LI MING AND OTHERS v. LIU YIU KEUNG also known as STEPHEN LIU AND ANOTHER

HCA 86/2018

[2020] HKCFI 2708

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 86 OF 2018

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DECISION

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A. The applications

1.  These matters again concern the disputes over the shareholding and control of China Shanshui Investment Company Limited (“CSI”), China Shanshui Cement Group Limited (“CSCG”), and Shandong Shanshui Cement Group Company Limited (“Shandong Shanshui”).

2.  There are three summonses before me:

(a)  The summons of 13 February 2018 taken out by the Defendants (“Ds”, the “Original Striking Out Summons”) for an Order that the Writ herein be struck out and the Action dismissed;

(b)  The summons of 13 March 2018 taken out by the Plaintiffs (“Ps”, the “Leave Summons”) for retrospective leave to commence the action initiated by the Writ of Summons issued on 11 January 2018 (“Action” and “Writ”), or alternatively leave to continue the Action against Ds; and

(c)  Ds’ summons of 14 May 2018 (“Amendment Summons”) to amend the Original Striking Out Summons.

3.  Mr Westbrook, who together with Ms Sharon Yuen appear for Ps, has no objection to the Amendment Summons.  The proposed amendments would also allow all relevant issues to be considered.  I allow the same.  I will call the Original Striking Out Summons as amended the Amended Striking Out Summons. 

4.  By the Amended Striking Out Summons, Ds seek an order that both the Writ and Ps’ Statement of Claim filed on 28 February 2018 (the “SOC”) be struck out, and the action dismissed.  The grounds relied upon, as summarized by Mr Barlow[1], who together with Mr David Chen appear for Ds, are as follows:

“ … the Writ/SOC disclose no reasonable cause of action and/or are vexatious and/or embarrassing and/or an abuse of the Court’s processes because:-

(1^st) the Writ/SOC purport to sue this Court’s former Receivers when the Plaintiffs have no locus standi to do so; and/or

(2^nd) the Writ/SOC also purport to sue [Ds] in their capacities as former directors or other officers of CSI, [CSCG] and 2 [CSCG] subsidiaries, when: (a) [Ps] lack locus standi to do so; and/or (b) [Ps] seek remedies (including reflective loss relief) that are only available to those 4 companies; and/or

(3^rd) the SOC (but not the Writ) purports to sue and to assert alleged remedies on behalf of 2,625 or 2,626 ‘Employees Plaintiffs’ who are not parties herein and whom the Plaintiffs have no entitlement to represent; and/or

(4^th) the Writ/SOC disclose no reasonable cause of action and/or claim no remedy to which the Plaintiffs are entitled; and/or

(5^th) the Writ/SOC are: (a) vexatious; and (b) brought in abuse of this Court’s processes; and/or

(6^th)  the SOC is embarrassing.”  

B.      The background facts

5.  These matters have a complicated history.  For background I refer to G Lam J’s judgment in HCA 1661, 1766, 2191/2014 and HCA 623, 939, 1564/2015 (Consolidated) dated 31 January 2018[2] (the “Trust Actions”, and the “Trust Actions Judgment”) and G Lam J’s Decision in the Trust Actions also dated 31 January 2018 discharging the receivers appointed in those Actions[3](the “EY Receivers”, and “Trust Actions Discharge Decision”).  Unless specified otherwise, I also use the same terms as used in those Decisions.

6.  I highlight the following.

7.  CSI is a Hong Kong Company.  Its major assets have been its 25.09% holder in CSCG. 

8.  CSCG is a company incorporated in the Cayman Islands.  CSCG’s shares have been listed for trading on the main board of the Stock Exchange of Hong Kong. 

9.  CSCG has a number of direct and indirect wholly owned subsidiaries.  China Pioneer Cement (Hong Kong) Company Limited (“China Pioneer”) is one of them.  China Pioneer in turn wholly owns Shandong Shanshui.  Shandong Shanshui is the most important operating subsidiary of CSCG.

10.  Prior to the commencement of the Trust Actions, Zhang Caikui (“Zhang Snr”) had been the main shareholders of CSI.  Some of those shares were held for himself, but some on trust for a group of employees of Shandong Shanshui.

11.  From about late 2014, a group of employees of Shandong Shanshui (ie the Employee Plaintiffs) started a number of actions against inter alia Zhang Snr.  Those actions have since been consolidated and become the Trust Actions.  The core issue in the Trust Actions was the nature of the Employee Plaintiffs’ interest in 456,325 shares in CSI (the “Receivership Shares”).  The Employee Plaintiffs contended that they were absolute beneficial and equitable owners of those shares, whereas Zhang Snr contended that the Employee Plaintiffs were not beneficial owners but merely members of the class of beneficiaries under two discretionary trusts on which the shares were settled.

12.  Shortly after the commencement of the Trust Actions, and upon the Employee Plaintiffs’ applications, Ds and Koo Chi Sum (ie the EY Receivers) were appointed as interim receivers over the Receivership Shares. 

13.  By the Orders appointing them, the EY Receivers were empowered to inter alia take control of the Receivership Shares, to appoint or remove all or any directors and other officers of CSI, and to do all things reasonably necessary to preserve the value of those shares.

14.  Following their appointments, the EY Receivers undertook a number of steps said to be necessary for the preservation of the value of the Receivership Shares.  Those steps included (1) their own appointment as directors of CSI, (2) the complete replacement of the CSCG board and appointment of D1 as a new director of the board, and (3) the making of a number of financial proposals and transactions.

15.  In respect of those financial proposals and transactions:

(a)  They were:

(i)   the “Open Offer” — being an open offer proposed by the CSCG Board in June 2016 of 4 new shares for 1 existing share to raise HK$4 billion.  The Open Offer was subsequently abandoned;

(ii)  the “1^st Placing Proposal”:

(1)   In September 2016, CSCG entered into engagement letters with placing agents to place between 910 million and 950 million shares at not less than HK$0.5 per share to certain placees;

(2)   Ps aver[4] that if proceeded with, the placement would have diluted CSI’s shareholder in CSCG from 25.09% to 19.59% or 19.77%;

(3)   The proposed placing was at a 92.1% discount to the last trading price;

(4)   Upon objections from a portion of the Employee Plaintiffs, G Lam J directed the EY Receivers to cause CSI to seek an adjournment of the relevant EGM to allow them to ascertain the position of the Employee Plaintiffs, and if the EY Receivers failed to obtain such an adjournment, they were to vote against the 1^st Placing Proposal;

(5)   The 1^st Placing Proposal was subsequently abandoned;

(iii) the “Cinda Agreement”:

(1)   It was a framework agreement dated 15 December 2016 between Shandong Shanshui, Tianrui Group Company Limited (“Tianrui Group”) and China Cinda Asset Management Company Limited (“Cinda”), under which Cinda agreed to acquire certain bonds issued by Shandong Shanshui in the open market and to provide a loan to Shandong Shanshui.  The aggregate investment and purchase amount by Cinda was up to RMB8 billion;

(2)   in turn, various share pledges and guarantees would be provided by and/or to China Pioneer, Tianrui Group and CSCG;

(3)   Ps aver that the Cinda Agreement and the related security arrangements were designed with the intention of stripping away all the assets of Shandong Shanshui[5].  On the other hand, D1 says that[6] the debt investment by Cinda was necessary to alleviate CSCG and Shandong Shanshui’s liquidity problems, and that the Cinda Agreement was the best available financing option available to CSCG’s Board;

(iv) The “2^nd Placing Proposal”:

(1)   in March 2017, CSCG proposed another placing similar to the 1^st Placing Proposal;

(2)   Ultimately, the 2^nd Placing Proposal also did not proceed as CSCG became involved in a process of delisting;

(b)  The nature and effects of the above proposals and transactions are very much in dispute.  I have outlined the dispute in relation to the Cinda Agreement.  The dispute should also be understood in the context of what Ps describe as the “kingmaker” status of CSI, in the sense that, in view of the shareholdings held by CSI in CSCG, whichever major shareholder it supports may gain majority control in CSCG.  Ps aver that any dilution of CSI’s interest will destroy its unique value as a “kingmaker”[7];

(c)  Hence, while Ds call the above proposals and transactions collectively the “Financing Proposals”, Ps on the other hand call them the “Dilution Proposals”, or, specifically in the case of the Cinda Agreement, something “designed with the intention of striping away all the assets of Shandong Shanshui”. 

16.  On 11 January 2018, Ps took out the Writ herein.  P1 to P5 are 5 of the Employee Plaintiffs, each holding respectively 7,351, 1,942, 2,402, 1,709 and 3,379 shares in CSI.  The Writ contains a General Indorsement.  It has 5 paragraphs, which seek disclosure of various documents, correspondence, information, recordings etc, an order for Ds to account, and damages.

17.  On 31 January 2018, G Lam J handed down the Trust Actions Judgment.  His Lordship allowed the Employee Plaintiffs’ claim and granted a declaration that Zhang Snr held 456,325 shares of and in CSI on trust for the Employee Plaintiffs.  He further ordered that the EY Receivers do take steps forthwith to transfer the 456,325 shares to the Employee Plaintiffs or to persons nominated by them.

18.  On 13 February 2018, Ds issued the Original Striking Out Summons to strike out the Writ.  One principal ground relied upon is that, Ds being court‑appointed receivers, Ps were required to but had failed to obtain the Court’s prior leave before initiation of the present action to sue Ds.

19.  On 28 February 2019, Ps filed the SOC.

20.  On 13 March 2018, Ps filed their Leave Summons.

21.  On 14 May 2018, Ds filed their Amendment Summons.

C.      Ps’ claim

22.  The material averments made by Ps in the SOC are as follows:

(a)  Ds, as receivers of the Receivership Shares, owed to each of the Employee Plaintiffs (hence including Ps) inter alia the fiduciary duties (1) to act in good faith and in the best interest of the Employee Plaintiffs; (2) not to benefit themselves at the expense or to the detriment of the Employee Plaintiffs; (3) not to place themselves in a position of conflict or potential conflict; (4) not to exercise their powers for improper and/or collateral purposes; and (5) to account for all documents, correspondence and information generated and/or received during and/or otherwise arising out of the receivership[8];

(b)  Tianrui (International) Holding Company (“Tianrui”) had by April 2015 become the single largest shareholder of CSCG[9];

(c)  In view of the shareholdings held by CSI in CSCG, CSI occupied and continues to occupy the crucial position as a “kingmaker”, in the sense as I have summarized above[10];

(d)  Instead of advancing the Employee Plaintiffs’ interest as holders of the Receivership Shares, Ds conspired with Tianrui to put Tianrui and themselves in control of the board of CSCG[11] and thereafter attempted to take steps to dilute CSI’s shares in CSCG in favour of Tianrui[12] and to strip away all the assets of Shandong Shanshui[13];

(e)  Ds also carried out various acts which were aimed at cementing Tianrui’s control over CSCG and Ds’ control over CSI to the exclusion of CSI’s other shareholders[14];

(f)  The EY Receivers together with Tianrui led and/or participated in a violent storming of the headquarters of Shandong Shanshui (the “Headquarters”) on the pretext that it was to recover possession on behalf of CSCG[15];

(g)  Ds received fees and remuneration in respect of the impugned acts from inter alia Tianrui and/or parties related to Tianrui, CSCG and/or Shandong Shanshui, and that they did so in breach of their fiduciary duties[16].

23.  As summarized by Mr Westbrook[17], Ps’ main complaints are that:

“ … Ds’ exercise of powers as receivers of 456,325 shares of [CSI] … was not in the best interests of [Employee Plaintiffs], but rather to promote the interest of Tianrui by helping it control CSI and [CSCG]. In particular, to further Tianrui’s interests, Ds were involved in proposing a number of dilution proposals which would have seriously jeopardized the value of the [Receivership Shares] (and consequently the Employee Plaintiffs’ interests), and even led a violent raid on the PRC cement factory involving more than 600 people (essentially an armed mob). It can also be inferred from evidence that Ds were funded by Tianrui or its associates ultimately, and indeed for otherwise Ds’ conduct was wholly inexplicable...” [Ps’ emphasis omitted.]

Mr Westbrook submits further[18] that Ps’ pleaded case discloses:

“ …a strong (or at the very least a prima facie arguable) case that:

(a) Ds had breached their fiduciary duties by … :

(i)    Failing to act in good faith and the best interests of Ps, but rather acting in promotion of Tianrui’s interest;

(ii)   As a result of the receipt of remuneration from Tianrui or its associates, placing themselves in a position of conflict of interest, benefiting from such remuneration, and/or exercising their powers for the improper purpose of benefiting Tianrui.

(iii)  These causes of actions (which are at least prima facie arguable) involve factual disputes which must be resolved at trial, and examination of Ds are necessary in order to ascertain their true subjective state of mind.”

24.  Ps seek thereby against Ds, inter alia:

(a)  disclosure of divers documents (§§1 and 2 of the prayer);

(b)  an order for Ds to account to Ps for all the fees, remuneration etc which Ds received arising out of their appointment (§3 of the prayer);

(c)  compensation in equity to the Employee Plaintiffs or alternatively Ps (§4 of the prayer);

(d)  payment upon account (§5 of the prayer); and

(e)  a declaration that Ds hold their remuneration involved on trust in favour of the Employee Plaintiffs (or pro rata in favour of Ps) (§7 of the prayer).

D.     The grounds for striking out

25.  I have set out above the grounds for striking out as summarized by Mr Barlow.  I will consider them in turn with reference to the grounds set out in the Amended Striking Out Summons.

E.1.   THE 1^ST GROUND

26.  The 1^st Ground is an expansion of §1 of the Amended Striking Out Summons.

27.  There are several limbs to the 1^st Ground. As explained by Mr Barlow[19], those limbs (which I will call “Grounds 1(a) to 1(e)”) are:

(a)  no prior leave to sue Ds in their capacity as former Court‑appointed interim receivers;

(b)  Ds being court‑appointed interim receivers, they owe no fiduciary duties to Ps;

(c)  no entitlement to Receivers records;

(d)  no duty to account to Ps; and

(e)  no liability in damages etc.

28.  Those same limbs form also the main bases in support of the 4^th Ground[20].

E.2.   GROUND 1(A) — NO LEAVE TO SUE

29.  Leave is required to bring an action against a Court‑appointed receiver — see Company Law in Hong Kong — Insolvency 2018 at §11.025, and Barclay Pharmaceuticals Ltd v Waypharm LP [2013] 2 BCLC 551, per Gloster J at §§[42]‑[43].

30.  By taking out the Leave Summons for retrospective leave, Ps  have in effect accepted that to be so.  Mr Westbrook has also acknowledged that[21].

31.  Mr Westbrook submits that this Court has the power to grant retrospective leave.  He relies on the Singaporean authority of Excalibur Group Pte Ltd v Goh Boon Kok [2012] SGHC 71, at §§30‑33:

(a)  therein, Quentin Loh J accepted inter alia the Australian Decision of McDonald v Dare [2001] QSC 405 and held that leave can indeed be granted retrospectively (or nunc pro tunc).  The purpose of requirement for leave is to ensure that the winding‑up process is carried out expeditiously and efficiently and to sieve out claims that are without merit or aimed at delaying the liquidation process.  The purpose would not be served by holding that leave can only be granted if it is applied for prospectively.  It was not to allow the liquidators (and hence the other creditors) to enjoy an unexpected windfall;

(b)  in respect of the test for granting leave, the learned Judge further observed at §35 that:

“ …the applicant must at least be able to show a prima facie arguable case. An applicant need not go so far as to show he will or is likely to succeed. Applications without any foundation or that are frivolous or vexatious or calculated to delay proceedings or with an ulterior motive will not be allowed.”

32.  Mr Barlow does not seek to challenge that this Court has such a power.  He submits that[22] as Ps had not prior to the commencement of the Action obtained any leave, the Writ and the SOC are bound to be struck out unless this Court grants the retrospective sought, but that such leave should not be granted if Ps’ claim is incapable of withstanding summary challenge such as Ds’ present strike out application.  He relies on Barclay Pharmaceuticals [44].

33.  Having considered the authorities before me, I am satisfied that this Court has the power to grant retrospective leave. 

34.  On the approach when deciding whether to grant leave:

(a)  Mr Barlow has in his reply cited McGowan v Chadwick [2003] BPIR 647;

(b)  In McGowan v Chadwick:

(i)    The applicant sought permission of the court to commence proceedings against a court‑appointed receiver and manager;

(ii)   On the test for the granting of permission, the common ground of the parties (both below and before the Court of Appeal) was whether the pleading “disclosed an arguable claim”[23];

(iii)  At [81], Jonathan Parker LJ mentioned that he would proceed to consider whether the claim as pleaded “has a real prospect of success”.  But despite that, it was the threshold of “arguable case” which was in the end applied by the Court of Appeal.  As can be seen from [92] of the judgment, Jonathan Parker LJ (with whom the other Pumfrey J and Schiemann LJ agreed) granted the applicant permission to proceed with one head of the proposed claims on the basis that head “can be said to be arguable”;

(iv)  But ultimately, what is important to note is that whether to grant leave is discretionary.  Strait jacket is undesirable. The role of the court is to see that justice is done.  As explained by Jonathan Parker LJ at [78] to [79]:

“ [78] As to the approach which the court should take to such an application, it is a matter for the Court’s discretion whether or not to grant permission, and accordingly no hard and fast rules can be laid down as to the requirements which a prospective claimant must meet or as to the manner in which he brings forward his application. What can, in my judgment, safely be said is that permission will not be granted unless the applicant satisfies the court that his claim is a genuine one, in the sense that the allegations which he seeks to make are such as to call for an answer from the receiver. On the one hand, the receiver must not be subjected to vexatious or harassing claims; on the other hand, as Neville J observed [in Re Maidstone Palace of Varieties Ltd, Blair v Maidstone Palace of Varieties Ltd [1909] 2 Ch 283, [1908-10] All ER Rep 678], the court must see that justice is done.

[79]   In the instant case, [the applicant] put before the court a draft pleading, and the court accordingly adjudicated on the application by reference to that pleading. In other cases a draft pleading may not be required; that will be a matter for court hearing the application.  But where the court is faced with a draft pleading, it may well find it appropriate (as it has done in the instant case) to proceed as if the proposed action had already been commenced and an application had been made by the defendant to strike out the claim pursuant to CPR Part 3 or for summary judgment under CPR Part 24, if only because there can be no purpose in giving permission for the commencement of proceedings which will inevitably come to grief at the interlocutory stage.”

(c)  I do not believe that the approach suggested by Loh J in Excalibur is in reality of any difference;

(d)  Mr Barlow submits that no such leave should be granted if Ps’ intended case cannot survive any summary challenge.  That must also be correct.  There is no point in granting leave to a plaintiff to pursue a claim which is liable to be struck out.  That is also consistent with the approach explained by Jonathan Parker LJ in McGowan v Chadwick;

(e)  I bear in mind that Ps are now seeking retrospective (as opposed to perspective) leave.  There is however no suggestion, whether in the authorities cited before me or by Mr Barlow, that the court should as a result adopt a different approach.

35.  I adopt the approach as explained above when considering the present application.   

36.  The application of the above approach requires this Court to consider first of all Ds’ application to strike out to see whether Ps’ claim can withstand summary challenge.  This I now do.  I will come back to the question of retrospective leave at the end of this Decision.

E.3.   GROUND 1(B) — DS AS COURT‑APPOINTED RECEIVERS OWE NO FIDUCIARY DUTIES TO PS

37.  Administrators, liquidators, receivers, trustees in bankruptcy or other officers are fiduciaries charged with the duty of protecting, getting in, realizing and ultimately passing on to others assets and properties which belong not to themselves but to creditors or beneficiaries of one kind or another — Re Peregrine Investments Holdings Ltd [1998] 2 HKLRD 670, per Le Pichon J at 679B-D.

38.  An officer of the court is subject to duties which the law regards as fiduciary.  He is entrusted with the reputation of the court for impartial and proper dispatch of duties.  They should not only be   independent and impartial, but should also been seen to be so, and any   conflict of interest or even over‑familiarization should be   discouraged — Re Legend International Resorts Ltd, unrep, HCCW 1139/2004, 7 March 2011, per Fok JA (as he then was) at §30.

39.  In reliance upon the above authorities, Mr Westbrook submits[24] that Ds as receivers are fiduciaries and owe fiduciary duties to inter alios Ps in respect of their exercise of power in relation to the Receivership Shares (at least in respect of those held by Ps).

40.  That Ds are fiduciaries and are charged with fiduciary duties is not seriously challenged by Mr Barlow.  What is is Ps’ case that those duties are owed to Ps.  The proposition Mr Barlow puts forward in this regard is that whilst receivers appointed by the Court do have fiduciary duties (and also duties as officers of the Court), the duties are owed to the Court as their principal but not to parties to litigation[25]:

(a)  Mr Barlow cites in support Company Law in Hong Kong — Insolvency 2018 §11.023 and Kerr and Hunter on Receivers and Administrators (20^th ed) §§1‑6 to 1‑8 and 6‑4 to 6‑5 in support of his submissions that a receiver is not an agent or trustee of the party at whose instance the appointment is made;

(b)  I have considered those passages.  I note what those passages say what a receiver is not.  But they contain no direct statement to the effect that a receiver otherwise owes no fiduciary duty to the party at whose instance the appointment is made;

(c)  In the course of his oral submissions, Mr Barlow submitted that there could be, as he called it, “post‑judgment” fiduciary duties after final determination of the parties’ rights and interest, but that a receiver could not owe the parties any “pre‑judgment” fiduciary duties in the way as Ps claim Ds do.  Mr Barlow relied on §6‑5 of Kerr and Hunter, that:

“ Receiver as agent of party entitled. In some cases, after the right has been determined, a receiver will be considered as receiver for the person entitled: for instance, in an action for specific performance, where the purchaser was compelled to accept the title; and conversely, where the appointment was due to the inability of the vendor to make out his title.”

(d)  While in some cases, a receiver may after judgment be regarded as an agent of the party entitled to the asset in dispute, §6‑5 of Kerr and Hunter remains unclear as to whether a receiver may otherwise owe a party pre‑judgment fiduciary duties; 

(e)  Mr Barlow next refers to Boehm v Goodall [1911] 1 Ch 155, and in particular the observation of Warrington J at 161, that:

“ … a receiver and manager is not the agent of the parties, he is not a trustee for them, and they cannot control him. He may, as far as they are concerned, incur expenses or liabilities without their having a say in the matter.”

(f)  I have considered Boehm.  In that case, which was an action for dissolution of partnership, a receiver and manager was appointed to carry on the partnership business with a view to its sale as a going concern.  In carrying on the business, the receiver and manager made payments which the assets were insufficient to satisfy in full.  The receiver then claimed to be indemnified by the partners personally in respect of the balance. It was in that context that Warrington J held that as the receiver was an officer of the court, not an agent of the parties, he could only look to the assets for his indemnity.  I accept Mr Westbrook’s submission[26] that Boehm does not stand for the proposition that Court‑appointed receivers owe no duty to parties other than the Court;

(g)  Mr Barlow also relies on Evans v Clayhope Ltd [1998] 1 WLR 358 where Boehm was approved.  In Evans, the court appointed a receiver and manager to receive the rents and conduct repairs in accordance with the landlord’s repairing obligation.  The receiver and manager incurred more than the amount of moneys which he had been appointed to receive. Similar to what had happened in Boehm, the receiver and manager sought direction allowing him to recovered the balance from the landlord.  It was in that context that Boehm was approved.  Evans adds nothing to Boehm;

(h)  In his reply[27], Mr Barlow refers me to Parsons v Sovereign Bank of Canada [1913] AC 160 where Viscount Haldane LC observed that a receiver and manager appointed to carry on the business of a company was agent of neither the party who applied for their appointment (the debenture holders in that case) nor the company in receivership.  But again, similar to Boehm, the question in Parsons had little to do with the nature of a receiver’s fiduciary duties or to whom they are owed.  The issue in Parsons concerned whether certain goods delivered by the company in receivership to the appellant were delivered under certain old contracts the appellant had entered with the company, or whether they were delivered under certain new contracts with the receivers and managers.  The ultimate question was whether certain loss and damages could be set off against each other.  Parsons again is no direct authority in support of the proposition put forward by Mr Barlow.  

41.  On the other hand, in support of his submissions that Ds indeed owed Ps fiduciary duties, Mr Westbrook has referred me to the following authorities:

(a)  Barclay (supra), wherein Gloster J at [46] and [48] accepted counsel’s submissions as follows:

“ [46] As [counsel for the receiver] correctly submitted, a court-appointed receiver has equitable duties: he must act in good faith and for proper purposes; he must not profit from his position, he must take reasonable care to obtain the best price reasonably obtainable for any property that he sells. Whether there is a general duty of care (over and above the duty to act in good faith), or an equitable duty of care, may depend on the facts of the case. A receiver who exercises a power of management in respect of charged property owes a duty to the mortgagor and to those interested in the equity of redemption to do so with due diligence …

…

[48] [Counsel for the receiver] correctly submitted that the receiver only owed the relevant duties to persons having an interest in the equity of redemption or a sufficient interest in the property over which the receiver has been appointed (Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409, [2004] 1 BCLC 359 at [29], [2004] 1 WLR 997 at [29]) ...” (Emphasis added)

(b)  Nugent v Nugent [1908] 1 Ch 546:

(i)    Nugent v Nugent was a partition case;

(ii)   the defendant, who was a part owner of the house concerned, was appointed receiver of the rents and profits of the house;

(iii)  the house was subject to a mortgage;

(iv)  the mortgage became in arrears.  The mortgagee having obtained an order in a separate action put the house up for sale;

(v)   the defendant, without obtaining the leave of the Court, purchased the house and claimed to retain the house under her purchase.  The trial judge held that the receiver could not purchase the house without leave;

(vi)  in dismissing the receiver’s appeal, the Court of Appeal held that the receiver was in a fiduciary position towards the beneficiaries / mortgagor:

“ … Now, what is the position of the receiver towards the beneficiaries in this case? Plainly a fiduciary one. That cannot be disputed. It makes no difference whatever that the receiver here was one of the tenants in common. In that character alone she would not have filled a fiduciary position, but a receiver must be in a fiduciary position to all the tenants in common, and it makes not a farthing difference whether the receiver was herself one of the owners.” (per Crozens‑Hardy MR at p 548)

“ … The receiver was in a fiduciary relation to all the parties to the partition action, and she, by reason of accepting that position, might obtain knowledge which otherwise she would not possess. Having accepted that position, I think the Court has full right to control her actions, and to say that if a sale of the property takes place, whether it be in the suit or not in the suit, she must not be allowed to bid without the express leave of the Court.” (per Fletcher Moulton L.J. at p 550)

“ … When the mortgagee is selling, the mortgagor may no doubt owe no duty to the mortgagee to assist him in the sale, but if he knows something that may improve the price it would be his interest to put it forward. The receiver, who stands in a fiduciary relation to the mortgagor or the parties to the action constituting the mortgagor, owes to those parties the duly to do what is reasonably necessary to assist the sale.” (per Buckley L.J. at p 550)

42.  In the light of Barclay and Nugent v Nugent, and with reference back to Re Peregrine and Re Legend, Mr Westbrook submits that the references in the 2 latter cases to Court‑appointed officers being fiduciaries clearly encompass their position as fiduciaries vis‑à‑vis the relevant beneficiaries and/or persons having a sufficient interest in the property over which the receiver has been appointed[28].

43.  In the course of oral submissions, I specifically invited Mr Barlow’s submissions on the effects of Barclay and Nugent v Nugent upon the proposition he put forward.  In respect of Barclay, Mr Barlow submitted that [48] of the judgment in Barclay was not borne out by the other authorities which he had referred to, and that the case had to be understood on the facts in that case.  Mr Barlow however did not develop those submissions further.  In respect of Nugent v Nugent, he pointed to the fact that it was a case relating to a mortgage, and the right of redemption is engaged.  That might be so.  But as submitted by Mr Westbrook, which I accept, there is no basis to draw a distinction between a prospective equity of redemption and an actual one after judgment.  The main consideration, according to Barclay, is whether the beneficiary/person concerned has a sufficient interest in the property which the receiver has been appointed.  In Barclay, that interest took the form of the mortgagor’s right of redemption.  That however does not preclude the possibility of that interest on different facts taking on other forms.

44.  Towards the end of his oral reply, Mr Barlow submitted that Mr Westbrook’s proposition that Ds as interim receivers owe Ps fiduciary duties is using Mr Barlow’s “100% wrong”.  At that point I invited Mr Barlow again to assist me on Barclay and Nugent v Nugent.  It was at that point that Mr Barlow accepted that he might have put his proposition too broadly.  He sought to refine his proposition as follows.  He submitted that there have been no allegations against Ds of misappropriation or dishonest dealings with properties under receivership.  He submitted further that the fiduciary duties pleaded at §8 of the SOC have more to do with agency then trusteeship, which do not fit in with the authorities which suggest that a court‑appointed receiver is not an agent of the parties.

45.  Mr Barlow’s refined position goes more to the 4^th Ground which I will come to. 

46.  But dealing with Ground 1(a) now, and on the authorities before me, and given in particular Nugent v Nugent, I am of the view that Ps’ case that Ds owe them fiduciary duties is as a matter of law at the very least reasonably arguable.  It is by no means clear, as Mr Barlow submits in his written submissions, that Ds do not owe Ps any fiduciary duty.  This is not a point for striking out, and I reject Mr Barlow’s submissions to that effect.

E.4.   GROUND 1(C) — NO DUTY TO RECEIVERS RECORDS

GROUND 1(D) — NO DUTY TO ACCOUNT TO PS

47.  Grounds 1(c) and 1(d) are primarily raised as sequiturs of Ground 1(b)[29].

48.  Mr Westbrook submits that[30] “[o]nce it is recognised that Court‑appointed receivers also owe fiduciary duties to persons interested in the property over which the receivers were appointed, such fiduciary duties would clearly encompass the fundamental duty to account”.

49.  Upon my view that Court‑appointed receivers can also owe fiduciary duties to persons interested in the receivership property, and on the further authorities cited before me, I agree that such fiduciary duties can encompass the duty to account.  To that extent, I accept Mr Westbrook’s submissions.

50.  Ground 1(c) raises further 2 issues which the disposal of Ground 1(b) does not necessarily dispose:

(a)  whether any fiduciary duty which Ds owe to Ps encompass duties to effect those disclosures sought in §1 and §2 of the prayer; and

(b)  whether, as submitted by Mr Barlow[31], the “Receiver records are speculatively sought in order to try to discover a case of fraud or dishonest not known to exist — the Court will not allow its processes to be so abused”.

51.  As to whether Ps are entitled to seek disclosures of the Receiver records, Mr Westbrook has cited to me a number of additional authorities:

(a)  Trustees and most fiduciaries are accounting parties, and the beneficiary is entitled to an account as of right.  As observed by Lord Millett NPJ in Libertarian Investment Ltd v Hall (2013) 16 HKCFAR 681 at §§167 to 168:

“ 167. It is often said that the primary remedy for breach of trust or fiduciary duty is an order for an account, but this is an abbreviated and potentially misleading statement of the true position. In the first place an account is not a remedy for wrong. Trustees and most fiduciaries are accounting parties, and their beneficiaries or principals do not have to prove that there has been a breach of trust or fiduciary duty in order to obtain an order for account. Once the trust or fiduciary relationship is established or conceded the beneficiary or principal is entitled to an account as of right. Although like all equitable remedies an order for an account is discretionary, in making the order the court is not granting a remedy for wrong but enforcing performance of an obligation.

168.  In the second place an order for an account does not in itself provide the plaintiff with a remedy; it is merely the first step in a process which enables him to identify and quantify any deficit in the trust fund and seek the appropriate means by which it may be made good.  Once the plaintiff has been provided with an account he can falsify and surcharge it.  If the account discloses an unauthorised disbursement the plaintiff may falsify it, that is to say ask for the disbursement to be disallowed.  This will produce a deficit which the defendant must make good, either in specie or in money.  Where the defendant is ordered to make good the deficit by the payment of money, the award is sometimes described as the payment of equitable compensation; but it is not compensation for loss but restitutionary or restorative.  The amount of the award is measured by the objective value of the property lost determined at the date when the account is taken and with the full benefit of hindsight.”

(b)  As explained in Snell’s Equity (33^rd ed) at §§29‑025 to 29‑026:

(i)    one duty of a trustee is to keep accounts and to produce them to any beneficiary when required.  While a beneficiary does not have a right (proprietary or otherwise) to disclosure of trust documents, disclosure will be ordered where appropriate as part of the court’s inherent jurisdiction to supervise the administration of trusts;

(ii)   at §29‑026 of Snell’s, the following observations of Lord Walker at [67] of Schmidt v Rosewood Trust Ltd [2003] 2 W.L.R. 1442 is cited, that:

“ Especially when there are issues as to personal or commercial confidentiality, the court may have to balance the competing interests of different beneficiaries, the trustees themselves, and third parties. Disclosure may have to be limited and safeguards put in place. Evaluation of the claims of a beneficiary (and especially of a discretionary object) may be an important part of the balancing exercise which the court has to perform on the material placed before it. In many cases the court may have no difficulty in concluding that an applicant with no more than a theoretical possibility of benefit ought not to be granted any relief.”

(iii)  Mr Westbrooks submits that there is no reason why this does not apply to other fiduciaries. 

52.  In the course of the hearing, I expressed some concern as to whether the disclosures sought are in fact, assuming the satisfaction of all the requisite requirements, covered by parties’ duty to make discovery under Order 24.  If so, why is it deemed necessary to seek the Receiver records by way of substantive relief.

53.  However, having considered Snell’s and Schmidt cited, and given the Court’s inherent jurisdiction to supervise the administration of trusts as explained therein, I am not satisfied that the law is as clear cut as Mr Barlow seeks to put it.  Ps’ entitlement to seek discovery is not necessarily inconsistent with the power of the court to order discovery under the court’s inherent jurisdiction to supervise the administration of trusts.  

54.  On the authorities cited before me, I am satisfied that Ps have established at least an arguable case that they may, as a matter of law and principle, seek those disclosure of the types of records prayed for at §§1 and 2 of the prayer.

55.  As to whether the claims are “speculative” or too wide as to amount to an abuse, I bear in mind the observations made by Lord Walker at Schmidt cited above.  The process involves a balancing exercise.  Ps’ claims will have to be evaluated.  I am not satisfied that the exercise should be undertaken upon an application to strike out. 

56.  The width of the claim is also relevant to the 5^th Ground, which I will consider below.

57.  I am not satisfied that Grounds 1(c) and 1(d) are made out.

E.5.   GROUND 1(E) — NO LIABILITY IN DAMAGES ETC

58.  Ground 1(e) again comprises several limbs.  I deal with them in turn.

E.5.A.   NO FIDUCIARY DUTIES OWED

59.  Under this limb, Mr Barlow submits[32], with reference to Ground 1(b), that since no fiduciary duties as Ps allege exist, Ps have no cause of action entitling them to damages. 

60.  I have dealt with Ground 1(b) above.

E.5.B.   DIRECTIONS FROM COURTS

61.  Mr Barlow next submits that as Ds have “at each significant step of the Receivership” either sought directions from the Court or acted in accordance with directions and in any event kept the Court fully informed, Ds can have no liability in damages.

62.  Mr Barlow’s submissions in this regard beg the question as to what the word “significant” means in his phrase “each significant step”.

63.  In the course of the hearing, I made enquiries with the parties as to whether all Receiver’s Reports have been placed before this Court for the purpose of the hearing.  Parties were not able to give me a definitive answer. 

64.  In any event, Mr Barlow informed me that certain matters might not have been dealt with in any Receiver’s Reports as affirmations covering those matters had been filed in the course of and when Ds were dealing with certain interlocutory applications relating to them. 

65.  Consideration of what disclosure had been made to Courts would therefore entail the consideration of those other (unspecified) affirmations.

66.  One matter which Mr Barlow relies on is the fact that the EY Receivers did on 16 October 2015 obtain from Deputy Judge Seagroatt directions that they be free to vote at any board meeting of CSI in a manner including causing changes to the composition of CSCG’s board, and to accept any offer of appointment as directors of CSCG.  Subsequently, during an EGM of CSCG held on 1 December 2015, CSI and Tianrui voted to replace the entire board of directors of CSCG.  D1, and Chong Cha Hwa and Hwa Guo Wai, as well as certain persons nominated by Tianrui were appointed to the board.

67.  However, G Lam J in that regard observed at §§64 to 66 of the Trust Actions Discharge Decision that:

“ 64. Fourthly, one of the original purposes of the appointment of receivers was to protect the CSI shares from the activities of Zhang Snr as management of the CSCG. The management has since been completely replaced.

65. It has become quite apparent that the full picture was not presented by the plaintiffs (or anyone else who had knowledge) to Deputy Judge Seagroatt in the applications before him in September to November 2015, and in particular before he granted the Receivers on 16 October 2015 a direction permitting them to vote in CSI to cause a change in the composition of the CSCG board and to become directors of CSCG themselves. Specifically, it is plain that his Lordship was not informed and did not know that by then (i) 2,142 out of 2,631 plaintiffs had sold their interests and 2,090 of them had been paid 70% of the price; (ii) the selling plaintiffs had effectively agreed to allow the purchasers to take steps against Zhang Snr in the selling plaintiffs’ name; (iii) the purchase money (approximately RMB700 million) they received had originated from Tianrui; (iv) the SPAs they signed were in a form drafted by KLG; and (v) KLG, the solicitors on record for the plaintiffs, were being funded by an undisclosed person said to be a friend of Tianrui’s chairman. In fact, as far as I am aware, none of this was disclosed to the court until February 2017 and then only because there was a rift within the plaintiffs’ camp which became divided into the KLG plaintiffs and the SH plaintiffs.

66.       It is not for me to speculate whether Deputy Judge Seagroatt would have decided the various applications before him in the same way if he had known of these matters. Suffice it to say that I have no doubt they are material facts which should have been placed before the court.  It is true that the hearings in question were not ex parte, but Zhang Snr was not privy to these facts and could not be expected to be able to inform the court of them.  Mr Wou has not gone through the affidavit evidence filed at the time with a fine tooth‑comb to identify any positive false statements made to the court.  But by continuing to rely on the plaintiffs’ complaints that individual plaintiffs were being bullied and pressurised, and in refuting Zhang Snr’s complaint that the plaintiffs and Tianrui (and possibly the Receivers) were acting in concert, without disclosing any of the above facts, I regret to have to say that the picture presented to the court by those using the names of the plaintiffs verged on the misleading.”

68.  In another decision given on 7 May 2018 in HCA 1282/2017[33], G Lam J observed further (at §16) that:

“ Further, I have expressed serious concerns in the [Trust Actions] Discharge Decision [2018] HKCFI 194 at §§62‑66 that the transfer of the interests of the plaintiffs in CSI shares in August 2015 (of which Chen HQ now claims to be the beneficiary), among other vital information, had been withheld from the court (both DHCJ Seagroatt and the Court of Appeal on appeal from him) and that a misleading picture had been presented to the court when it granted orders for the Receivers to become involved in the management of CSCG, with the result that the board of the listed company became thereafter dominated by Tianrui and the Receivers …”

69.  Referring to those observations of G Lam J at §65 of the Trust Actions Discharge Decision, and having set them out at §47 of D1/Aff#1, D1 says at §48 that:

“I must clarify that, at the time, [D2] and I were not aware of the matters set out as (i) - (v) in paragraph 47 above. We only became aware of these matters in February 2017 when they were disclosed within the Trust Actions.” [D1’s original emphasis]

70.  Clearly, Ds’ state of knowledge in so far as those matters are concerned cannot be determined on affirmation at this stage.

71.  Indeed, as submitted by Mr Westbrook[34], the EY Receivers had not sought directions from the Court regarding some of those Financial Proposals (which Mr Westbrook calls the Dilution Proposals).

72.  The background and history of these Shanshui are highly complicated.  It is impossible, and indeed not appropriate, for this court at this stage upon an application for striking out to make exhaustive findings on what directions Ds had sought from Court and, if there had been steps in respect of which Ds had not sought any directions from courts, whether those steps were “insignificant”.

E.5.C.   THE FINANCIAL PROPOSALS RESULTING IN NO PLEADED LOSS

73.  I have summarized above what the Financial Proposals were (which Ps label them as Dilution Proposals).

74.  Mr Barlow submits[35] that Ps have not pleaded any loss:

(a)  Mr Barlow submits that:

(i)    the Open Offer, the 1^st Placing Proposal and the 2^nd Placing Proposal in fact did not proceed;

(ii)   The Cinda Agreement provided much needed finance to Shandong Shanshui at 9.5% pa interest.  It was a commercial decision, and that absent any cogent evidence of bad faith by the CSCG Board, it is not the practice of the Court to second‑guess; and

(iii)  Any loss which Ps have pleaded[36] (which related to alleged loss arising from the visit of Ps lawyers (Messrs Stephenson Harwood) to Jinan to obtain instructions) is “hopelessly vague”, and is part of the legal costs in the Trust Actions which cannot be recovered here[37];

(b)  When orally developing this ground, Mr Barlow referred to and relied heavily on Buckley v Bennell Design & Constructions Pty Ltd [1977] 1 NSWLR 110, where Hutley J A at 124C observed that:

“ … though the court appointed receiver was an officer of the court, the court at no time had day to day supervision of his activities, and the only way in which his activities came before the court was on complaint by somebody affected by them that he was acting contrary to his charter embodied in the order appointing him, to the detriment of that person’s position.”

(c)  In Buckley, the issue before the Supreme Court related to the applicable principles when deciding whether the Court should set aside or remit an award made by an arbitrator or referee agreed on or appointed under s 15 of the Arbitration Action 1902.  One contention was that as an arbitrator or referee so appointed was an officer of the court, the court could exercise the same control that a court may exercise over its officers;

(d)  The issue in Buckley is hence very different from those before this Court, and I do not believe Hutley JA meant to lay down any hard and fast rule relating to the liability of a court‑appointed receiver or the circumstances in which leave may be granted permitting a claim to be pursued against him;

(e)  In particular, I do not accept that by the words “to the detriment of that person’s position”, Hutley JA meant to exclude a beneficiary who intends to pursue a claim against a court‑appointed receiver based on breach of fiduciary duties with the view of holding him to account. In any event, I am of the view that it is at least reasonably arguable that that is not what Hutley JA intended to mean;

(f)  I note in this regard, as I have summarized above, that the main plank of Ps’ claim against Ds is breach of fiduciary duties, so that they are liable to account to Ps.  I have expressed by views on Grounds 1(b) and 1(d).

E.5.D.   PS MIGHT HAVE SOLD THEIR INTEREST IN THE RECEIVERSHIP SHARES

75.  Mr Barlow next submits that[38] “it appears that [Ps] have already sold their interest in the Receivership Shares, either to [Asia Cement Corporation] or to Jinan City Government”.

76.  Such alleged appearance is hardly sufficient to support an application to strike out.  P3 has in any event stated[39]:

“ I clarify and confirm that [Ps] (including myself) have not sold and/or transferred the [Receivership Shares] to any other party.”

77.  Such factual dispute cannot be resolved at this stage.

E.6.   THE 1^ST GROUND — DISPOSITION

78.  For the reasons set out above, I am not satisfied that any of the grounds made under the 1^st Ground are made out.

F.      THE 2^ND GROUND —  No locus standi to sue for the 4 Companies

79.  The 2^nd Ground concerns the capacity in which Ds are being sued.  It echos §1(b) of the Amended Striking Out Summons, which reads:

“ … the Writ purports to sue [Ds] and the SOC’s prayer seeks relief against [Ds] in their capacity as directors or other officers of [CSI, CSCG, China Pioneer and/or Shandong Shanshui] when [Ps] have no locus standi to do so and no entitlement to any such relief …”

I refer for ease of reference CSI, CSCG, China Pioneer and Shandong Shanshui collectively as the “4 Companies”.

80.  Ps have both by way of correspondence[40] and on affirmation[41] confirmed that Ds are not being sued in their capacity as directors or officers of those 4 Companies.

81.  At §6 of D1’s 2^nd affirmation, D1 says that in the light of that confirmation, Ds shall not pursue the amendment to their Original Striking Out Summons that is set out at §1(b) of the then draft Amendment Summons.

82.  Ds’ positon however has not stopped Mr Barlow from continuing to rely on the 2^nd Ground (which is based on §1(b) of the Amended Striking Out Summons).

83.  In his opening written submissions, Mr Barlow does not specify which parts of the Writ or the SOC are in his submissions liable to be struck out under this ground.  He does so in his written reply, at §§5.2 and 5.4 thereof.  The objections focus upon those parts of the Writ and SOC which relate to documents (and information etc) sent or received by, and acts done by Ds “as chairman, executive directors or officers of [the 4 Companies]”[42], or “qua officers of [CSCG], [China Pioneer] or Shandong Shanshui and not qua Receivers”[43].  I will not recite them all here.

84.  In the context of Ps’ claim for disclosures, Mr Westbrook submits[44] that:

“ Such documents (i) relate to the way Ds exercised their powers as the Receivers, and (ii) relate to the [Receivership Shares], including how they were dealt with and all matters affecting their value. Insofar as the documents also relate to Ds’ exercise of powers as directors of CSI, CSCG and/or [China Pioneer], this in and of itself does not obviously disentitle Ps to the documents (China Forestry §43 of Ds’ Skeleton). Indeed, Ds only became directors of the said companies because they were the Receivers of the [Receivership Shares].” (emphasis added)

85.  I agree with Mr Westbrook in this regard. In my view, the same considerations apply to those acts pleaded to be done by Ds “as chairman, executive directors or officers of [the 4 Companies]”.

86.  The 2^nd Ground is not made out.

G.     THE 3^RD GROUND —  No locus to sue for the 2,625 (or 2,626) non‑parties

87.  The 3^rd Ground is referable to §1(c) of the Amended Striking Out Summons.

88.  Mr Barlow’s submissions[45] on this ground go as follows.  The Writ does not purport to assert any claims or causes of action on behalf of persons other than the 5 Ps.  It is impermissible to plead claims or causes of action not asserted the Writ — Order 18 rule 15(2).  But the SOC at various places refer to “the Employee Plaintiffs” and purport to assert claims and causes of action of their behalf.  Ps’ purported claims on behalf of the non‑parties are liable to be struck out.

89.  Ps are not seeking to assert any claim on behalf of any party beyond the 5 Ps.  Mr Westbrook has acknowledged that. He informs this Court that other parties amongst the Employee Plaintiffs may latter join.  That might be so.  But the present application can only be considered in the light of the matters before me.

90.  In his written reply[46], Mr Barlow sets out various parts of the SOC which plead and refer to “the Employee Plaintiffs”. He submits that those parts are liable to be struck out.

91.  I do not agree.  The Employee Plaintiffs form a class of persons.  The 5 Ps are amongst them.  Reference to the Employee Plaintiffs as a group, or the interests of that group, or duties allegedly owed by Ds to that group do not mean that the 5 Ps are asserting any claim on behalf of any non‑parties.  I further note that in various places, when the term “Employee Plaintiffs” is used, it is followed by the words “including inter alios the Plaintiffs”.

92.  §§(4) and (5) of the prayer however should be looked at separately:

(a)  Those 2 paragraphs read:

“ (4) An order that [Ds] do compensate the Employee Plaintiffs, or alternatively the [Ps], in equity;

(5) An order for the payment to the Employee Plaintiffs of all sums found due on such account or to the [Ps] of such proportion thereof as attributable to [Ps’] interest in the [Receiver Shares];”

(b)  Ps are therein seeking relief for non‑parties;

(c)  Mr Westbrook submits that[47], insofar as the prayers for relief in the SOC suggests the claiming of relief for “Employee Plaintiffs”, relief for the named Ps only is always claimed in the alternative;

(d)  That may be so.  But it does not alter the fact that Ps have no locus to seek any relief for any of the Employee Plaintiffs who are not before the court;

(e)  I find those underlined words in §§(4) and (5) of the prayer clearly objectionable.  I order that they be struck out.

93.  In his written reply[48], Mr Barlow submits that there are other parts of the SOC which are outwith the Writ.  In this regard, I have been referred by Mr Westbrook to §18/15/7 of Hong Kong Civil Procedure 2020, Vol 1, that:

“ A general indorsement on the writ consists only of ‘a concise statement of the nature of the claim made or the relief or remedy required in the action begun thereby’ ( O.6, r.2(1) (a)). Hence, the plaintiff is permitted in his subsequent statement of claim to alter, modify or extend his original claim and to claim further or other relief without amending his writ provided that the new cause of action arises from facts which are the same as, or include or form part of, facts giving rise to a cause of action mentioned in the writ. A defect in a writ may, therefore, be cured by a proper statement of claim which may operate in the same way as the obtaining of leave to amend.”

I apply those principles.  I am not satisfied that that other objection is made out.

H.     THE 4^TH GROUND —  no reasonable cause of action / no remedy to which Ps are entitled

94.  The 4^th Ground is referable to §1(d) of the Amended Striking Out Summons which seeks an order that each of the Writ and the SOC:

“ neither discloses any reasonable cause of action or claims any remedy to which [Ps] are entitled.”

95.  Under this Ground, Mr Barlow first of all repeats the submissions he has made in support of the 1^st Ground. I have for the reasons set out above rejected the 1^st Ground.

96.  Then, relying on Re Orient Power Holdings Ltd [2008] 2 HKLRD 494, per Kwan J (as she then was at [34]), Australian Executor Trustees Ltd v Provident Capital Ltd [2013] FCA 1461, per Rares J at [11] to [14], Re B F Construction Company Ltd, reported, HCCW 691/2004, 18 June 2004, per Kwan J (as she then was) at [15], and Re I‑China Holdings Ltd [2003] 1 HKLRD 629, per Deputy Judge Barma SC (as he then was) at [32], Mr Barlow submits[49] that there is no general duty on Court‑appointed receivers not to take steps that could result in a possible conflict of interest, and that their duty is to inform the Court and/or seek directions when any conflict of interest actually arises.

97.  It is not Mr Barlow’s submissions that there is no obligation upon a court‑appointed receiver to act independently, or that there can be no consequences even if a court‑appointed receiver puts himself in a position of conflict.  As observed by Rares J in Australian Executor:

“ 12. The officer’s responsibility to bring the matter to the Court’s notice cannot be understated. The officer acts on behalf of the Court, and whilever the problem exists, it has the potential to affect the public’s perception of the independence and integrity of the Court. To take an extreme case, far removed from this, it is not difficult to think what would be of the reaction of the public or third parties as to what the Court were doing, if a Court‑appointed trustee were charged with defrauding someone, but continued to exercise the office, where the Court was not even aware of those circumstances.

...

14. The officer conducts a public function on behalf of the Court. It is also critically important for the officer to understand that it is the Court’s, and not the officer’s, responsibility to determine what, if anything, needs to be done about any such potential conflict or other difficulty. The Court can make its decision as soon as it considers appropriate having regard to the issue. The reason for this is not far to seek. The authorities have made clear that it is of the greatest importance that an officer of the Court appear to be, and is in fact, independent, and that his or her position in exercising his or her functions is not open to challenge. In Re Giant Resources Limited [1991] 1 Qd R 107 at 117, Ryan J distilled the ratio decidendi of the Appeal Division of the Supreme Court of Victoria in Re National Safety Council of Australia, Victorian Division [1990] VR 29 at 34 per Young CJ, Murphy and Marks JJ as follows:

‘ A liquidator should not be put in a position where his independence might be open to challenge.  It is of the greatest importance that there should be no possibility of criticism attaching to one of the Court’s own officers on the ground of a conflict of interest.  The liquidator needs to be seen to be independent in any matter in which his duties as liquidator may require him to investigate.’ ”

98.  The main thrusts of Mr Barlow’s submissions are that the EY Receivers have always been abided by the Courts’ orders and directions, and that they have also filed Receivers Reports regularly to keep the Court fully informed of their work and intentions[50]. In effect, Mr Barlow is inviting this Court to make findings in those regards at this stage upon affirmation.

99.  I have in Section E.5.b. above given my view that it is neither possible nor appropriate for this court to do so at this stage.

100.  In these regards, Mr Westbrook submits that Ps as interested parties are making a fundamental complaint that Ds had put themselves in a position of conflict of interest, which they had not effectively managed and had even acted to the detriment of Ps.  He further submits that in any event, the state of mind of Ds would not be apparent from any of the Receivers Reports Ds made to Court, and that whether Ds acted for a proper purpose would call for a wider investigation as to their subjective state of mind[51] — see Regentcrest plc v Cohen [2001] 2 BCLC 80, per Parker J at 105.  There is force in those submissions.

101.  I am not satisfied that the 4^th Ground has been made out. 

I.       THE 5^TH GROUND —  Vexation and abuse of process

102.  The 5^th Ground is an expansion of §1(e) of the Amended Striking Out Summons, which reads that:

“ this Action has been brought to vex and harass [Ds] in order improperly to try to influence the outcome of other existing litigation, in particular HCA 762/2017, which the [4 Companies] have brought against [Ps’] solicitors herein, Stephenson Harwood (‘SH’) and the [Ds] therein (who are accomplices of [Ps] herein and clients of SH).”

103.  The basis of §1(e) of the Amended Striking Out Summons is apparently certain beliefs allegedly held by D1[52], that:

“ [Ps] in this Action are Employee Beneficiaries whose interests in CSI shares were held on trust of them by [Zhang Snr]. I verily believe that they have already signed relevant documents to sell their interests in CSI shares to Chen Hongquig and/or the Jinan Government and herein they are being used by Mi Jingtian in order to exact revenge on David Yen and myself for procuring Mi Jingtian’s removal from Shandong Shanshui in early 2017. I have been advised by the Defendant’s legal advisers and I believe that, as [Ps] have already sold their interest in CSI shares, they have no legal standing to commence or continue this Action against us. That Mi Jingtian would go to great lengths (such as coercing others and commencing bogus legal proceedings) to secure personal advantages is recorded in the said Hong Kong Decision of DHCJ To. It comes as no surprise that Mi Jingtian would do the same and utilize [Ps] for his personal vendetta against David Yen and myself. I also note that [Ps] in this Action, like the defendants in HCA 2648/2017 and Mi Jingtian in HCA 762/2017, are also represented by Messrs. Stephenson Harwood.”

104.  One should not lose sight of the fact that this is an application to strike out.  It is only in plain and obvious cases where the claim is bound to fail that the Court should exercise its summary powers to strike out a statement of claim.  D1 has put forward no objective evidence in support of his alleged beliefs.  P3 has also stated on oath that Ps have not sold or transferred the Receivership Shares to any other party.

105.  This limb of the 5^th Ground has in my view no merits whatsoever.

106.  In his written submissions, Mr Barlow has under this ground raised 2 further matters, which he describes as:

(a)  impermissible fishing[53], and

(b)  the Tianrui speculation[54].

I.1.    THE SO‑CALLED IMPERMISSIBLE FISHING

107.  Mr Barlow submits that in so far as the Receivers’ bills and related documents are concerned, they have been submitted to the Court for assessment, and that if Ps have not sold their shares, the proper way for them to obtain those documents is by an application under Order 30 rule 5.

108.  I have dealt with above Ps’ claim for discovery.  I accept Mr Westbrook’s submissions[55] that it is not plain and obvious that Ps cannot obtain the bills and related documents via starting an action against Ds as fiduciaries for an account.

109.  Mr Barlow further submits that documents relating to Ds’ appointment as officers of CSCG, China Pioneer, Shandong Shanshui and the Financing Proposals were sent or received by Ds qua officers of those companies but not qua receivers.  I have dealt with this objection which also forms the basis of the 2^nd Ground.

110.  This limb of the 5^th Ground is also not made out.

I.2.    THE SO‑CALLED TIANRUI SPECULATION

111.  This limb of the 5^th Ground relates to Ps’ allegations that Ds were ultimately being funded by Tianrui or its related parties.  Mr Barlow submits that:

“ 45. … These serious, unwarranted and speculative claims of equitable fraud have been made against Court‑appointed officers without any supporting evidence (hence [Ps’] desire for disclosure orders), without Counsel’s signature …, and are liable to be struck out …

…

48. … it is plain and obvious that [Ps’] assertion that the Receivers received funding from Tianrui has no factual or evidential foundation.  This plea, along with the relevant relief sought (Writ para 3…, SOC Prayer paras 3‑7…), should therefore be struck out …”

112.  The position is not as plain and obvious as Mr Barlow has submitted.

113.  There are two starting points, which appear to be not controversial:

(a)  the EY Receivers have incurred significant costs in the course of the receivership; and

(b)  none of the Employee Plaintiffs have paid any fees.

114.  The issue then is this: who has been funding the receivership.  It is a factual issue.

115.  According to the evidence that has been placed before me:

(a)  D1 says that neither him nor D2 “ever received any payment from Tianrui”[56];

(b)  As to the source of the funding of the EY Receivers’ work, D1 says[57] that:

“ … In October 2015, Wong & Lawyers representing a group of minority shareholders in CSI arranged for the funding of the Receivers work by providing total funds of HK$28 million — see Wong & Laywers’ 19 and 29 October 2015 letters to the Receivers’ solicitors ... According to Mi Jingtian … and Zhao Yongkui …, that funding was secured by 5 representatives of the Employee Plaintiffs, namely, themselves plus Li Maohuan, Yu Yuchuan and Zhao Liping …”

(c)  In those 2 letters from Wong & Lawyers to the EY Receivers’ solicitors (namely PC Woo & Co), PC Woo’s prior letters requesting funding for the EY Receivers’ work were referred to.  Then:

(i)    in the 19 October 2015 letter[58], it was said that:

“ Your request has been relayed to our clients, the minority shareholders of [CSI], given the relevant plaintiffs’ financial constraints to do so. At the request of the relevant plaintiffs, our client is prepared to provide funding for and on their behalf regarding the Receivers’ works; and in this connection, we enclose a cheque for HK$8 million payable to P.C. Woo & Co …”

(ii)   in the 29 October 2015 letter[59], it was said that:

“ We are instructed that upon further discussion with the relevant plaintiffs in the Trust Action and at their request, our client is prepared to provide the further funding as requested for and on their behalf regarding the Receivers’ works; and in this connection, we enclose a cheque for HK$20 million …”

(d)  In his 4^th affirmation, at §33, P3 refers to the 2 letters from Wong & Lawyers.  He says that he has:

“ since spoken to the 6 Minority Shareholders (apart from Zhao Yongkui) regarding the matter, and they told me that none of them had ever paid any remuneration to the Receivers through Messrs. Wong & Lawyers or any other means.”

(e)  A request was then made to Wong & Lawyers for particulars of the “clients” or “client” they referred to in those letters.  In reply, Wong & Lawyers said in a letter dated 16 August 2018 that:

“ … we are instructed that the “client” mentioned for providing funding in those of our two letters referred to in your said letter … is Mr Zhao Yongkui …”

(f)  Then at §35 of his 4^th affirmation, P3 says:

“ … it is important to note that it was Zhao Yongkui, who defected to and had been closely associated with Tianrui, who arranged for funding, and it is quite clear that he did not himself have the resources to fund the litigation. In fact, and according to his various other affirmations filed in proceedings in Hong Kong, he admitted that employee plaintiffs did not have the resources to fund. As a result, Zhao Yongkui said that they had gone to an anonymous ‘3^rd party’ or a ‘litigation funder’ ... I have since asked the Minority Shareholders and was told that this anonymous ‘3^rd party’ or ‘litigation funder’ was in fact Tianrui …”

(g)  Apart from the 2 letters from Wong & Lawyers, no documentary record has been produced by Ds in respect of the source of the funding of their work;

(h)  Mr Westbrook has in his submissions pointed to the role D1 played in the violent storming together with Tianrui of the Headquarters, which he submits support the inference that it was Tianrui who funded the receivership work[60]. The exact reasons for, and the intentions behind that raid may only be decided upon trial.

116.  On the evidence before, I can’t conclude that Tianrui / funding averments raised and pleaded by Ps are obviously unsustainable, unarguably bad and impossible to succeed. 

I.3.    THE 5^TH GROUND — DISPOSITION

117.  For the reasons set out above, I reject also the 5^th Ground and all the limbs under it.

J.       THE 6^TH GROUND —  that the SOC is embarrassing

118.  §1(f) of the Amended Striking out Summons simply complains that “the SOC is embarrassing”.

119.  In his submissions[61], Mr Barlow submits that the SOC contains equivocal and incomplete pleas of alleged dishonesty or equitable fraud, the plea of conspiracy being outwith the Writ, and the SOC otherwise contains multiple badly pleaded assertions of alleged facts that are irrelevant and confusing.  He cites inter alia ADS v Wheelock Marden & Co Ltd [1994] 2 HKC 264, per Bokhary JA at 270D.

120.  Mr Barlow has not provided in his written submissions details as to in what way the pleas were incomplete.  As Mr Westbrook has submitted, referring to §18/19/8 of the Hong Kong Civil Procedure 2020, parties must not be too ready to find themselves embarrassed.  Further, a pleading will not be struck out unless it is clear on the face of the allegations that they are irrelevant.  Where a pleading is defective only in no containing particulars to which the other side is entitled, application should be made for particulars under Order 18 rule 12, and not for an order to strike out the pleadings.

121.  On the pleadings and evidence before me, I am not satisfied the 6^th Ground has been made out.

K.      Disposition of the Amended Striking Out Summons

122.  For all the reasons set out above, I dismiss the Amended Striking Out Summons.

L.      The Leave Summons

123.  I come back to the Leave Summons.

124.  In addition to the grounds raised in support of the Amended Summons, Mr Barlow submits that the matters raised in the SOC have been raised previously in various contested hearings.  He submits that the present action is Ps’ attempt to re‑litigate.  That is an abuse of process.  He submits that the Leave Summons should therefore be dismissed.

125.  In this regard, I accept Mr Westbrook’s submissions made in orally in reply, that whilst a lot of the matters now pleaded in the SOC have been raised before in the course of the many proceedings contested between divers parties in relation to these Shanshui matters, a lot of them have not been adjudicated upon.  He submits that by the present action, Ps are no longer, like they previously might have, inviting the Courts to take those matters into account when deciding how discretions were to be exercised in various interlocutory applications.  They are seeking findings on the same.

126.  I accept Mr Westbrook’s submissions that the fact that those pleaded averments have been raised before does not mean that the present action constitutes re‑litigation, or that it is an abuse of process for Ps to seek to proceed with the present action.

127.  I note also in this regard that Mr Barlow has not raised any specific objections on the basis of eg issue estoppel or res judicata.    

128.  On the basis of all the materials before me, and on the basis of the matters set out and considered above leading to my decision to dismiss Ds’ Amended Striking Out Summons, I have formed the view the allegations pleaded in the SOC are such as to call for an answer from Ds.  They are in my view not vexatious or harassing claims.  

129.  Applying the approach I have explained in Section E.2 above, I decide to grant Ps retrospective leave to proceed with the present action.

M.     Overall disposition

130.  In so far as the Amended Striking Out Summons is concerned, and save the underlined words in §§(4) and (5) of the prayer (see §92 above) which I order to be struck out, I dismiss the Amended Striking Out Summons.

131.  I grant Ps retrospective leave in terms of §§1 and 4 of the Leave Summons.

N.      Costs

132.  I make a costs order nisi that Ps are to have the costs of the Original Striking Out Summons, the Amendment Summons, and 90% of the costs of the Amended Striking Out Summons (to reflect my order in relation to §§(4) and (5) of the prayer), to be summarily assessed, with certificate for 2 counsel.  I order also on a nisi basis that the costs of the Leave Summons be in the cause. Any parties who seek variation or summary assessment may do so by submissions within 14 days from the date hereof, submissions in response within 14 days from receipt, and reply within 7 days thereafter.