TNB FUEL SERVICES SDN BHD v. CHINA NATIONAL COAL GROUP CORPORATION

HCCT 23/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 23 OF 2015

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D E C I S I O N

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Background

1.  On 17 December 2014, an arbitral award (“Award”) was made against the Respondent, China National Coal Group Corporation, whereby it was ordered to pay a sum of US$5,274,023.11 to a Malaysian private company, the Applicant in these proceedings, by way of damages for the Respondent’s breach of its contract made with the Applicant.  On 10 June 2015, this court granted leave to the Applicant to enforce the Award in the same manner as a Hong Kong judgment, and to enter judgment in terms of the Award pursuing to s 2GG of the Arbitration Ordinance, Cap 341.  The Respondent applied in August 2015 to set aside the order granting leave, which application was discharged by this Court on 3 March 2016.

2.  By way of enforcement of the Award, the Applicant obtained a charging order nisi in April 2016 in respect of the Respondent’s 1,999,998 shares (“Shares”) in a Hong Kong company, China Coal Hong Kong Limited (“HK Co”).  The Respondent opposes the Applicant’s application that the order nisi should be made absolute, on the ground (raised for the first time in the enforcement proceedings) that the Respondent is an entity of the PRC Central People’s Government (“CPG”) and is entitled to assert Crown immunity against execution of the Shares, such that this court lacks jurisdiction to make the charging order absolute.

3.  It is not disputed that the Respondent is a wholly state-owned enterprise, the sole shareholder or investor of which is the State-owned Assets Supervision and Administration Commission (“SASAC”) of the State Council of the CPG.  What is disputed is whether the Respondent is able to assert Crown immunity from execution, by virtue of its being (as the Respondent alleges) part of the CPG, the domestic sovereign government of the HKSAR, which question is in turn determined by whether or not the Respondent is subject to the control of the CPG.

4.  In The Hua Tian Long (No 2) [2010] 3 HKLRD 611, Stone J summarized the doctrine of Crown immunity as applicable to Hong Kong after 1997.  The parties are in agreement that the principles relevant to the determination of whether the Respondent is entitled to the immunity it claims in this case are set out in the decision of The Hua Tian Long (No 2) (“HTL”).  The judgment in HTL sets out the historical development and explains the concepts of sovereign immunity and Crown immunity, and I will not repeat them here, save to extract and set out the passages which are more pertinent to this case, as follows:

“45. Whilst sovereign immunity is based on the notional equality of states, “Crown immunity” originated from the concept of the inequality of the ruling and the ruled, as represented by the maxim ‘the sovereign can do no wrong’; thus the Crown is not bound by statute unless expressly named or by necessary implication, and at common law the Crown enjoys immunity from being sued in its own courts…

47. Equally, Crown immunity was not confined to immunity from suit, but extended also to immunity from execution, which is the result of the principle that the Crown is immune from the processes of its courts and thus the courts could not make an order against the Crown…

49. First, the meaning of ‘Crown’ extended from the person of the King/sovereign to a body corporate established by the executive arm of the Crown…

50. Second, and consequential upon this extension of meaning, the issue arose as to how to define whether a body corporate was or was not part of ‘the Crown’…

52. For my part, I agree with the contention that when assessing whether a corporation can be said to be part of the Crown at common law, the material consideration is the control which the Crown has over that corporation, albeit the objects and function of that corporation also go into the evaluative ‘mix’.  In terms of ‘control’, I further agree that the salient question to be asked is whether the corporation in question is able to exercise independent powers of its own; as a consequence, as Mr Sussex SC submitted during this hearing, no doubt it would be possible for a corporation to enjoy immunity for one purpose and not for another….

75. At bottom, the fundamental difference between the parties on the hotly disputed issue of Crown immunity after 1 July 1997 appeared to boil down to whether there remained any common law doctrine of ‘Crown immunity’ subsisting in Hong Kong immediately prior to the handover of sovereignty to the PRC.  …

83. I do not accept that with the enactment of (the Crown Proceedings Ordinance (Cap 300) (“CPO”)) in Hong Kong in 1957 that, at a stroke, the concept of ‘Crown immunity’ - by which I mean the immunity of the British Crown in the Hong Kong courts - no longer formed part of the common law.  To the contrary, in my view ‘Crown immunity’ properly so-called at all times remained an attribute of the British Crown’s sovereignty over her colonies, among which numbered Hong Kong prior to 1 July 1997, and the establishment of the new constitutional order did not alter this position.  Constitutionally, one ‘sovereign’ was replaced by another, and I see nothing in the Basic Law, which today forms Hong Kong’s constitution, to gainsay that proposition.

88. The short point is that in my view ‘Crown immunity’ in its true sense never was removed by the CPO, that as a concept imported from customary international law it continued to exist at common law unaffected by the CPO until the handover to the new sovereign power, the PRC, which in turn must enjoy the like Crown immunity hitherto accorded to the British Crown, as opposed to, as Ms Cheng puts it, the ‘Colonial Crown’.” (Emphases added)

5.  On the basis of the evidential material before the court in HTL, it was held, as a matter of fact, by the court (see paragraph 114 of the judgment) that the defendants in that case were not a separate legal entity, but formed a part of the Ministry of Communications (Guangzhou Salvage Bureau), which was itself part of the Ministry of Communications, and entitled to assert Crown immunity.

6.  The Applicant and the Respondent in this case are in apparent agreement that whether the Respondent can invoke Crown immunity depends on whether or not the Respondent can be said to be subject to the control of the CPG.  The Applicant pointed out that on the question of control, the court in HTL has highlighted that “the salient question to be asked is whether the corporation in question is able to exercise independent powers of its own” (paragraph 52 of the judgment).

7.  In August 2016, the Respondent had invited the Secretary for Justice (“SJ”) to intervene in these proceedings, on the basis that the issue of Crown immunity in respect of the relationship of the CPG and the courts in Hong Kong is “of very crucial constitutional importance”, and that in view of the substantial public interests raised, the SJ should intervene to render the necessary assistance to the court.  The SJ notified the court in January 2017 of its intention to intervene, and following directions from the court to the parties and the Respondent’s confirmation that Crown immunity remained a live issue, the SJ applied formally on 17 January 2017 for leave to be joined as Intervenor in these proceedings.

8.  On 19 January 2017, the SJ was granted leave to intervene.  Detailed submissions and expert evidence have since been served by the SJ, to assist the court in its consideration and determination of the issues raised in this case.  Expert evidence on PRC law has also been served by the Applicant and the Respondent.

9.  Whether the Respondent is able to assert Crown immunity under the common law is a question of Hong Kong law, but it appears to be common ground that the question of whether the Respondent is controlled by the CPG (the determining “control test” and the modern benchmark for the attribution of Crown immunity) is a matter of PRC law (Krajina v The Tass Agency & Anr [1949] 2 All ER 274 and Baccus SRL v Servico Nacional Del Trigo [1957] 1 QB 438).

The assertion of Crown immunity

10.  It must be the case that the Respondent bears the onus of establishing its assertion made before this court, that it is entitled to Crown immunity against execution of the Shares.

11.  On behalf of the SJ, Ms Cheng SC submits that any assertion of Crown immunity must come from “the Crown”, and in this case, it must come from the CPG as the highest executive body as defined in Articles 85 and 86 of the Chinese Constitution.

12.  In the case of HTL, Stone J already observed in his judgment that it is unsatisfactory for the court to “referee” a significant Crown immunity argument upon the basis of adversarial expert evidence, and for such immunity to be claimed by the appropriate state agency of the CPG simply through the vehicle of the evidence of an employee/officer of a defendant in the case, and for the issue of the status of an entity of the CPG to be decided solely upon the basis of the evidence chosen by the parties to be placed before the Court.  Stone J advocated the adoption of a certification procedure.  It is worth remarking that after a lapse of 7 years from HTL, the procedure has not been improved.

13.  In this case, as highlighted by the Applicant and SJ, the only assertion of the alleged status of the Respondent comes from the general legal counsel of the Respondent (“Zhou”).  In his affirmation made on 28 September 2016, Zhou claimed that, to the best of his understanding and belief, at all material times, the Respondent has always been under the full and absolute control of SASAC, and that given such extensive control by SASAC or CPG, Zhou “verily believed” that “the Respondent should also be considered to be part of CPG as a matter of Hong Kong law, and could enjoy Crown immunity from the enforcement of the charging order sought by the Applicant”.  There is no assertion that Zhou was authorized by SASAC, or CPG, or any authority other than the Respondent itself, to make the claim of Crown immunity.  Even in the case of HTL, the evidence from the manager of the defendants was that he was authorized and instructed by the Ministry of Communications, Guangzhou Salvage Bureau of the CPG, and not just by the defendants, to support the defendants’ entitlement to Crown immunity.  According to the judgment of Stone J in HTL (at para 149), there was in evidence before the court a supplemental declaration on the part of the Ministry of Transportation of the PRC, wherein it was “directed that the Guangzhou Salvage Bureau do exercise the right to sovereign immunity/Crown immunity”.

14.  Significantly, after the Respondent invited the SJ to intervene in these proceedings, the SJ took instructions from the Hong Kong and Macao Affairs Office of the State Council (“HK Office”), and a letter dated 9 March 2017 was issued by the HK Office (“Letter”), and subsequently produced to the court upon the urging of the Respondent.  The Letter was addressed to the Department of Justice, and to its inquiry on “the opinion of the Central Government in respect of the issue of Crown immunity involved in the litigation of (the Respondent)” in Hong Kong.  The Letter goes on to state:

“China National Coal Group Corporation is a wholly state-owned enterprise, an enterprise legal person, established according to the law. According to the relevant legal regulations of our country, a state-owned enterprise is an independent legal entity, which carries out activities of production and operation on its own, independently assumes legal liabilities, and there is no special legal person status or legal interests superior to other enterprises. In the Mainland or in foreign states, all state-owned enterprises of our country respond to litigation arising from their activities of production and operation in the capacity of independent legal persons. Therefore, save for extremely extraordinary circumstances where the conduct was performed on behalf of the state via appropriate authorization, etc, the state-owned enterprises of our country when carrying out commercial activities shall not be deemed as a part of the Central Government, and shall not be deemed as a body performing functions on behalf of the Central Government. It should be pointed out that the opinion above shall not be interpreted as derogation of any rights and immunity enjoyed according to law by the Central Government and its bodies in the Hong Kong SAR.” (Emphases added)

15.  On behalf of the Respondent, Mr Barlow SC submitted that the Letter should not be taken as any assertion by the HK Office as to whether or not the Respondent is entitled to Crown immunity, as this is a matter of Hong Kong law.  There is no concept of Crown or sovereign immunity under PRC law.  That is accepted.  However, it is open to the HK Office to state the fact of the relationship between the CPG and the Respondent, and whether the Respondent is part of the CPG (the “Crown” or sovereign after 1997), and/or subject to CPG’s control, which questions are pertinent to this court’s determination of the Respondent’s claim to Crown immunity in this case.

16.  First, as Ms Cheng highlighted, Article 85 of the Chinese Constitution states:

“The State Council, that is, the Central People’s Government, of the People’s Republic of China is the executive body of the highest organ of state power; it is the highest organ of State administration.”

It is accordingly the State Council which, under the Constitution, is the highest organ of state power and state administration, and which is the sovereign Crown of the HKSAR for the purposes of Crown immunity. 

17.  The “State Council” is further stated in Article 86 of the Constitution to compose of the Premier, the Vice-Premiers, the State Councillors, “the Ministers in charge of” ministries and commissions, the Auditor-General and the Secretary-General.  Clearly, state-owned enterprises do not form part of the CPG as defined in Article 86 the Constitution.  The Respondent’s PRC expert accepts that the Respondent is not part of the CPG.

18.  The PRC law experts called on behalf of the Applicant and on behalf of the SJ agree, that the history and devolution of the PRC Company Law (“Company Law”) and the Law of PRC on State-Owned Assets in Enterprises (for ease of reference, referred to hereinafter as “Assets Law”) in the last 30 years demonstrate that with the incorporation and reform of state-owned enterprises, distinction has been made between State and State enterprises, with emphases made on the separation of government bodies and enterprises, separation of the administrative functions and the contributors’ function of the State, and on non-intervention in the independent business operations of enterprises.  They both drew reference to Article 6 of the Assets Law, which encapsulates these important distinctions, and states:

“國務院和地方人民政府應當按照政企分開、社會公共管理職能與國有資產出資人職分開、不干預企業依法自主經營的原則，依法履行出資人職責。

The State Council and the local people’s governments shall, according to law, perform the contributor’s function, based on the principles of separation of government bodies and enterprises, separation of the administrative functions of public affairs and the functions of the state-owned assets contributor, and non-intervention in the legitimate and independent business operations of enterprises.”

19.  Ms Cheng draws support from and highlights the speech of Mr Guan Jian on 16 November 2000, in his address to the United Nations on behalf of the PRC, on the Convention on Jurisdictional Immunities of States and their Property, where he stated:

“Under Chinese law, State enterprises had independent ownership of and the right to dispose of their own assets; they were thus independent of each other and of the State.”

20.  It is accepted by Ms Cheng that the above statement was made in the context of sovereign immunity, as opposed to Crown immunity, but she pointed out that there is no basis to suppose that there would be any difference in the CPG’s approach to state enterprises on the issue of Crown immunity. 

21.  In my view, the Letter itself clearly sets out the view of the HK Office (an administrative office under the State Council, according to a circular issued by the State Council on 19 March 2013), that as a wholly state-owned enterprise, the Respondent is an independent legal entity carrying out activities of production and operation on its own, with no special status or interests superior to any other enterprises.  Significantly, the Letter states that as a state-owned enterprise, the Respondent is not considered as a part of the CPG, nor is it deemed as performing functions on behalf of the CPG, when the Respondent carries out commercial activities.

22.  There is no dispute that the Award relates to the liability of the Respondent under a contract for the sale and supply of coal to the Applicant.  The contract relates to the Respondent’s performance of commercial activities. 

23.  According to the Department of Justice, upon receiving the invitation to intervene in the proceedings, they had taken steps to ascertain the position of the CPG, and this finally led to the issue of the Letter.  In applying for and obtaining leave to intervene, the SJ must have informed the HK Office of the subject matter of these proceedings, including the Award sought to be enforced against the Respondent, and the claim of Crown immunity raised by the Respondent in respect of the execution of the Award against the Shares.  The Letter was accordingly issued by the HK Office, with knowledge of these facts and of the claim of Crown immunity made by the Respondent.  Far from stating any support of the Respondent’s claim of extensive control by CPG, and of its being part of CPG, or that the Respondent’s Shares are assets of the CPG, the Letter in fact states that the Respondent has no special status or interests, and is not to be deemed as a part of the CPG.  In my view, the Letter signally defeats the Respondent’s assertion of Crown immunity. 

24.  Should I be wrong in my finding that the Respondent has failed to show that it has authority to assert Crown immunity on behalf of the CPG, and that no such claim has been validly made on behalf of the CPG, I will deal with the claim made by the Respondent on the facts and on the law, in more detail below.

Control by CPG?

25.  Any assertion made of Crown immunity does not conclusively bind the court, which must examine the validity of the assertion by reference to the lex incorporationis of the entity for which immunity is asserted, and by reference to the common law control test.  As stated in para 9 above, the parties are in agreement that the question of whether the Respondent is controlled by the CPG is a matter of PRC law.

26.  Ms Cheng’s submission is that in considering whether the entity is an agent or instrumentality of the Crown, the first consideration is whether the entity is treated as an agent or instrumentality of the Crown under the lex incorporationis of the entity, and if yes, the further consideration is whether the entity also fulfills the common law control test.  Ms Cheng relies upon the passage of the judgment of Tucker LJ in Krajina v The Tass Agency [1949] 2 All ER 274 (CA):

“… I should desire to reserve for future consideration the question whether or not the mere fact of a separate legal existence is necessarily inconsistent with the entity being part and parcel of a sovereign independent state. There again, it must depend on the foreign law. It may be that under some foreign systems of law such a separate existence might be considered inconsistent, but it is clear from our Acts of Parliament that we do not consider the fact that a government department may have a separate legal juristic existence as necessarily incompatible with it being a Department of State for which immunity can be claimed.”

27.  As for the common law, the “control test” has become the benchmark test in place of the “function” test since Townsville Hospitals Board v Townsville City Council (1982) 149 CLR 282 and Chadee v Norway House First Nation (1996) 113 Man R (2d) 110.  This approach was accepted by Stone J in HTL, although he considered that “function” remained a relevant consideration (see para 52 of his judgment, quoted in para 4 of this decision).

28.  Needless to say, any application of the control test is on a case-by-case basis, depending on the circumstances and the evidence available.  In Hogg’s The Liability of the Crown (at p 465), the following observations are made:

“The Sheedy case demonstrates that a public corporation need not be wholly free from ministerial control in order to be held not to be a Crown agent. It is not possible to specify precisely what degree of control is required to make a public corporation an agent of the Crown. Between the extremes of full control and no control lie a continuum in which the courts have ranged without clear rules, often simply repeating that it is the “nature and degree of control” that has to be assessed. As Dickson J has said: ‘the greater the control, the more likely it is that the person will be recognized as a Crown agent’. However, the tendency of the decisions is to require a high degree of control; in other words, the tendency of the decisions is against the finding of Crown agent status. The reason, without doubt, is justified reluctance on the part of the courts to extend the special privileges of the Crown any further than necessary. The prevalent judicial attitude was well captured by Gibbs CJ in the High Court of Australia:

All persons should prima facie be regarded as equal before the law, and no statutory body should be accorded special privileges and immunities unless it clearly appears that it was the intention of the legislature to confer them.

The result is that the status of Crown agent (at common law) will only be extended to public bodies that are fairly closely controlled by the executive.  Any substantial measure of independent discretion will suffice to deny the status of Crown agent to a public body that is subject to some degree of direct control.” (Emphases added)

29.  The SJ has drawn the attention of the court to various factors which have been considered by the courts in applying the control test: namely: (1) independent discretion enjoyed by the entity; (2) control exercised by the Crown as investor; (3) the separate legal personality of the entity; (4) the power of the Crown to appoint and remove senior officers of the entity; and (5) the financial autonomy of the entity.  These I agree to be the relevant factors which should be taken into consideration, when deciding whether the Respondent in this case is subject to the control of the CPG.

The lex incorporationis

30.  On 4 October 2016, this court granted leave to the Applicant and the Respondent to adduce expert evidence “on the status of the Respondent” under PRC law.  Pursuant to such leave, the Applicant adduced expert reports from Professor Zhang Xianchu, and the Respondent adduced expert reports from Professor Lin Yuanmin.  Upon the SJ’s intervention, the expert report of Professor Gao Xiqing was produced. 

31.  According to the Joint Statement of Professors Zhang and Lin dated December 2016, they agree that the Respondent is a state-owned enterprise under the control of the CPG on matters such as incorporation, appointment and removal of officers, direction and supervision under the relevant provisions of the Chinese law.  They further agree that as a limited liability company, the Respondent should, as a matter of Chinese law, use its corporate assets to answer its civil liabilities.  The experts disagree whether: (1) the CPG’s control over the Respondent is in the role of an investor only; and (2) the Respondent has business autonomy and independence in its business operations.

32.  According to Professor Lin, the Chinese government exercises stringent control over state-owned enterprises directly under the central government, because these central state-owned enterprises engage in business operations pertaining to the lifelines of the national economy and national security.  Such control, on Professor Lin’s case, is exercised by the CPG through SASAC, which is the only special department directly under the State Council responsible for administration and supervision of the state-owned enterprises directly under the central government (“Enterprises”), such as the Respondent.  According to Professor Lin, such control is exercised through: (1) incorporation of the Enterprises by SASAC, and registration of the property rights of the state-owned assets of the Enterprises; (2) appointment and removal of the key officers and supervisors of the board of the Enterprises, the managers, deputy managers, financial managers and other high-ranking managers of the Enterprises; and management of the wages and regulation of the income distribution of the executives of the Enterprises; as well as (3) the direction and supervision of the operation of the Enterprises. In the last regard, Professor Lin referred to SASAC’s entitlement to the earnings of the Enterprises, to participate in important decisions and selection of managers of the Enterprises, and the formulation of the articles of incorporation of the Enterprises under its supervision.  Professor Lin points out that matters such as mergers, separation, increase or decrease of registered capital, issuance of bonds, distribution of profits, dissolution and bankruptcy of the Enterprises are all determined by SASAC. 

33.  According to Professor Lin, there are no shareholders meetings for the Respondent, all shareholders’ powers being exercised by SASAC.  Such powers include the appointment of directors, the approval of the annual report of the board of directors (“Board”), designating the board of supervisors and supervising the operation of the Respondent.  The general manager of the Respondent has to report to the Board, which in turn reports to SASAC as required under the Respondent’s Articles of Association (“Articles”). Under the Articles, the Board of the Respondent has to accept the supervision of SASAC, and according to Professor Lin, the Board has to seek approval from SASAC before making any decision on important issues.  Annual financial and budget reports have to be reported to SASAC under the Provisional Measures for Financial Budget Administration of Central Enterprises, as do investment decisions, which have to be reported under the Provisional Measures for Supervision and Management of Investment by Central Enterprises.

34.  The gist of Professor Zhang’s opinion is that the control by CPG through SASAC over the Respondent is no more than that of a controlling shareholder of a company.  On his part, Professor Zhang highlights the fact that the Company Law and the Assets Law clearly provide for the Respondent’s independent business autonomy and the clear distinction and separation of the CPG’s functions of social and public administration from its functions as an investor of state-owned enterprises.  By way of summary of Professor Zhang’s opinion, the fact of SASAC being the shareholder and investor of the Respondent does not mean that the CPG through SASAC controls the business operations of the Respondent, as can be demonstrated by the provisions in the Articles of the Respondent, and the Respondent’s autonomy is expressly safeguarded under the Company Law and the Assets Law, including the regulations made thereunder.

35.  Both Professor Zhang and Professor Gao (the expert called by the SJ) have referred to material provisions in the Company Law, to emphasize the autonomy of a state-owned enterprise in carrying out its business activities.  Article 3 of the Company Law states:

“公司是企業法人，有獨立的法人財產，享有法人財產權。公司以其全部財產對公司的債務承擔責任。

有限責任公司的股東以其認繳的出資額為限對公司承擔責任；股份有限公司的股東以其認購的股份為限對公司承擔責任。

A company is an enterprise legal person with independent legal person property, and is entitled to legal person property rights.  The company shall bear liabilities for its debts with all its assets.  The shareholders of a limited liability company shall bear liabilities for the company to the extent of their respective subscribed capital contribution.  The shareholders of a company limited by shares shall bear liabilities for the company to the extent of their subscribed shares.”

Article 3 is under Chapter 1 of the Company Law which sets out “General Provisions”.

36.  Article 46 (of Section 2, Chapter 2) of the Company Law provides for the powers of the directors of a company.  This states that the powers to be exercised by the board of a company include: making decisions on the operation plans and investment plans of the company, formulating the annual financial budget plans and final accounts of the company, formulating the profit distribution plans and loss recovery plans of the company, making decisions on the setup of the internal management bodies of the company, formulating the fundamental management systems of the company and exercising the powers specified in the company’s articles of association.

37.  The Company Law provides for a board of supervisors for limited liability companies, which board consists of representatives of shareholders and of staff members of the company (Article 51, Section 2, Chapter 2).  The board of supervisors is accordingly not unique to state-owned enterprises. 

38.  Section 4 of Chapter 2 of the Company Law sets out “Special Provisions on Wholly State-Owned Companies”.  They are accordingly directly applicable to the Respondent.  Under this section, the relevant Articles state as follows:

“Article 64 This Section shall be applicable to the establishment and the organization structure of a wholly State-owned company. In the absence of pertinent provisions in this Section, Section 1 and Section 2 of this Chapter shall apply.

For the purpose of this Law, a wholly State-owned company shall refer to a limited liability company to which the capital contribution is solely made by the State and for which the State Council or the State-owned assets supervision and administration authority, authorized by the local people’s government at the same level, performs the duties of the capital contributing party.

Article 65 The articles of Association of a wholly State-owned company shall be formulated by the relevant State-owned assets supervision and administration authority, or be formulated by the board of directors and be reported to the relevant State owned assets supervision and administration authority for approval.

Article 66 A wholly State-owned company has no shareholders’ meeting, and the relevant State-owned assets supervision and administration authority shall exercise the powers of the shareholders’ meeting. The State-owned assets supervision and administration authority may authorize the board of directors of the company to exercise part of the powers of the shareholders’ meeting, and to make decisions on material matters of the company. However, the merger, division, and dissolution of the company, the increase or reduction of the registered capital, or issuance of corporate bonds shall be subject to the decision of the State-owned supervision and administration authority. The merger, division, and dissolution of, or application for bankruptcy by, an important wholly State-owned company shall, after examination and verification of the State-owned assets supervision and administration authority, be reported to the people’s government at the same level for approval.

For the purpose of the preceding Paragraph, an important wholly State-owned company shall be determined in accordance with relevant provisions of the State Council.

Article 67 A wholly State-owned company shall have a board of directors which shall exercise its powers in accordance with Article 46 and Article 66 of this Law. The term of office of a director shall not exceed three years. The members of the board of directors shall include representatives of the staff members of the company.

The members of the board of directors shall be appointed by the relevant State-owned assets supervision and administration authority. However, the representatives of the staff members in the board of directors shall be elected by the staff members of the company through a general meeting of the representatives of the staff members.

The board of directors shall have one chairman and may have several vice chairmen. The chairman and vice chairmen of the board of directors shall be appointed from among the members of the board by the relevant State-owned assets supervision and administration authority.

Article 68 A wholly State-owned company may have a manager whose employment or dismissal shall be at the decision of the board of directors. The manager shall exercise his/her powers pursuant to Article 49 of this law.

Subject to the consent of the relevant State-owned assets supervision and administration authority, a member of the board of directors may concurrently hold the post of the manager of the company.”

39.  Notwithstanding the fact of its being a wholly state-owned company, Article 3 of Chapter 1 of the Company Law applies to the Respondent, such that it has “independent legal person property” and is entitled to “legal person property rights”, and is to bear liabilities for its debts with its assets. 

40.  Professor Gao referred to the Constitution of the PRC which, as he highlighted, protects the autonomy of a state-owned enterprise such as the Respondent.  Under Article 16 of the Constitution:

“State-owned enterprises have decision-making power with regard to their operation within the limits prescribed by law.

State-owned enterprises practise democratic management through congresses of workers and staff and in other ways in accordance with law.”

41.  Professor Gao explained that in accordance with Article 16 of the Constitution, the CPG adopts the policy of separation of the social public administrative functions of the government, and the functions of the investor of state assets.  Such policy is enshrined in Articles 6 and 14 of the Assets Law, and Articles 7 and 10 of the Provisional Regulations for Supervision and Administration of State owned Assets in Enterprises (“Regulations”). These articles are also relied upon by Professor Zhang in support of his opinion on the operational independence of the Respondent.

42.  Article 6 of the Assets Law provides as follows:

“國務院和地方人民政府應當按照政企分開、社會公共管理職能與國有資產出資人職能分開、不干預企業依法自主經營的原則，依法履行出資人職責。

“The State Council and the local people’s governments shall, according to law, perform the contributor’s functions, based on the principles of separation of government bodies and enterprises, separation of the administrative functions of public affairs and the functions of the state-owned assets contributor, and non-intervention in the legitimate and independent business operations of enterprises.”

43.  Article 14 of the Assets Law states:

“履行出資人職責的機構應當依照法律、行政法規以及企業章程履行出資人職責，保障出資人權益，防止國有資產損失。

履行出資人職責的機構應當維護企業作為市場主體依法享有的權利，除依法履行出資人職責外，不得干預企業經營活動。

Bodies performing the contributor’s functions shall perform the contributor’s functions according to laws, administrative regulations and enterprise bylaws, safeguard the contributor’s right send interests, and prevent the loss of state-owned assets.

Bodies performing the contributor’s functions shall protect the rights legally enjoyed by the enterprises as the market participants, and shall not intervene in the business activities of enterprises except to legally perform the contributor’s functions.”

44.  In the context of the references made in the Assets Law to “contributor’s functions”, Article 4 of the Assets Law states:

“The State Council and the local people’s governments shall, in accordance with laws and administrative regulations, perform respectively the contributor’s functions for state-invested enterprises and enjoy the contributor’s rights and interests on behalf of the state.

The State Council shall, on behalf of the state, perform the contributor’s functions for the large-sized state-invested enterprises that have bearings on the national economic lifeline and state security determined by the State Council and the state-invested enterprises in such fields as important infrastructures and natural resources.  The local people’s governments shall, on behalf of the state, perform the contributor’s functions for other state-invested enterprises.”

45.  It is not disputed that the Respondent is in the business of selling and dealing in coal, and Professor Lin highlights the fact that such business has bearings on the national economic lifeline of the State.

46.  The Regulations are stated in Article 1 to have been formulated “to establish a system for supervision and management of State-owned assets that suits the needs of the socialist market economy, improves the management of State-owned enterprises, pushes forward the strategic adjustment to the layout and structure of the State economy, develops and expands the State economy, and realizes the preservation of and increase in the value of State-owned assets” (emphasis added).  They are stated to be applicable to the “supervision and management of State-owned assets of State-owned enterprises, State-owned holding enterprises and enterprises with State-owned equity” (Article 2).  “State-owned assets of enterprises” are defined in Article 3 to refer to “all forms of State investments in enterprises and the equities generated from such investments, as well as other equities which are legally owned by the State” (“國家對企業各種形式的投資和投資所形成的權益，以及依法認定爲國家所有的其他權益”).

47.  Article 4 of the Regulations states:

“State-owned assets of enterprises are owned by the State. The State exercises a State-owned assets management system under which the State Council and local people’s governments perform the responsibilities of an investor on behalf of the State respectively, enjoying owner’s equity, combining rights with obligations and duties, and administering assets, personnel and other affairs.”

48.  Article 6 of the Regulations provides as follows:

“The State Council … shall establish a State-owned assets supervision and administration authority respectively. The State-owned assets supervision and administration authority shall, under the authorization, perform the responsibilities of an investor in accordance with the law, supervise and administer State-owned assets of enterprises in accordance with the law…”

49.  The state-owned assets supervision and administration authority referred to in the Regulations is SASAC. 

50.  Article 7 of the Regulations echoes Article 6 of the Assets Law.  Article 7 states:

“各級人民政府應當嚴格執行國有資產管理法律，法規，堅持政府的社會公共管理職能與國有資產出資人職能分開，堅持政企分開，實行所有權與經營分離。

國有資產監督管理機構不行使政府的社會公共管理職能，政府其他機構，部門不履行企業國有資產出資人職責。

People’s governments at all levels shall strictly abide by the laws and regulations on State-owned assets management, persist in the separation of government functions of social and public administration from the functions of an investor of State-owned assets, persist in the separation of government functions from enterprise management and separation of ownership from management.

The State-owned assets supervision and administration authority shall not perform the functions of social and public administration assumed by the government. Other institutions and departments under the government shall not perform the responsibilities of an investor of State-owned assets of enterprises.

51.  Under Article 8, the State-owned assets supervision and administration authority:

“shall in accordance with these Regulations and other related laws and administrative regulations, establish and improve its internal supervision systems and strictly abide by the laws and administrative regulations.”

52.  Professor Gao and Professor Zhang also highlight Article 10 of the Regulations, which provides:

“所出資企業及其投資設立的企業，享有有關法律、行政法規規定的企業經營自主權。

國有資產監督管理機構應當支持企業依法自主經營,除履行出資人職責以外，不得干預企業的生產經營活動。

The invested enterprises and the enterprises set up with the investment of such invested enterprises enjoy autonomy in their operation as provided by the relevant laws and administrative regulations.

The State-owned assets supervision and administration authority shall support the independent operation of enterprises in accordance with the law, and shall not interfere in their production and operation activities, apart from performing the responsibilities of an investor.”

53.  Thus, it is the opinion of Professor Gao that whilst SASAC exercises control over the setting up of a wholly state-owned enterprise, by capital contribution and formulation of the articles of Association, and by the composition of the board of directors and supervisors, the extent of its control can only be seen as proper exercise of its powers of a contributor, in accordance with the Assets Law.  The rights (and obligations) assumed by SASAC on behalf of the CPG over the Respondent are rights and obligations of the CPG as contributor, or investor.  According to Professor Gao, SASAC’s acts of “supervising” and “administrating” are clearly defined by Article 12 of the Assets Law, which provides that SASAC shall “enjoy the return of assets, participation in major decision-making, selection of managers and other contributor’s rights”.

54.  In Professor Gao’s opinion, all the functions exercised by SASAC on behalf of the CPG are functions and in the role of a capital contributor only (albeit a major contributor), and SASAC’s control of a state-owned enterprise (such as the Respondent) is not different from the kind of control normally exercised by a controlling shareholder of any company in other jurisdictions.  For the avoidance of any doubt, Professor Gao also explained that although SASAC is under the control of CPG and is authorized to supervise and administrate state-owned enterprises, no government functions are bestowed on the enterprises themselves.  Not being a part of the CPG in the execution of any government function, Professor Gao considered that a state-owned enterprise does not enjoy any immunity which may be enjoyed by the State. 

55.  I accept the evidence of Professors Gao and Zhang.  The principles stated in Article 6 of the Assets Law and Article 7 of the Regulations clearly distinguish between the CPG’s administrative functions and its functions as a contributor to state-owned assets.  Article 6 segregates government bodies from enterprises (政企分開), and expressly refers to the State Council’s and local governments’ non-intervention in the legitimate and independent business operations of enterprises.  Article 7 further provides for separation of “ownership from management” (所有權與經營權分離), segregating state ownership of assets/enterprises from state management of the enterprises.

56.  The Assets Law and the Regulations consistently refer to and provide for the CPG’s performance of the functions of a “contributor” towards state-invested enterprises.  Even though SASAC is to perform the contributor’s functions on behalf of CPG, it is enjoined by Article 14 of the Assets Law to protect the rights legally enjoyed by the enterprises as market participants, and expressly, not to intervene in the enterprises’ business activities, except to legally perform the contributor’s functions. 

57.  Significantly, Chapter III of the Assets Law governs state-invested enterprises specifically.  Article 16 states as follows:

“國家出資企業對其動產、不動產和其他財產依照法律、行政法規以及企業章程享有佔有、使用、收益和處分的權利。

The state-invested enterprises shall enjoy the rights to possess, use, profit from and dispose of their movables, immovables and other property according to laws, administrative regulations and enterprise bylaws.

The operation autonomy as well as other lawful rights and interests legally enjoyed by the state-invested enterprises shall be protected by law.”

The operation autonomy of state-owned enterprises such as the Respondent is therefore expressly and clearly provided for under the Assets Law, as are its property rights.

58.  Under Article 21 of the Assets Law, a state-invested enterprise shall legally enjoy “the return on assets, participation in major decision-making, selection of managers and other contributor’s rights to an enterprise in which it invests”.  Under Article 17, such enterprises have to accept “the administration and supervision” legally implemented by the people’s governments and relevant departments and bodies, but the “administration” and “supervision” provided for under the relevant provisions of the law have been dealt with and explained above, as those of a contributor only. 

59.  Professor Lin sought to explain the principles of separation highlighted by Professors Zhang and Gao, on the basis that the Assets Law and the Regulations are only intended to separate SASAC from other government departments, and to vest the functions and powers of administration of enterprises in SASAC, as opposed to other authorities.  Hence, it will not (in his opinion) be “interference” if SASAC manages and governs the operations of state-owned enterprises.

60.  Chapter II of the Assets Law expressly refers and extends to “Bodies Performing the Contributor’s Functions”.  Article 11 which refers to SASAC (as the relevant body) performing the contributor’s functions, and Article 14 which requires SASAC (as the relevant body) to protect the rights legally enjoyed by the enterprises, and not to intervene in the business activities of enterprises “except to legally perform the contributor’s functions”, are both under Chapter II.  These Articles, and the principle of non-intervention, therefore apply to, govern and bind SASAC.

61.  Professor Zhang also referred to the Articles of the Respondent, to demonstrate that despite state ownership and control of the CPG, the Respondent has independent business operation and autonomy, and is to assume and settle liability with its own assets.  The significance of the Articles is that they were drafted by the Board of the Respondent and approved by SASAC.  Any amendments to the Articles also have to be reported to and approved by SASAC.

62.  As Article 1 of the Respondent’s Articles states, they are formulated pursuant to the Company Law, the Assets Law and the Regulations. 

63.  Article 11 expressly provides that the Articles shall have binding effect on the company, its promoters, directors, supervisors and other senior management.  Any director or supervisor appointed by SASAC to the Board are therefore bound by the Articles.

64.  Article 14 states that the company was established by the State as “sole promoter”, and that SASAC represents the State Council to perform the promoter’s powers and duties.  As promoter, therefore, SASAC is likewise bound by the Articles.

65.  Article 5 states:

“公司是依照《公司法》設立的國有獨資公司，享有法人財產權。公司依法享有民事權利，承擔民事責任、並以其全部財產對公司的債務承擔責任。

The Company is a wholly state-owned company established in accordance with Company Law, and shall enjoy property rights as a corporate legal entity.  The Company shall enjoy civil rights, assumes civil liability according to law, and cover its liability with all of its assets.”

66.  The SJ has highlighted the fact that under Article 15, SASAC is to govern the Respondent according to the Company Law, the Assets Law and the Regulations in the aspects identified in Article 15.  These include: the formulation and approval of the Respondent’s Articles and amendments thereto; the appointment and replacement of directors; the approval of the Board’s annual work report; the approval of the Respondent’s annual budget, financial statement reports, scheme of profit distribution and recovery of losses, increase and decrease of registered capital, the issuance of bonds, the merger, division, dissolution and liquidation or change of the Respondent; the approval of the Respondent’s “main business and adjustment programs”; the approval of transfer of non-listed state-owned property right and management of state-owned shares in listed companies; disposal of significant assets and equity; the review of minutes and resolutions of the Board; and “to supervise, inquire or provide suggestions regarding the (Respondent)’s operation”.  It was highlighted that SASAC’s “governance” is in the ambit of “approval” of reports and significant issues.

67.  Article 16 states:

“國資委維護公司依法享有的經營自主權，並依照有關規定授權公司董事會決定公司投資計畫、批准年度財務預算等事項。

SASAC maintains the Company’s operational autonomy granted by law, authorizes the Board to determine the Company’s investment plans and approves annual financial budget and other issues according to related regulations.”

68.  According to Professor Lin, Article 16 only requires SASAC to ensure or maintain that the Respondent can operate free from interference or intervention by State authorities other than SASAC.  However, I consider that SASAC is itself bound, by Article 14 of the Assets Law, not to intervene in the business activities of the Respondent, save to perform its functions as a contributor.

69.  The Board is under the duty (under Article 20) to accept SASAC’s supervision, but such supervision is stated to be “supervision as a promoter”.  The Assets Law clearly stipulates that SASAC’s functions and role are those of a contributor of capital, and that it shall not otherwise intervene in the business activities of the Respondent.  The references in the Articles to the Respondent and SASAC acting in accordance with the law or as stipulated by law can only be references to the Company Law, and the Assets Law and Regulations, and I have not been referred to any other law which confers other powers or duties on SASAC and the Respondent, so far as control is concerned.

70.  In summary, so far as de jure control which the CPG (through SASAC) is entitled at law to exercise is concerned, I would agree that the Respondent has autonomy and extensive independence in carrying out its business, which autonomy is in fact expressly provided for and protected under the Assets Law and the Regulations.  The Board has powers and authority under the Articles (approved by SASAC) to determine its own investment plans, to approve its annual financial budget, exercise management rights and appoint or dismiss its management team.  Some of these powers are to be exercised in accordance with SASAC’s authorization, or to be reported to SASAC, but SASAC has to maintain the Respondent’s operational autonomy under the Assets Law and the Articles, and there is no provision requiring the Respondent to seek approval from SASAC in carrying out its daily business activities or operations.

71.  Significantly, the Respondent has the right under the Assets Law (Article 16) to possess, use, profit from and dispose of its property.  Under the Articles approved by SASAC, the Respondent enjoys property rights, assumes civil liability and covers its liability with its assets (Article 5).  Under Article 57 of its Articles, the Respondent formulates its own financial statement, and under Articles 58 and 59, the Respondent’s annual net profit is used to make up for its annual losses of previous years, with the right to withdraw discretionary surplus reserve (according to SASAC’s approval) and to use its reserves. 

72.  As highlighted by Ms Cheng, the powers of SASAC set out in Article 15 of the Respondent’s Articles are in any event comparable to those of shareholders in any ordinary PRC limited company, as contained in the Company Law.  Professor Zhang and Professor Gao therefore consider that the control by CPG over the Respondent is not much different from that normally exercised by a controlling shareholder of a company.

73.  Although de jure control is the relevant consideration, there is no evidence in this case of any de facto control by SASAC in the management of the Respondent’s daily business or its ordinary commercial activities, other than in exceptional matters such as an initial public offering of shares, restructuring and overseas listing, change in stock rights, share transfers, etc. over the past years.  By way of contrast, the Applicant has drawn attention to the Respondent’s annual report for 2015, to illustrate that the Respondent had carried out substantial sales in volumes of coal, recorded significant income from its trade with external parties, and undertaken a whole range of business transactions and investments, including the sale of machinery and the provision of guarantees to other companies in the relevant financial year, with no evidence of approval being issued by SASAC pursuant to approval being sought.  The lack of de facto control can be taken to be supportive of the minimal de jure control to which SASAC is entitled.

74.  The Respondent’s position as a wholly state-owned enterprise is totally distinguishable from the position of the defendant in HTL (“GZS”).  On the evidence before the court in HTL, GZS was a public institution or institutional organization (事業單位), and not a separate legal entity as is the Respondent.  GZS had no shareholder, no paid-up capital, had the mere right to possess and to use such assets as were allocated to it, with no right to dispose of such assets, and no ability to assume independent civil liabilities.  It could only perform public objects, and was at all times under the control of the Ministry of Communications.  On such evidence, the court found as a matter of fact that GZS was not a separate legal entity and was itself part of the Ministry of Communications.

75.  It is worth mentioning that Professor Lin was in fact an expert witness in HTL, and his evidence in HTL was that state-owned enterprises set up by SASAC, as distinct from public institutions, enjoy powers of independent management and freedom from interference, with ownership of its assets and the capacity independently to assume civil liabilities.  In this regard, it would appear (at least from the judgment in HTL) that Professor Lin’s evidence in HTL is consistent with the evidence of Professor Zhang, but in marked contrast to his own evidence in this case. 

76.  This court also notes that Professor Lin gave evidence in the case of First Investment Corp of the Marshall Islands v Fujian Mawei Shipbuilding, Ltd of PRC & Ors Civil Action No 09-3633, 9 March 2012, a case before the US District Court Eastern District of Louisiana. According to the judgment in that case, Professor Lin likewise gave evidence that the state-owned entity in the case was entitled to assume and discharge its civil liabilities using its assets, that SASAC exercises supervisory responsibilities as the sole investor but that PRC law does not permit the local government to interfere with the independent operation of state-owned entities.  Again, this is more consistent with the evidence of Professors Zhang and Gao in this case.

77.  In the present case, when Professor Lin was referred to the Respondent’s entitlement and power under Article 5 of its Articles to enjoy property rights, Professor Lin maintained that this was not equivalent to ownership, but he was not able to explain what “property rights” Article 5 refers to.

78.  According to Professor Gao, a shiyedanwei （事業單位）or public institution is a public service organization which is established by using state-owned assets for the purpose of engaging in public functions (Article 2 of the Interim Regulation on the Registration of Public Institutions).  These public institutions are not allowed to carry on business activities without approval, receive subsidies from the Government, do not have ownership of assets assigned to them, and are obliged to share and co-use the assets.  They do not have unfettered power to manage the assets assigned, which assets are managed, supervised and administered by the fiscal departments of the governments.  Public institutions do not have power to dispose of assets on their own without approval, and do not have unfettered discretion to use their income, which income must be applied to their activities in accordance with their purposes and operation.  As a matter of PRC law, therefore, public institutions are subject to the close and comprehensive control of the State, and are totally different to state-owned enterprises.

79.  Professor Lin agrees that the Company Law is applicable to state-owned enterprises such as the Respondent, but not to public institutions like GZS in HTL.

80.  I prefer the expert evidence of Professor Gao and Professor Zhang, where they differ from the opinion of Professor Lin.  I find as a matter of fact that under PRC Law, the Respondent is not a part of CPG, nor of SASAC.  It has separate corporate entity and, under the Company Law and the Assets Law and Regulations, the Respondent enjoys the rights to possess, use, profit from and dispose of its property, has operation autonomy, and is able to exercise independent powers of its own which are safeguarded by law.  These rights are expressly protected by the Assets Law and the Regulations, with their emphases on the separation of government bodies and enterprises, separation of the State’s administrative and contributor’s functions, and the separation of ownership and management.

Control test at common law

81.  The fact that an entity enjoys independent discretion in its operation has, as Ms Cheng submits, consistently been held by the courts to be a powerful indicator that it is not an agent or instrumentality of the Crown.  In Metropolitan Meat Industry v Sheedy [1927] AC 899 (PC), the inspectors and officers of the board constituted under statute were to be appointed by the governor.  The board had wide powers which it exercised at its discretion.  The Privy Council held that the board was not entitled to crown prerogative, observing in its judgment:

“(The board) are a body with discretionary powers of their own. Even if a Minister of the Crown has power to interfere with them, there is nothing in the statute which makes the acts of administration his as distinguished from theirs. That they were incorporated does not matter. It is also true that the Governor appoints their members and can veto certain of their actions. But these provisions, even when taken together, do not outweigh the fact that the Act of 1915 confers on (the board) wide powers which are given to it to be exercised at its own discretion and without consulting the direct representatives of the Crown …”

82.  In Townsville Hospitals Board v Townsville City Council (1982) 149 CLR 282, the board in the case was subject to strict controls of the government, with its senior officers appointed and to be dismissed by the government, budget subject to the approval of the governor, and no fundraising without the approval of the government.  Yet, it retained an independent discretion to decide whether to engage in particular works, and the High Court of Australia found that despite the strict controls over the board, it was insufficient to distinguish from Sheedy, and the board was not entitled to claim immunity.

83.  The commissioners in Halifax City v Halifax Harbour Commissioners [1935] SCR 215 were held to be Crown agents, as they were found to be “subject at every turn in executing (their) powers to the control of the Governor”.  On the facts of that case, the commissioners were incorporated under the relevant statute and were responsible for the management and administration of the harbour and of property belonging to the harbour and of facilities connected with the harbour.  They were also charged with the duty of regulating the exercise of public rights of navigation within the harbour.  The conclusion that the commissioners were subject at every turn to the control of the governor was reached on the facts of the case, that the commissioners could not take possession of any property belonging to the harbour property without the consent and only upon such terms as may be imposed by the government.  They could not acquire property or dispose of property without the same consent.  They could only acquire capital funds by measures taken under the control of the government, and could only apply capital funds in constructing works and facilities under supervision and control of the government.  The tolls and charges which were the sources of their revenue could only be imposed by the commissioners under the authority of the government, and the expenditure of revenue in the maintenance of their services is also under the control and supervision of the government.

84.  In this case, it is apparent from the Assets Law and from the Articles of the Respondent that it is able to use, profit from and dispose of its property, and to use its annual profits and common reserves to cover its own losses and to expand its business.  Under Article 5, it is to use its own assets to cover its liabilities.  This is in accordance with Article 3 of the Company Law, which provides that a company is entitled to “legal person property rights”, and shall bear liabilities for its debts with all its assets. If the Respondent does not and is not entitled to own any property or assets, it is incomprehensible how it is expected to “bear its liabilities with its assets”.

85.  As pointed out by Professors Zhang and Gao, the control which can be exercised by SASAC in respect of appointment of directors, managers and supervisors, approval of restructuring, dissolution and restructuring are in the nature of an investor or shareholder.  In Tamlin v Hannaford [1950] 1KB 18, such control was not considered by the court to be sufficient to render a corporation an agent of the Crown to be entitled to immunity.

86.  In all, bearing in mind the nature and degree of the control which can be exercised by SASAC on behalf of CPG over the Respondent, the Respondent’s ability to exercise independent powers of its own, and that its business and operational autonomy are in fact enshrined in and guaranteed under the applicable PRC law, I consider that the Respondent is not entitled to invoke Crown immunity.

State-owned assets?

87.  On behalf of the Respondent, Mr Barlow SC argued that under the socialist system on the Mainland, the CPG owns state assets on behalf of the people, and that the Shares are state-owned assets which are immune from execution of judgments.  Professor Lin also maintains that although assets may be registered in the name of a state-owned enterprise, it is not in fact the owner of the assets, citing Article 3 of the Regulations (quoted in paragraph 46 above). 

88.  The above contention contradicts the express provisions of Article 3 of the Company Law, which clearly provides for companies being independent legal persons with “legal person property rights” (“享有法人財產權”).

89.  Article 3 of the Regulations refers to “state-owned assets of enterprises”, which are stated to mean “all forms of State investments in enterprises and the equities generated from such investments, and other equities which are legally owned by the State”.  Article 4 goes on to provide that “state-owned assets of enterprises” are owned by the State.

90.  I accept the submissions made by the SJ, on the basis of the expert evidence of Professors Zhang and Gao, that the shares in the Respondent are state-owned assets, which shares represent the capital contributed by the CPG through SASAC into the Respondent.  The assets of the Respondent, as the state-owned enterprise, include the dividends from the Shares the Respondent holds in HK Co, the revenue from any transfer of the Shares, and other return on the Shares.  This is contemplated by and consistent with the Interim Measures for the Administration of Collection of Return on State-owned Capital of Central Enterprises: which Measures are stated to be formulated in accordance with the Company Law.

91.  Professor Lin highlights the fact that the Shares (in HK Co) are registered, in accordance with the Interim Administrative Measures for the Registration of Property Rights of State-invested Enterprises, to argue that this demonstrates that the Shares are state-owned assets as well. However, as can be seen from the “Enterprise Property Right Registration Form”, what is registered is “the property situation of the invested enterprise when the contributor distributed capital into such enterprise”, the contributor being stated as the Respondent, and the enterprise being stated as HK Co.  In other words, the registration shows the property rights of the Respondent as contributor.  It is not inconsistent with the fact that under the Company Law, the Respondent is entitled to own property rights.  Nor is it inconsistent with the argument that SASAC, acting on behalf of the CPG, is entitled to the equities ie any return from the Shares, by way of dividends and any proceeds from the transfer of such Shares.  As Ms Cheng pointed out, the registration of the Respondent’s interests in the Shares is to ensure that CPG obtains the return on its investment in the Respondent.  The fact of registration of the Respondent’s property interests in the Shares does not by itself alter the nature of such property in the Shares under the law. 

Conclusions and orders

92.  I find that the Respondent’s assertion of Crown immunity has not been validly made on behalf of the CPG.  In any event, I find on the evidence that under PRC law, the Respondent is entitled to independent autonomy in its business operations, and it has not been established that the Respondent is part of or controlled by the CPG to be entitled to Crown immunity against execution of its assets.

93.  The Respondent’s assertion of Crown immunity is accordingly dismissed, and the charging order absolute against the Shares is granted.  I make an order nisi that the Respondent is to pay to the Applicant and the SJ the costs of the application for the charging order, including any costs order reserved in respect of such application.