ZHONG XIN ORE-MATERIAL HOLDING CO LTD AND ANOTHER v. JAMES WARDELL, also known as JIM WARDELL AND OTHERS

HCA 1650/2021

[2026] HKCFI 2074

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1650 OF 2021

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D E C I S I O N

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A. INTRODUCTION

1.  By summons of 10th December 2024 (“the Summons”), the Plaintiffs (“Zhong Xin” and “CLB” respectively) seek retrospective leave to commence the present action against the 1st and 2nd Defendants (“the IRs”), the former court-appointed receivers of Zhong Xin.

B.     THE BACKGROUND

B1.    The background to the parties’ disputes

2.  Zhong Xin is a company incorporated in the British Virgin Islands.  In 2004, it entered into a joint venture agreement with a Chinese company, Yulin City Yu Yang District Changle Industrial and Trading (“Changle”), forming a Sino-foreign joint venture company in mainland PRC, Yulin Changlebao Mining Corporation Limited, namely, CLB.

3.  Pursuant to the joint venture agreement between Zhong Xin and Changle, Zhong Xin holds 70%, and Changle 30%, of the shares in CLB.  Zhong Xin is entitled to nominate five directors (including the legal representative under PRC law), and Changle two directors, to CLB’s board.

4.  Zhong Xin’s sole asset and business consists of its 70% shareholding in CLB, which is engaged in coal mining operations in Shaanxi province in mainland PRC.

5.  Zhong Xin was originally solely owned by Xie He Ping (“Mr Xie”) and his wife Gao Hai Yan (“Ms Gao”).  Mr Xie and Ms Gao had a corporate vehicle Bai Jun Tian Cheng Limited (“Bai Jun”).  Pursuant to a joint venture agreement between Bai Jun and Angola Group Holdings Limited (“Angola”), Angola obtained 50% of the shareholding in Zhong Xin, and the remaining 50% was transferred to Clarigain Enterprises Limited to hold on behalf of Bai Jun.

6.  There was a dispute between the Angola camp and the Bai Jun camp of shareholders in Zhong Xin. This was the subject matter of HCA 1987/2005.

7.  The deadlock in the operation of Zhong Xin arising from the dispute led to the making of a court order in CACV 324/2008 on 7th November 2008 for the appointment of interim receivers and managers in relation to Zhong Xin and its businesses until judgment in HCA 1987/2005.  The receivers and managers were appointed to “collect get in and receive the debts now due and owing and other assets property or effects of Zhong Xin and to manage and continue the businesses and undertakings of Zhong Xin”.  They were further given the specific powers:

7.1     in the name of Zhong Xin, to perform and/or exercise the rights of Zhong Xin under its joint venture agreement with Changle,

7.2     to preserve, protect and advance Zhong Xin’s rights and interest under the joint venture agreement with Changle;

7.3     to receive the income, profits, assets and property of Zhong Xin; and

7.4     to apply the income, profits, assets and property of Zhong Xin to discharge its obligations.

8.  On 19th May 2015, the court in HCA 1987/2005 discharged the appointment of the original receivers and managers, and appointed in their place the 1st and 2nd Defendants (namely, the IRs), on the same terms as the Court of Appeal’s order of 7th November 2008 (“the 2015 Order”).

9.  On 15th December 2018, judgment was handed down in HCA 1987/2005.  Angola was ordered to pay damages to Bai Jun, and the Bai Jun camp’s counterclaim for a transfer of shares in Zhong Xin was dismissed.  The appointment of the IRs under the 2015 Order expired.

10.  The Bai Jun camp appealed.  On 17th January 2020, the Court of Appeal handed down its judgment in CACV 6/2019, setting aside part of the first instance judgment, and ordering Angola to transfer its 50% shareholding in Zhong Xin to Bai Jun (“the CA Order”).

11.  In about August 2021, Mr Xie and Ms Gao, through Bai Jun, resumed control of Zhong Xin.

B2.    Appointments to CLB’s board

12.  After the IRs were appointed in 2015, they sought to replace the original directors nominated by Zhong Xin onto the board of CLB.  They appointed themselves, and the 3rd to 5th Defendants, as directors of CLB.  The first attempt was carried out in 2015, by causing Zhong Xin to issue a letter of dismissal on 7th August 2015, and by causing a board resolution of CLB to be passed on 21st September 2015 to replace the original directors with the Defendants (and the 1st Defendant as the chairman and legal representative).  However, these changes were not successfully registered with the Shaanxi Provincial Administration of Industry and Commerce (“the Shaanxi AIC”).

13.  The second attempt was carried out in 2017.  The IRs caused CLB to pass a board resolution on 20th July 2017 replace the original directors with the Defendants (and the 3rd Defendant as the chairman and legal representative).  This time, changes were successfully registered with the Shaanxi AIC on 27th November 2017 (“the Shaanxi AIC 2017 Approval”).

14.  Mr Xie was dissatisfied with his removal as CLB’s legal representative, and appealed against the Shaanxi AIC’s decision to register the changes (“the Shaanxi AIC Proceedings”).

15.  On 24th December 2018, the Beijing 1st Intermediate People’s Court handed down its judgment (“the 2018 PRC Judgment”), revoking the Shaanxi AIC 2017 Approval.

16.  On 3rd January 2019, CLB lodged an appeal against the 2018 PRC Judgment.  On 4th January 2019, the 3rd Defendant also lodged an appeal against the 2018 PRC Judgment in his personal capacity.

17.  On 4th November 2019, the Beijing High People’s Court handed down its judgment (“the 2019 PRC Judgment”), dismissing the appeal.

18.  On 11th November 2019, pursuant to the 2019 PRC Judgment, the Shaanxi AIC rectified CLB’s directorship records by restoring Mr Xie as CLB’s director, legal representative and chairman.

19.  The 3rd Defendant was dissatisfied with the 2019 PRC Judgment, and applied to the Supreme People’s Court for a retrial.

20.  On 30th November 2021, the Defendants were removed from public records as CLB’s directors.  CLB’s directors then comprised Mr Xie, Ms Gao and others.

21.  On 8th October 2022, the Supreme People’s Court handed down its judgment, dismissing the application for a retrial.  The Supreme People’s Court held that there were errors in the 2018 PRC Judgment and the 2019 PRC Judgment, and that the 2017 Shaanxi AIC Approval was lawful, but given that CLB’s legal representative had already been changed back to Mr Xie, which accorded with the final result in the Hong Kong litigation, and given that the revocation of the lower courts’ judgments would cause problems, the application for a retrial was dismissed.

B3.    The present proceedings

22.  On 1st November 2021, the Plaintiffs, now under the control of Mr Xie and Ms Gao, issued a writ in the present proceedings.  They claim that Zhong Xin discovered various wrongdoings committed by the Defendants during their control and management of Zhong Xin and CLB.

23.  The IRs as the 1st and 2nd Defendants filed their defence on 30 September 2022.  Discovery has been given. Originally, the parties were to exchange witness statements by 22nd August 2024.  However, the issue of whether the Plaintiffs should obtain leave to commence the present proceedings was then raised, and the time for exchange of witness statements was extended until after the determination of the Summons.

C.     THE APPLICABLE PRINCIPLES

24.  There is no dispute that leave is required to bring an action against a receiver appointed by the court.

25.  There is no dispute that the relevant legal principles on an application for leave are as follows.

25.1     The test is whether the pleading discloses an arguable claim.

25.2     The grant of leave is discretionary, and the role of the court is to see that justice is done.

25.3     Leave may be granted retrospectively, and the same test applies.

See Li Ming and others v Liu Yiu Keung also known as Stephen Liu and another [2020] HKCFI 2709 at [33] to [36].

D.     WHETHER CLAIMS AN ABUSE OF PROCESS

26.  Mr Danny Tang, counsel for the IRs, sought to resist the application on two main grounds.  The first was that the Plaintiffs’ claims in these proceedings were an abuse of process, being inconsistent with the claims of Mr Xie (a director of both Plaintiffs and the legal representative of CLB) in the proceedings in mainland PRC that the IRs had no power in relation to the affairs of CLB and that their acts in respect of CLB were all invalid.

27.  Mr Tang submitted that there is a principle that a party will be estopped from adopting a position which is inconsistent and incompatible with a position adopted in earlier proceedings (but not by way of issue estoppel),^[1] or in the same proceedings.^[2]

28.  However, having reviewed the authorities cited by Mr Tang, it seems to me that whether or not the advancement of a case inconsistent with an earlier case depends very much on the facts of the case.  As Kwan VP said in Chu Yue Bun v Lai Shiu Woon [2021] HKCA 1929 at [35], it may be an abuse of process, with full knowledge of the facts, to advance a claim that is diametrically opposed to its position taken in an earlier set of proceedings, and what would constitute abuse may vary with the circumstances of each case.

29.  Mr Tang submitted that (all but one of) the Plaintiffs’ claims in the current proceedings seek to say that the IRs ought to have taken certain actions in relation to CLB’s affairs – for example, that the IRs should have withdrawn from CLB or procured the withdrawal of the 3rd to 5th Defendants from CLB – whereas in the Shaanxi AIC Proceedings, Mr Xie said that the IRs’ actions in relation to CLB were wrongful and invalid, and that the IRs had no power to act in relation to CLB in the first place.

30.  It does not seem to me that there is any inconsistency between these positions such as to amount to an abuse of process.  In the Shaanxi AIC Proceedings, Mr Xie was protesting that he had been wrongfully removed from his position.  He did not query that the Hong Kong court had appointed the IRs, but he questioned the scope of their powers, and argued that the 2015 Order had not undergone the necessary reciprocal and endorsement procedures in mainland China in order for the IRs to exercise their powers to replace the legal representative and directors of CLB.^[3]  In the current proceedings, the Plaintiffs complain that what the IRs did was a breach of their duties as receivers of Zhong Xin and as directors of CLB (for example, in mismanaging or misappropriating CLB’s assets).  It is not inconsistent – or at least not inconsistent in the sense of being an abuse of process – for the Plaintiffs to say that the IRs did not have the power to replace CLB’s board or that they should not have done so, and also argue in the alternative that if the IRs did in fact have such power, then what the replacement CLB board did was a breach of duty.  This would be the case no matter whether the allegations are made in the same set, or different sets, of proceedings.  Thus insofar as Mr Tang complains that the Statement of Claim (“the SOC”) is self-inconsistent in that paragraph 82(2) raises the complaint that the IRs’ replacement of the board of CLB was illegitimate, whilst earlier paragraphs complained of the wrongful acts of the IRs in their capacity as receivers of Zhong Xin and directors of CLB, I consider that these allegations can be advanced as alternative cases.  Whilst it is the case that paragraph 82(2)SOC is not clearly expressed to be in the alternative, it is tolerably clear that this must be the case as a matter of logic; in any event it is a matter that can be put right by amendment.

31.  Mr Tang submitted that the “starkest” example of the inconsistent stance taken by the Plaintiffs was that in paragraph 65 of the SOC, which complained that for the period when the IRs (and other Defendants) were in control of CLB, they failed to distribute dividends to Zhong Xin.  Mr Tang pointed out that if the Defendants had not been validly appointed as directors of CLB then they could not have had any duty to distribute dividends.  Again, it seems to me that it is not an abuse for the Plaintiffs to argue that the Defendants were not validly appointed but that if they were, then they were wrong to have failed to declare dividends.

32.  Mr Tang also made particular complaint about a letter of 7th January 2019 in which it was said that the Bai Jun camp had threatened the IRs and demanded that they not take further action in relation to CLB, and that this had put the IRs into a difficult position as conveyed in their letter of 16th January 2019 of wishing to resign as directors but being unable to call a board meeting to effect this.  However, it seems that the letter of 7th January 2019 simply referred to the 2018 PRC Judgment and observed that the 3rd Defendant would not have power to call a board meeting, and said that Mr Xie would do this, and complained that despite repeated warnings, the IRs were continuing to act as directors.  Furthermore, the Plaintiffs say that unbeknown to Ms Gao at the time, the IRs had by then caused the 3rd Defendant and CLB to file appeals against the 2018 PRC Judgment, staying the execution of the 2018 PRC Judgment.  This led to a complaint of 14th January 2019 about the IRs’ action, and it was in response to this that the 2nd Defendant wrote his letter of 16th January 2019 saying that the IRs could not call a board meeting of CLB.  Mr Tang’s submission^[4] was that the correspondence demonstrated that the Plaintiffs had taken “diametrically opposed” positions, on the one hand complaining that the IRs should have taken particular steps in relation to CLB but on the other hand telling the IRs to stay away from CLB’s affairs.  However, the complaint (in the letter of 14th January 2019) was that the IRs had either enabled the 3rd Defendant to appeal against the 2018 PRC Judgment or had failed to exercise oversight over their appointee to the CLB board (the 3rd Defendant); the complaint was consistently one of wrongful interference with CLB’s affairs given that the IRs’ appointment as receivers of Zhong Xin had terminated.

E.     WHETHER CLAIMS INSUFFICIENTLY PARTICULARISED

33.  The IRs’ second main ground for resisting the application for leave was that (it was said) the Plaintiffs’ claims were wholly unparticularised and supported by little or no evidence.  They say that most of the claims in the SOC were pleaded by pleading claims on the part of the 3rd Defendant, CLB or the Defendants collectively, without referring to specific acts of the IRs, and then making a conclusory plea that the Defendants or the IRs were liable.^[5]  The complaint is that it is impermissible to treat acts of the 3rd to 5th Defendants as those of the IRs.  Seven of the claims were singled out for this complaint.

34.  It seems to me that the SOC does at least disclose an arguable case on these claims.

35.  For the “Refusal to Relinquish Control Claim” (in which the Plaintiffs complain that the Defendants refused to relinquish control of CLB after expiry of the IRs’ appointment under the 2015 Order), the Plaintiffs pleaded (inter alia) that the IRs^[6] refused or failed to resign as directors after the expiry of the IRs’ appointment on 15th December 2018 (remaining as directors as at the date of the SOC of 27th October 2021), that they wrongly caused CLB to appeal against the 2018 PRC Judgment for the purpose of retaining control of CLB, and that they were in breach of the 2015 Order and their duties as receivers (SOC paragraphs 26, 27, 34, 35).

36.  For the “Forbearance Agreement Claim” (in which the Plaintiffs complain that during the currency of the Defendants’ appointment as CLB’s directors, CLB negotiated and entered into an agreement to accept reduced payments of judgment debts), the Plaintiffs pleaded (inter alia) that the Defendants,^[7] in allowing CLB (which was under their control) to enter into the forbearance agreement, failed to act in CLB’s best interests and breached their duties as CLB’s directors and as Zhong Xin’s receivers (SOC paragraphs 39, 42, 43).

37.  For the “Misappropriation Claim” (in which the Plaintiffs complain that CLB made various payments without proper basis, at a time when the IRs’ term as receivers had expired but CLB nevertheless remained under the control of the Defendants), the Plaintiffs pleaded (inter alia) that the Defendants, in causing or allowing CLB to make the payments, breached their duties as CLB’s directors and as Zhong Xin’s receivers (SOC paragraphs 46, 50, 51).

38.  For the “Coal Mine Mismanagement Claim” (in which the Plaintiffs complain that CLB suffered a loss of profits from suspension of its coal mine operations for twenty-nine months), the Plaintiffs pleaded (inter alia) that the Defendants mismanaged CLB in causing or failing to prevent the suspension, thereby breaching their duties as CLB’s directors and as Zhong Xin’s receivers (SOC paragraphs 52, 53).

39.  For the “Proceedings Against Accountant Claim” (in which the Plaintiffs complain that the 3rd Defendant procured CLB to commence proceedings against its accountant against Zhong Xin’s interest, at a time when the IRs’ term as receivers had expired but CLB nevertheless remained under the control of the Defendants), the Plaintiffs pleaded (inter alia) that the Defendants failed to prevent the 3rd Defendant from taking such actions, in breach of their duties as Zhong Xin’s receivers (SOC paragraphs 59, 60).

40.  For the “Tax Obligation Claim” (in which the Plaintiffs complain that CLB failed to comply with its tax obligations), the Plaintiffs pleaded (inter alia) that the Defendants failed to manage CLB properly (such that it complied with its tax obligations), in breach of their duties as directors of CLB and receivers of Zhong Xin (SOC paragraphs 62, 63).

41.  For the “Dividend Claim” (in which the Plaintiffs complain that during the period when the Defendants were in control of Zhong Xin and CLB, they failed to cause CLB to distribute any dividends), the Plaintiffs pleaded (inter alia) that the Defendants failed to collect and receive the assets of Zhong Xin (SOC paragraphs 67, 68).

42.  It does not seem to me that these pleas involve treating acts of the 3rd to 5th Defendants as those of the IRs.  As pleaded, the complaints relate to the conduct of all of the Defendants.  The allegation is that with such conduct, the Defendants (including the IRs) breached their duties as directors of CLB, and that the IRs further breached their duties as receivers of Zhong Xin.  It appears to me that the Plaintiffs’ claims as pleaded are arguable, and I should not express any further views about the merits or the evidence at this stage.

43.  Mr Tang submitted that the Plaintiffs had sought to get round the problem of having to rely on the acts of the 3rd to 5th Defendants by pleas that the 3rd to 5th Defendants were agents of Zhong Xin or the IRs’ nominee directors on the board of CLB,^[8] but that these allegations of agency and nominee directorship were unsustainable in law.  I do not need to determine whether this is so at this stage in the light of my views that in any event the Plaintiffs have pleaded a case that the IRs breached their duties as receivers or as CLB’s directors themselves without having to rely on acts of the 3rd to 5th Defendants.  I note that in the IRs’ Defence, they admit that they owed duties as interim receivers of Zhong Xin, and they admit that they were CLB’s directors (although they do not admit to owing duties as directors).

44.  Mr Tang also submitted that the Plaintiffs had as an alternative sought to advance, for four claims, a complaint that the IRs negligently failed to supervise the 3rd to 5th Defendants, but had failed to particularise what the IRs should supposedly have done.  These are relatively minor aspects of the claims, or (as pointed out by Mr Tang) are an alternative way of putting the claims.  They do not affect the overall viability of the Plaintiffs’ claims.

45.  Mr Tang further complained of various unpleaded complaints made in the Plaintiffs’ skeleton submissions regarding instances of alleged bad faith on the part of the IRs.  I do not need to go into those, since the issue is simply whether the Plaintiffs should have leave to proceed on their pleaded allegations.

46.  Mr Tang then submitted that the Plaintiffs could have no claim in relation to events that took place after 15th December 2018, when the IRs were no longer receivers, as the IRs had attempted to return control of Zhong Xin back to its directors, and were not involved in Zhong Xin’s or CLB’s affairs thereafter.^[9]  However, whether this is a correct description of what the IRs did is hotly contested.  The Plaintiffs say that the IRs did not in fact seek to resign until their resignation letter was produced on 27th October 2020, backdated to 15th December 2018.  They also point to (1) Ms Gao’s letter of 14th January 2019 complaining about the 3rd Defendant’s appeal against the 2018 PRC Judgment and alleging that the IRs had either enabled this or failed their duties of oversight in this regard, and (2) the fact that the IRs did not refute this complaint in the 2nd Defendant’s letter of 16th January 2019.  This is clearly a dispute which cannot be resolved at this stage; it cannot be said that the Plaintiff’s pleaded case that the IRs did not relinquish control of Zhong Xin and CLB after 15th December 2018 is unarguable.

F.     OTHER POINTS

47.  Apart from the two main arguments advanced against the Plaintiffs’ claims, Mr Tang made a number of points in relation to certain of the claims individually.^[10]

48.  Insofar as the points do not overlap with the two main arguments already addressed above, it suffices to say that it is not possible or appropriate at this stage to go into the evidence to assess the merits of the claims.

49.  Mr Tang also points out that the Plaintiffs are guilty of some three years’ delay in seeking leave, and the only explanation is that they were unaware of the requirement to seek leave.  I agree that delay weighs against the exercise of discretion in the Plaintiffs’ favour, and that ignorance is not an excuse for the delay.  That said, in the circumstances of the present case, where the IRs have actively and substantively defended the proceedings all along and the parties were about to exchange witness statements, so that the parties have effectively proceeded all along as if leave had been granted, the delay has not caused the IRs prejudice (save in respect of the costs incurred to defend what has been called the “Allbright Proceedings Claim” (in paragraphs 69 to 75 and 85.2.5 of the SOC) which is now longer pursued).

50.  Ultimately, whether or not to grant leave is a matter of discretion.  Whilst one might query the strength of some aspects of the Plaintiffs’ claims and take the view that they could have been better pleaded, it cannot be said that as a whole, the claims as pleaded are unarguable, or merely vexatious and harassing^[11] (and indeed the IRs’ substantive defence to the claims over the course of three years is some indication of this).  Nor is it appropriate at this stage to subject the claims to minute analysis to say that (for example) certain subparagraphs should not be allowed to proceed.

G.     DISPOSITION

51.  I therefore give retrospective leave to the Plaintiffs to commence these proceedings, save in respect of the Allbright Proceedings Claim in paragraphs 69 to 75 and 85.2.5 of the SOC.  The Plaintiffs’ claim in respect of those paragraphs is dismissed with costs to the Defendants, to be taxed if not agreed.

52.  The parties are in agreement that costs should follow the event.  I therefore order that (1) the costs of and occasioned by the Summons, save in respect of those relating to the Allbright Proceedings Claim, should be paid by the 1st and 2nd Defendants to the Plaintiffs; (2) the costs of and occasioned by the Summons as regards the Allbright Proceedings Claim should be paid by the Plaintiffs to the 1st and 2nd Defendants; (3) the costs under (1) and (2) are to be summarily assessed, with a net figure in favour of the Plaintiffs.  The parties have already lodged their statement of costs.  The 1st and 2nd Defendants have leave to lodge and serve a list of objections to the Plaintiffs’ statement of costs, and to identify their costs under (2) aforesaid, within seven days, in bullet point form.  The Plaintiffs have leave to lodge and serve a response, if any, within three days thereafter, in bullet point form.  The 1st and 2nd Defendants have leave to lodge and serve a reply in respect of (2) aforesaid, if any, within three days thereafter, in bullet point form.