant did not dispute liability to return the car to VTI Shanghai but doubted if the Plaintiff was the appropriate party to sue and to whom the motor car should be returned.  After conducting its own inquiries, the court confirmed in the absence of contrary evidence that the Plaintiff was the person responsible for liquidation of VTI Shanghai to whom the motor car should be returned. The court did not say whether its decision was reached by application of the Judicial Replies of the Supreme People’s Court or 《Judicial Opinion 369/2000》of the Shanghai Higher People’s Court.  Either way, it would come to the same conclusion as the issue was not whether the person responsible for liquidation had exclusive right to participate in the litigation.  This decision must be taken as how the Judicial Replies and 《Judicial Opinion 369/2000》are construed and how the law is applied in the PRC in practice.

71.  In conclusion, I find that under PRC law, the following principles apply to an enterprise legal person.  Its legal status as an enterprise legal person continues between the time when its business licence is suspended until its termination upon completion of liquidation and revocation of its registration.  Once suspended, its establishing unit including the shareholders of the enterprise legal person or the winding up committee, if constituted, shall proceed with liquidation of the enterprise.  Between suspension and revocation, the enterprise legal person retains its capacity to participate in legal action in its own name.  However, this right to sue and to be sued is not exclusive.   In default of appointment of the winding up committee, the establishing unit including the shareholders also has capacity to sue and to be sued, if appropriate. The fact that no winding up committee has been constituted or that the persons constituting the enterprise legal persons could not be found or informed of the proceedings are circumstances when it would be appropriate for the establishing unit or shareholders to be sued as defendants for the purpose of discharging the enterprise’s obligation to liquidate.  No example was given by the Judicial Opinions as to when it would be appropriate for the establishing unit or shareholders to sue.  That question has to be answered by applying the spirit of 《Judicial Reply 24/2000》.

72.  On the fact, the business licence of VTI Shanghai was suspended.  Its establishing unit, VTI China, was also suspended and had divested its interest in the shareholding in VTI Shanghai to Huarong and thence to the Plaintiff.  The Plaintiff has become the owner of the 100% shareholding in VTI Shanghai, though the transfer of ownership has not been registered with the Bureau.  The Plaintiff is the person responsible for liquidation of VTI Shanghai.  No winding up committee has been constituted by VTI Shanghai.  VTI China and its Committee have no interest to sue in this action.  In accordance with the spirit of the Judicial Replies, this circumstance must be one in which it is appropriate for the Plaintiff as owner of 100% shareholding in VTI Shanghai or the person responsible for its liquidation to exercise its non-exclusive right to sue in discharging part of its obligation to liquidate VTI Shanghai. Accordingly, I find in that capacity the Plaintiff has locus standi to sue for the return of the share in Praiseup held by the Defendant on behalf of VTI Shanghai.  This conclusion is in line with the decision of Shanghai Putuo People’s Court in (2013) 普民二(商)初字第742號. 

Miscellaneous points raised in the parties’ skeleton arguments

73.  There are other points raised in the skeleton arguments of the parties, for example, the existence and effect of the agreement of set off dated 6 September 2001 signed unilaterally by the Defendant.  They were not dealt with in any great depths and are not relevant to the issue of locus standi.  Those are issues which are to be resolved after determination of this preliminary issue in the Plaintiff’s favour.  I refrain from commenting on those issues.

Conclusion

74.  There is no dispute that the Defendant at some stage held one share in Praiseup on trust for VTI Shanghai, a wholly owned subsidiary of VTI China.  VTI China was a state-owned financial enterprise which was closed down and a winding up Committee was appointed to liquidate the enterprise.  Its shareholding in VTI Shanghai was sold by the Committee to Huarong in accordance with the law applicable to disposal of state-owned financial enterprise.  In turn, Huarong sold the shareholding in VTI Shanghai to the Plaintiff.  Though the transfer of the beneficial interest in the shareholding to Huarong and thence to the Plaintiff were not registered with the Industry & Commerce Administrative Management Bureau, such transfers were, nevertheless, effective according to the law of the PRC.  The business licence of VTI Shanghai was subsequently suspended but its registration as an enterprise legal person was not revoked.  It became a suspended but unrevoked state-own enterprise.  Under the law of the PRC applicable to such an enterprise, the Plaintiff as beneficial owner of the 100% shareholding in VTI Shanghai has capacity to participate in litigation on behalf of VTI Shanghai in its own right or as the person responsible for its liquidation.  In the circumstances, the Plaintiff has the locus standi to sue the Defendant for the return of the share in Praiseup which he admittedly holds on trust for VTI Shanghai.

75.  In conclusion, I determine this preliminary issue in favour of the Plaintiff.  The Plaintiff has locus standi to maintain this action against the Defendant.  The Plaintiff shall have the costs of this hearing.