ACHIEVE GOAL HOLDINGS LTD v. ZHONG XIN ORE-MATERIAL HOLDING CO LTD

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

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D E C I S I O N

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1.  There are 2 summonses, both taken out by the 2^nd and 3^rd defendants by counterclaim (collectively “the applicants” and respectively “Angola” and “Zhao”):-

(a) an application to dismiss the counterclaim of the plaintiffs by counterclaim (collectively “the respondents” and individually “Clarigain” and “Bai Jun”), and to discharge the interim receivers (“IR”) of Zhong Xin Ore-Material Holding Co Ltd (“Zhong Xin”);

(b)  an application to compel the IR to comply with the sanctioned settlement order of the Shaanxi Higher People’s Court (and upheld by the Supreme People’s Court).

For convenience, the first limb of the summons referred to in sub-para (a) above will be called “the dismissal application” below.  This decision is only concerned with the dismissal application.

2.  The parties’ dispute in relation to the dismissal application arises as follows.

3.  The applicants claim that a settlement agreement was entered into on 20 May 2009 whereby the parties agreed to cease various legal proceedings in Hong Kong (“the settlement agreement”).  The respondents deny the claim (see also paras  6 and 7 below).

4.  The marginal notes of the dismissal application summons refer to RHC Ord 30 (Receivers) and the court’s inherent jurisdiction (the reference to Ord 30 is irrelevant for present purpose).  Indeed, the applicants confirmed during the hearing they are invoking the court’s inherent jurisdiction to bring the dismissal application.

5.  The applicants and the respondents differ as to whether the dismissal application should proceed:-

(1)  on the basis of the court’s summary powers to dismiss actions in plain and obvious cases.  Such powers are akin those referred to in Ord 18 r 19 and the court’s related inherent jurisdiction; or

(2)  as a trial of some of the issues in an action, namely, the validity of the settlement agreement.

6.  On the part of Bai Jun (the individual behind it being one Mr Zhang (“Zhang”)), it is contended that the settlement agreement was subject to an agreement for the sale and purchase of the shares of Angola (Zhang being the purchaser thereof). Bai Jun asserts that the sale and purchase has fallen through.  Consequently, the settlement agreement was no longer binding.

7.  On the part of Clarigain (the individuals behind it being Mr Xie (“Xie”) and Ms Gao (“Gao”)), it is contended the settlement agreement was (i) reached behind their back and (ii) nothing more than a device to defeat its claim and to frustrate this action.  Clarigain also claims that the settlement agreement was in fact reached in June 2009 and backdated for the said unlawful purpose (to defeat a stop notice against the transfer of the shares of Bai Jun).

8.  Apart from the above contentions, other procedural objections have also been raised by the respondents.  These include: the parties having consented to a stay of this action, there is no proper ground for proceeding with the dismissal application; there has been an on-going dispute regarding who should be in control of Bai Jun.  The applicants are said to be aware of the dispute when the settlement agreement was reached.

9.  The last-mentioned dispute resulted in an arbitration decision and a judgment of the Hong Kong court of appeal, both of which were in effect in favour of Xie/Gao.  There is a pending application for leave to appeal to the Court of Final Appeal.

10.  Further, the respondents also contend that preparatory steps, especially adequate discovery of documents, have not been made.  One consequence of the stay of proceeding order was said to be that no preparatory step has been undertaken since then.

11.  For the above reasons, the respondents argue that it is improper to allow the dismissal application to proceed as if it were a trial of some of the issues of the action.

12.  The manner of proceeding with the dismissal application referred to in para 5(2) above is the same as, or at least similar to, a trial directed pursuant to Ord 33 r 3 and/or r 4(2).  I do not accept the applicants’ contention that the court somehow has inherent jurisdiction to do so.  But even if there were such inherent jurisdiction, I consider that the jurisdiction should be exercised in the same manner as that conferred by Ord 33 r 3 and/or r 4(2).

13.  The principles relevant to the exercise of the said discretionary power to direct a trial of issues have been summarized in Lee Yiu Kwan v Ting Yin Wah and Another [2004] HKEC 1222 (referred to in Hong Kong Civil Procedure 2012, Vol 1, para 33/4/9A). They include:-

(a)  where the issues of fact are interwoven with the legal issues raised, it will be undesirable for the court to split the legal and factual determination, for to do so would in effect be to give legal rulings in vacuo or on a hypothetical ruling, which the court will not do;

(b)  an order for the separate trial of separate issues is a departure from the general rule that all disputes should be tried together, and therefore generally speaking, such an order should only be made in exceptional circumstances or on special grounds.

14.  In brief, I am persuaded by the respondents’ argument that it is inappropriate (or at least inappropriate at this stage) to permit the dismissal application to proceed as if it were a trial of issues. The matters I have taken into account in so concluding include their submissions concerning the need for discovery and the potential uncertainty arising from the dispute regarding the control of Bai Jun.  The final resolution of the last-mentioned matter would mean a more confined, and hence cost-effective, challenge to the validity of the settlement agreement.

15.  Accordingly, the dismissal application will therefore only proceed as a summary process to dismiss an action in plain and obvious cases.