GAO HAI YAN AND ANOTHER v. KEENEYE HOLDINGS LTD AND OTHERS

HCMP 1510/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1510 OF 2009

(ON AN INTENDED APPEAL FROM HCA 1315 OF 2009)

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REASONS FOR JUDGMENT

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Hon Tang VP:

1.  The plaintiffs, Xie and Gao are husband and wife. 

2.  By an agreement dated 15 July 2008, executed by their son-in law Bao Jian (“Bao”), purportedly acting as their attorney pursuant to a Chinese power of attorney dated 10 July 2008 executed by the plaintiffs, the plaintiffs agreed to sell their shares (50% each) in the 5^th defendant Bai Jun Tian Cheng Ltd (“Baijun”), a Hong Kong company, to the 1^st defendant, Keeneye Holdings Limited (“Keeneye”).  The consideration for the sale of the shares was to be agreed, however, failing agreement it was to be the amount of the plaintiffs’ actual investment.  The Chinese original reads:

「3丶转让价款另行协商。协商不一致，以甲乙方在公司经营过程中的实际出资金额为股权转让价款。」

3.  On 27 August 2008, Bao purportedly acting in the same capacity, entered into a supplemental agreement with Keeneye and the 2^nd defendant New Purple Golden Resources Development Limited (“New Purple Golden Resources”) whereby it was agreed that the Xie would transfer 38% of the shares to New Purple Golden Resources instead of to Keeneye.  I will refer to the agreement of 15 July 2008 and the supplemental agreement of 27 August 2008 as “the agreements”.

4.  Baijun is the beneficial owner of certain shareholding in Zhong Xin Ore-Material Holding Company Limited (“Zhongxin”) held in the name of Clarigain Enterprises Limited (“Clarigain”), Zhongxin in turn had a 70% share in a sino-foreign joint venture namely Yulin Changlebao Mining Corporation Limited (“the joint venture”), the sole purpose of which was to own and operate a coal mining project near Yulin city, in Shaanxi Province.

5.  By a generally endorsed writ dated 2 June 2009, the plaintiffs claimed against the defendants for, inter alia, declarations that the agreements were null and void and have no legal effect.  A contract made under duress or as a result of misrepresentation is not void but may be voidable.

6.  On 22 June 2009, the plaintiffs applied ex parte before Chung J for the appointment of a receiver and manager of Baijun:

“… until Judgment in the present action or until further order, to collect get in and receive the debts now due and owing and other assets property or effects of (Baijun), and to manage and continue all business and undertakings of (Baijun)”.

7.  On 25 June 2009, Chung J, on such ex parte application, appointed Robert Osborne Lee as receiver and manager of Baijun until judgment or further order.

8.  The inter parte hearing took place before Chung J on 20 July 2009 and the decision was handed down on 23 July 2009.  The learned judge discharged the ex parte order without ordering a re-grant basically for two reasons.  First, he was of the view that there was no serious question to be tried.  Secondly, and independently of the first ground, on the basis of material non-disclosure.  On the same day, the plaintiffs applied to Chung J for leave to appeal and pending determination of the appeal, an interim continuation of the receivership.  The learned judge refused leave to appeal and no stay was granted.  On 6 August 2009, the plaintiffs applied to this court for leave to appeal and for an interim continuance of the receivership pending determination of the appeal.  The matter came for hearing before us on 11 September 2009.  At the conclusion of the hearing on 11 September 2009, we refused leave to appeal with costs.

9.  I am of the view that on the basis of the material non-disclosure, the learned judge was right to discharge the ex parte injunction.  Furthermore, on the basis of the material non-disclosure, the learned judge’s exercise of discretion in refusing to grant a new order is not such with which this court can interfere.  That being the case, leave to appeal should be refused because there was no reasonable prospect of success.  It was therefore unnecessary to decide whether there was a serious question to be tried.

10.  The immediate background is the detention of the plaintiffs in the Shaanxi province from late May to about 12 November 2008 for their alleged involvement in the assault of, and injuries suffered by, a Mr Zhang of the Yulin Company in May 2008.  However, behind it all was a struggle for the control of the joint venture.  Sufficient details of the dispute over the joint venture can be found in para. 4 of Chung J’s judgment.  I will not repeat them. 

11.  The basis of the plaintiffs’ claim in the present case can be gathered from the following extracts from Gao’s affirmation dated 19 June 2009 quoted in para. 11 of Chung J’s decision:

“On 20 May 2008, Xie and I were suddenly arrested … we were detained for six months” (para. 26);

“On or around 30 June 2008 … I wrote to Liu asking for his help” (para. 32);

“Wang [Wang Li] on behalf of Liu then told our family members … Liu could not be able to secure our release unless he had a connection with the coal mining project, which meant that Xie and I had first to transfer our interest in the project to him” (para. 34);

“Xie gave in and signed the power of attorney on or around 10 July 2008 …

I have been advised by my PRC legal advisers that the share transfer under this power of attorney is in fact invalid … because [it] failed to specify … which company’s shares were to be transferred … ” (para. 35 and 36);

“Bao [Xie’s son-in-law] signed [the Transfer Agreement] … [The Supp Transfer Agreement was also] signed by Bao purportedly on our behalf … ” (para. 38 and 39);

“… Xie and I, however, had no knowledge of the existence or content of [the Agreements] until after our eventual release on 12 November 2008” (para. 42);

“In desperation and grasping for the hope of release because of what Wang and Liu had said and because of their promises … [of]protecting our interest in Zhongxin and the JV, I signed [the share transfer documents] …” (para. 45);

“Xie and I were eventually released … I understand the reasons for our release were that: (a) … [the] victims did not sustain serious injuries; (b) our family members borrowed RMB6 million from Liu and paid this huge amount of compensation to the purported victims; and (c) we had been detained for six months and should be released according to PRC laws … ” (para. 48);

“I have been advised by our legal advisers … that on the possible grounds of duress, lack of authority, and misrepresentation, we are entitled to dispute and rescind the Agreements … Furthermore, none of Liu, Keeneye, and New Purple has ever paid Xie or me any consideration for the shares” (para. 50).

(emphasis supplied)

1^st material non-disclosure

12.  In Gao’s affirmation made in support of the ex parte application, she said:

“46.  Xie always disagreed to transfer our interest to Liu without the agreement on all the terms and conditions. Knowing that Xie would not agree to sign but with the desperate hope of rescuing Xie and I, our family members did not send those documents to Xie for his signature but affixed Xie's signature stamp on the documents without his knowledge and contrary to his wishes.”

13.  In support, by exhibit “GHY–11”, various documents on which Xie’s signature stamp appeared were produced.  They included, for example, a resolution in writing of all the directors of Baijun regarding the transfer by Gao of 38 shares to Keeneye and Xie of 38 shares to New Purple Golden Resources.  However, there was an earlier resolution dated 21 July 2008 which bore the handwritten signature of Xie in relation to the transfer of 12 shares by Gao and Xie to Keeneye.  That was produced by the 4^th defendant Wang Li in his affirmation affirmed on 9 July 2009. 

14.  In Gao’s 2^nd affirmation which was made in reply to the 4^th defendant’s affirmation, she said:

“36.  Secondly, Wang alleges that I lied to the Court about Xie not signing certain documents and our family members affixing a stamp of his signature instead. I should confirm again that Xie did not sign the documents exhibited at "GHY -11" to my first Affirmation and that our family members affixed a stamp of his signature on them.

37.   As to the board resolution dated 21^st July 2008, which Wang exhibited at "WL-9" to his Affirmation, I had forgotten about this document and recalled only upon seeing it. In our dire situation in prison, our family members and I repeatedly urged Xie to sign what documents Liu required. But as I deposed to (truthfully) in my first Affirmation, Xie disagreed to transfer our interest to Liu without agreement on the terms and refused to sign any transfer document. The board resolution dated 21^st July 2008 only gave the appearance of a transfer of only a part of his interest. Xie had accepted that it might be true Liu had to show a connection with the coal mining project to work on securing our release. But the board resolution was as far as he was willing to go. He refused to sign any further documents, including transfer documents.”

15.  That is an unhelpful reply.  There is no statement on the source of her information.  Since Xie and Gao were detained separately, she had no personal knowledge.  There is also no evidence who had the custody of Gao’s signature stamp at the material time, nor was there any explanation why Xie did not see fit to deal with the matter on oath. 

16.  Mr Peter Ng, SC, appearing for the plaintiffs submitted that the non-disclosure is immaterial.  I do not agree.  The existence of a handwritten signature of Xie is relevant to the plaintiffs’ case that the agreements were not binding or voidable. 

2^nd material non-disclosure

17.  This relates to the fact that the agreements were in fact drafted by the Mainland lawyers engaged by the family of the plaintiffs.  At the material time, the plaintiffs also had the assistance of Hong Kong lawyers in relation to the transfer of the shares in Baijun.

18.  I believe the fact that the plaintiffs’ families were represented by lawyers is material to whether or not the plaintiffs were acting under duress and whether or not they were aware of the terms of the agreements.  I should also add that it appears from an e-mail from the plaintiffs’ Hong Kong lawyers that the Mainland lawyers had access to the plaintiffs when they were under detention.  There is no evidence from the plaintiffs to contradict that.

3^rd material non-disclosure

19.  A further matter of material non-disclosure relates to the correspondence between the plaintiffs and the defendants regarding the sale or transfer of shares in Baijun.  Letters were written by the plaintiffs (although they only bore the signature of Gao) after their release from detention.  The correspondence support the view that the plaintiffs were aware of the terms of the agreements and regarded them as valid and binding.  For example, this is what she wrote on 14 December 2008:

「苦难的日子总算过去了，但仍有不少遗留问题需要面对，因此我们希望您的公司能尽快进入角色、掌控局面。为了使您及王总能全面掌握企业情况，并能顺利接管，我们需要就企业的基本情况向阁下做出全面而具体的陈述，同时也希望尽快见面商谈如何完善此次股权转让协议的法律手续问题。」

In this paragraph Gao mentioned the plaintiffs’ desire to perfect the legal procedure regarding the transfer of shares. 

20.  There was also a memorandum of the same date:

「1、  已有协议需要完善的工作

1）    协议并确定中信矿业集团有限公司50%股权的转让价款。

2）    完善2008年7月15日签署的《股权转让协议书》、2008年8月27日签署的《补充协议书》，并对未尽事宜加以商定。

3）    对过往签署的曾如盖手签章的文件换成亲笔签署的文件。」

It is of interest to note that paragraphs 1-3 in this memorandum included as one of the matters which required “perfection”, documents which had been “signed” by a signature stamp which should be replaced by handwritten signatures. 

21.  There is also a letter dated 22 December 2008 which Xie wrote on behalf of her husband and herself which referred to “ensuring the validity of the share transfers”:

「为了巩固半年来我们之间的合作成果，确保此次股权转让的有效性，不留或减少各种遗留问题，目前急需资金解决以下问题：」

22.  The correspondence are clearly relevant to the plaintiffs’ claim that the agreements are not binding or voidable.

4^th material non-disclosure

23.  Lastly, the fact that the defendants had already provided RMB 13 million to the plaintiffs.

24.  Mr Ng submitted that the payment of RMB 13 million was not material because it was common ground that the shares were worth much more and that on the defendants’ case, the money was given to the plaintiffs by way of loan and therefore:

“… by definition, was not the consideration or part of the consideration for the shares”.

25.  Be that as it may, insofar as the plaintiffs’ case was put on the basis that the agreements were voidable because of duress or misrepresentation, whether there was affirmation of the agreements subsequent to the duress and the misrepresentation must be relevant.

26.  Lastly, Mr Ng submitted that the non-disclosures were innocent and inadvertent.  The learned judge was entitled to take a different view which was made clear by his decision on costs when he ordered indemnity costs against the plaintiffs. 

27.  For the above reasons, I refused leave to appeal with costs.

Hon Yuen JA:

28.  I too refused leave to appeal for the reasons in Tang VP’s judgment.