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

HCA 1987/2005

[2018] HKCFI 2718

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

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(By original action)

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(By counterclaim)

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J U D G M E N T

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A.  INTRODUCTION

1.  This is a trial of the counterclaim.  I shall call the plaintiffs by counterclaim Clarigain and Bai Jun, and collectively the Bai Jun Camp.  As for the defendants by counterclaim, I will call them Achieve Goal, Angola (including D2 and its previous/present owners), Zhao, Ng and Zhong Xin respectively. Achieve Goal and Angola will collectively be called the Angola Camp.  I enclose a flow chart agreed by counsel in Annex A to show the relationship among the parties.

2.  The dispute concerns ultimate ownership of 35% interest in a coal mine in Yulin City, Shaanxi Province, PRC (“the Coal Mine”).

3.  The relationship between Bai Jun and Angola was governed by a joint venture agreement entered into in December 2004 (“the JV Agreement”).  The JV Agreement had indisputably been terminated in 2005 or 2006, on either party’s case. 

4.  Counsel have initially classified the issues into 3 Stages, which have been reduced to 2 by the time of trial.  For ease of reference, I shall stick to the same description of the Stages.

5.  The Stage 1 issues are:

(1) Whether, on a proper construction of the JV Agreement, Angola was to itself inject capital into Zhong Xin (Bai Jun Camp’s case) or merely to arrange for Zhong Xin to obtain finance (Angola Camp’s case) in order to get 50% shareholding in Zhong Xin (“the Construction Issue”);

(2) Who was in breach and when (“the Termination Issue”); and

(3) What are the consequences of the breach and termination (“the Consequence Issue”)?

6.  The Stage 3 issue is whether or not the present action had been settled by a written agreement purportedly made between Bai Jun and Angola.

B.  THE UNDISPUTED FACTS

7.  The following background facts are taken from the helpful closing submission of Mr Dawes SC (leading Mr James Man), counsel for the Angola Camp. These facts are undisputed or indisputable as being largely based on documentary evidence. 

B1.  The Action and the protagonists

8.  The original action in these proceedings was commenced by Achieve Goal, a BVI company against Zhong Xin (a BVI company) for recovery of a sum of HK$20 million lent by the former to the latter under a loan agreement dated 14 February 2005 (the “Loan Agreement”). As a result of the Settlement Agreement dated 20 May 2009 between Bai Jun and Angola (the “Settlement Agreement”, the validity of which is disputed by Bai Jun Camp), Achieve Goal discontinued the original action on 22 July 2009 with leave of the Court.

9.  The counterclaim centres around the JV Agreement (《合作協議書》) dated 1 December 2004 between Angola (a BVI company) and Bai Jun (a Hong Kong company). In broad terms, under the JV Agreement, Angola and Bai Jun shall jointly establish the Joint Venture Company (“JV Company”) named Zhong Xin in the BVI, which would, together with a PRC entity known as Yulin City Yu Yang District Changle Industrial and Trading Ltd (榆林市榆陽區常樂工貿有限公司) (“Changle I&T”), establish a Sino-foreign Joint Venture Company (“SJV Company”) named Yulin Changlebao Mining Corporation Limited (榆林市常樂堡礦業有限公司) (“CLB”) for the purpose of carrying on a Coal Mine Project in Yulin, Shaanxi.

10.  50% of the shares of Zhong Xin are legally owned by Clarigain (a BVI company) on trust for Bai Jun. As regards Clarigain and Bai Jun:

(a) They are both corporate vehicles of Xie He Ping (謝和平) (“Xie”) and Gao Hai Yan (高海燕) (“Gao”), who are husband and wife.

(b) Since around June 2009, Xie/Gao engaged in protracted disputes with some third parties with respect to their ownership in Bai Jun. The disputes resulted in, amongst other things, an arbitral award dated 3 June 2010 issued by the Xi’an Arbitration Commission (the “Xi’an Award”) and the judgment of To J in HCA 1315/2009 & HCA 466/2012 dated 11 August 2016 (“To J’s Judgment”) holding in their favour.

11.  The other 50% of the shares of Zhong Xin are owned by Angola. As regards Angola:

(a) It was originally wholly owned by Zhao (趙兵), through his wife Zhong Wenxin (鍾文心) and his company Asian Resources Limited.

(b) On 14 February 2005, Achieve Goal, a company owned by Ng and 3 other individuals, acquired 20% interests in Angola.

(c) On 6 June 2005, Angola settled its 50% shareholding in Zhong Xin to Ng to be held on trust for Angola.

(d) On 26 October 2007, Zeng Wei (曾衛) (“Zeng”), Li Tao (李濤) (“Li”) and Chan Mok Wo (陳木和) (“Chan”) became the new shareholders in Angola and Achieve Goal.

(e) Since around October or November 2009, Zeng became the sole owner of Angola and Achieve Goal.

12.  Zhao and Ng are not legally represented and have not taken any steps in these proceedings for a considerable period of time.  They have not appeared at the trial despite being served with the notice of hearing.

B2.  2003 – September 2004: events prior to the JV Agreement

13.  Since around 2003, the Yulin Government kick started the process of recruiting foreign capital and investment (招商引資) in respect of the state-owned coal mines in the region, which were intended to be converted into Sino-foreign Joint Venture upon foreign investment (改制合資).  According to Gao’s testimony on Day 4, there were more than 10 small-scale coal mines (including the Coal Mine) available for investment at the material time, all of which were then suffering losses.

14.  Xie/Gao were interested in investing into the Coal Mine as foreign parties.

15.  In or about late April / early May 2004, Zhao on behalf of Angola on the one hand, and Xie/Gao on behalf of Bai Jun on the other, agreed to cooperate on the Coal Mine Project.  It is Bai Jun’s pleaded case that an oral agreement was reached containing the following terms (the “Oral Agreement”):

(a) Angola and Bai Jun would establish a JV Company for investing in the Coal Mine Project.

(b) Angola and Bai Jun would respectively hold 60% and 40% shareholding in the JV Company.

(c) A SJV Company for running the Coal Mine Project would be established. The JV Company and the PRC party would respectively have not less than 70% interest and not more than 30% interest in the SJV Company.

(d) Angola shall provide “cash capital injection” of US$ equivalent to RMB50 million for the Coal Mine Project and would further provide to Bai Jun RMB2 million cash for Bai Jun to progress with the various procedural matters relating to the Sino-foreign Joint Venture.

16.  There existed an unsigned《合作協議書》between Angola and Bai Jun dated May 2004 (the “Unsigned Agreement”) which contained, amongst others, the following terms:

(a) Part 1, Clause 1:Angola and Bai Jun shall jointly establish Zhong Xin and shall respectively hold 60% and 40% shareholding in Zhong Xin.

(b) Part 1, Clause 2: Zhong Xin would establish a SJV Company in the PRC, which shall have registered share capital of US$ equivalent to RMB50 million. Zhong Xin shall hold not less than 70% shareholding in the SJV Company by injecting cash, whereas the PRC entity shall hold not more than 30% shareholding in the SJV Company by injecting assets including coal mine assets.

(c) Part 2, Clause 1:Angola shall be responsible for procuring finance of US$ equivalent to RMB50 million as the registered capital of the SJV Company (負責融資相當於人民幣5000萬元的等值美元，部分用作合資公司註冊資本). The JV Company shall inject the registered capital into an account maintained in the PRC within the stipulated time pursuant to the relevant PRC regulations for verification of capital (註冊資本按國家有關規定在規定時間內，以海外公司之名義匯入國內帳戶，並接受當地工商部門驗資).

(d) Part 2, Clause 2:Bai Jun shall use the project as injection and be responsible for completing the preparation works for the establishment of the SJV Company and the project (以項目投入並負責完成常樂堡煤礦及合資公司的所有前期工作).

(e) Part 3: Angola shall pay Bai Jun RMB2 million as initial fees and expenses within 1 week from the date of the agreement.

(f) Part 4:Time shall be of the essence.

17.  During cross-examination on Day 3, Gao accepted that the terms of the Unsigned Agreement were basically consistent with her recollection as to the terms of the document which they were about to sign (基本上是一致的) but in the end did not.  That included the payment of RMB2 million within 1 week and the shareholding of Zhong Xin and the PRC entity in the SJV Company. The only notable difference was that the obligation of “負責融資” under the Unsigned Agreement was purportedly portrayed as provision of “cash capital injection” in the Oral Agreement.

18.  On 11 May 2004, Zhong Xin was incorporated in the BVI as the JV Company.  On 26 May 2004, 60, 24 and 16 shares of Zhong Xin were allotted to Angola, Xie and Gao respectively at the nominal consideration of US$1 for each share.  Zhao, Phoebe Sun (an assistant of Zhao), Gao and Xie were appointed as the first directors of Zhong Xin.  It is Xie/Gao’s case that they held their shareholding in Zhong Xin on trust for Bai Jun.

19.  On 29 July 2004, the Yulin Government and Zhong Xin entered into a《中信礦業集團參與榆陽區人民煤礦改制擴建合同書》in respect of the Coal Mine Project.  The agreement set out the broad framework of the Sino-foreign joint venture, whereby Zhong Xin undertook to inter alia inject RMB50 million into the SJV Company (Part 2).  It was envisaged that there would be a further joint venture agreement (“合資合同”) detailing the obligation of the parties.

20.  Angola did not pay the RMB2 million to Bai Jun or make any payment to Zhong Xin in accordance with their terms of cooperation. Due to difficulty in procuring financing (“由於融資工作遇到了一些困難…資金暫時無法到位”), Angola decided to withdraw from the Coal Mine Project and Zhong Xin.  See Angola’s letter dated 13 September 2004 to Bai Jun.  As such, on 15 September 2004, Angola transferred its 60 shares of Zhong Xin to Xie/Gao.  Zhao and Phoebe Sun also resigned as directors of Zhong Xin.

B3.  November 2004 – February 2005: the JV Agreement, the SJV Agreement and the Supplemental SJV Agreement

21.  In around November 2004, Bai Jun and Angola were in touch again on the Coal Mine Project. Subsequently, they entered into the JV Agreement dated 1 December 2004 (which, according to Gao, was only signed on 21 December 2004; this is in dispute).  I set out the material terms which are relevant to this dispute:

“ 1.1 甲乙雙方在英屬維京爾群島共同成立中信礦業集團有限公司 [Zhong Xin] 。

1.2 甲方以相當於人民幣5000萬元的等值美元的融資投入，持有中信礦業公司50% 的股權，乙方以常樂堡煤礦項目及其組建的合資公司進入中信礦業公司，持有中信礦業公司的50%的股權。 [underline added]

…

1.4 中信礦業公司將在中國陝西省榆林市成立一中外合資公司 [CLB] 。合資公司的中方合作股東爲：原人民煤礦改制后的持股職工組建的法人公司常樂工貿有限公司 [Changle I & T]。

1.5 合資公司註冊資本為人民幣7100萬元。中信礦業公司以相當於人民幣5000萬元的等值美元的現金投入並持有合資公司70% 的股權，職工公司持有合資公司30% 權益，以全部資產投入：其中包括作價不超過人民幣1200萬元的採礦權證 (4平方公里採礦區) 、700畝土地使用權證及人民煤礦現存的所有生產設備等。

…

2.1 甲方和乙方在簽訂本協議后的2個工作日内按照各自的股權比例完成和完善有關中信礦業公司的法律手續。

2.2 甲方在本地協議簽訂後的10個工作日內將相當於人民幣2000萬元的等值美元 (具體美元金額將照實際匯率折算) 匯入中信礦業公司的帳戶。中信礦業公司將相當於人民幣2000萬元的等值美元作為合資公司第一期的註冊資本。該部分註冊資本將根據中國政府的有關有求，在規定的時間匯入中國陝西國內合資公司的帳戶，並接受當地工商部門驗資。 [underline added]

2.3 甲方負責中信礦業集團公司的日常管理費用。

2.4 甲方同意支付乙方人民幣700萬元的前期費用，用於成立中信礦業公司及組建合資公司相關的必要開支。其中，在登記機關要求開立驗資帳號3日內，支付人民幣200萬元 (“1^st RMB2 million”)；在合資公司獲得4平方公里採礦區的採礦權證後，支付人民幣200萬元 (“2^nd RMB2 million”)；在合資公司獲得附件二中2.86平方公里的探礦權證後，支付人民幣300萬元 (“the RMB3 million”)。所有發生的費用須作帳，直至中信礦業公司及合資公司正式運作為止。發生的費用將按實際用途作為合資公司或中信礦業公司的指出，分別計入合資公司或中信礦業公司的帳目。

2.5 乙方負責在本協議簽訂後的90個工作日內完成成立合資公司和工商註冊登記等項工作。同時完成常樂堡煤礦4平方公里區域的採礦權的權屬變更和陝西省地礦局所屬的2.86平方公里採礦權的轉讓及變更手續。上述權屬變更的出價不超過本協議規定的價格。

2.6 乙方承諾合資公司獲得的有關採礦權，採礦權及土地使用權的有關權屬證書都已得到有關政府部門的審核通過，不存在任何潛在的糾紛或被有關部門罰處的風險。

…

3.1 中信礦業公司設立董事局。董事局由六名董事組成， 其中三名由甲方委派，三名由乙方委派。

3.2 中信礦業公司有關下列事項的決定必須獲得80% 以上的董事同意：

…

(7) 中信礦業公司融資、擔保、借貸等事宜。

…

4.1 甲方須按本協議第2部分2.2、2.3、2.4條款的內容及承諾，按時將相2000萬元人民幣的等值美金匯入中信礦業公司帳戶，以便按規定及時支付用於合資公司第一期的註冊資本金。同時須將乙方的前期費用按所做承諾按時匯入乙方指定的銀行帳戶。若甲方未能按以上條款履行其承諾，則視為違約，本協議將終止。同時甲方須支付乙方200萬元人民幣的賠償金。 [underline added]

4.2 乙方須按本協議第2部分2.5、2.6條款的內容及承諾，在合資公司成立之後，按時完成4平方公里採礦權證、2.86平方公里採礦權權屬的變更及過戶手續。否則視為違約，並賠償甲方200萬元人民幣的賠償金。[underline added]

4.3 若甲方未能按期支付合資公司註冊資本金餘額，將由乙方出資補上，甲方在中信礦業公司的股份則按比例相應降低。

…

7. 本協議應受香港法律管轄，並根據香港法律加以詮釋，如發生異議將於香港法庭訴訟。”

22.  At around the same time, by the《合資經營合同》 dated 12 December 2004 (the “SJV Agreement”), Zhong Xin and Changle I&T agreed to establish a SJV Company named CLB in the PRC for the purpose of running the Coal Mine Project. The SJV Agreement contained inter alia the following terms:

(a) Clauses 10 and 11:  Zhong Xin shall contribute RMB49.7 million as CLB’s registered share capital, whereas Changle I&T shall contribute assets equivalent to RMB21.3 million (including cash and coal mine assets) as CLB’s registered share capital.

(b) Clause 12:  The RMB49.7 million shall be contributed by 3 instalments: the 1^st instalment of RMB20 million shall be injected upon the registration of CLB; the 2^nd instalment of RMB20 million shall be injected one year after the establishment of CLB; and the remaining RMB9.7 million shall be injected two years after the establishment of CLB.

(c) Clause 14:  If either party failed to contribute the registered capital within time, after negotiation (經雙方協商後), the other party could make the contribution and obtain the relevant shares.

(d) Clauses 20 and 25:  Zhong Xin and Changle I&T shall respectively nominate 5 and 2 persons to be the directors of CLB.  Zhong Xin shall nominate the Chairman and the Finance Manager, whereas Changle I&T shall nominate the General Manager.

23.  On 28 December 2004, Zhong Xin passed a board resolution nominating Zhao, Ng, Zuo Wei Qi (左維琦) (“Zuo”), Xie and Gao to be the directors of CLB, and Xie to be the Chairman and legal representative of CLB.

24.  On or about 29 December 2004, Angola paid the 1^st RMB2 million under Clause 2.4 of the JV Agreement to CLB’s account pursuant to the instructions of Bai Jun dated 25 December 2004.

25.  On 30 December 2004 and 31 December 2004, board resolutions of Zhong Xinwere passed to:

(a) appoint Zhao and Ng as directors of Zhong Xin;

(b) approve the transfer of Xie/Gao’s 50 shares of Zhong Xin to Angola at the nominal consideration of US$1 per share; and

(c) approve the transfer of Xie/Gao’s remaining 50 shares of Zhong Xin to Clarigain (which were to be held on trust for Bai Jun).

26.  In January 2005, Zhao produced to Xie/Gao two letters dated 5 January 2005issued byChina Mineral Acquisition Corporation (“CMAC”) and Morgan Stern Merchant Bank Ltd respectively, stating that they intended to invest in Zhong Xin for its joint venture in CLB.  Those two letters, together with an account summary of CMAC showing that there were US$20 million on its account, were notarised on 17 January 2005 and submitted to the PRC authority for the purpose of setting up CLB (Gao’s testimony on Day 4).

27.  On the next day, ie 18 January 2005, the business permit of CLB was issued.  Zhao, Ng, Zuo, Xie and Gao (nominated by Zhong Xin), and Zhang Xin Tian (張新田) (“Zhang”) and Zhao Xi You (趙世有) (nominated by Changle I&T) were appointed as directors of CLB.  Xie and Zhang were respectively appointed as Chairman and General Manager of CLB.

28.  On 5 February 2005, Xie (on behalf of Zhong Xin) and Zhang (on behalf of Changle I&T) signed the 《合資經營合同的補充協議》 (the “Supplemental SJV Agreement”).  The purpose of that Agreement, as stated in the recital, was to “確保合資公司順利完成出資和驗資程序”. It contained, amongst others the following terms:

(a) Clause 1:  Within 60 days of the agreement, Changle I&T shall inject assets and cash equivalent to RMB21.3 million as capital contribution, whereas Zhong Xin shall inject RMB20 million as capital contribution.

(b) Clause 4:  After the completion of the capital contribution, Zhong Xin and Changle I&T shall jointly engage an accountant firm to produce a report of capital verification.

(c) Clauses 10 and 11:  The Supplemental SJV Agreement shall be submitted to the relevant authority for approval and shall take effect after such approval.

B4.  February 2005 – March 2005: the Loan Agreement

29.  On 7 February 2005, the board of Zhong Xin (attended by Zhao and Gao) resolved, amongst others,that through the arrangement of Angola (“在本公司股東 [Angola] 的安排下”), Zhong Xin agreed to borrow HK$20 million from “Sunspring International Group Limited” (“Sunspring”), and the relevant loan agreement be approved.  Sunspring was subsequently amended to Achieve Goal on the board minutes with the signature of Zhao and Gao.

30.  On 8 February 2005, Zhao, Ng, Xie and Gao signed a written board resolution to increase the quorum for board meeting to 3 directors.

31.  On 14 February 2005:

(a) by the Loan Agreement between Achieve Goal (signed by Ng) and Zhong Xin (signed by Zhong Jian (鍾健), the brother-in-law of Zhao, with Zhong Xin’s common seal), Achieve Goal agreed to lend and Zhong Xin agreed to borrow HK$20 million at an interest rate of 7% p.a.. 

(b) Clause 6A.04 of the Loan Agreement provided that Zhong Xin shall pledge its 70% shareholding in CLB as collateral, but it was apparent that Zhong Xin never did so.

(c) HK$20 million was remitted to Zhong Xin’s account pursuant to the Loan Agreement as drawdown of the loan.  Of the HK$20 million, HK$13 million was remitted from Angola’s account and HK$7 million was remitted from Ng’s account. According to a 《委托付款協議書》dated 13 February 2005, since Achieve Goal did not have a bank account in Hong Kong, Achieve Goal had to remit the loan proceeds through Angola and Ng.

(d) 20% shareholding in Angola was transferred to Achieve Goal.

32.  On 15 February 2005, HK$19 million (equivalent to RMB20,132,400 applying the prevailing exchange rate of HKD1:RMB 1.0596) was remitted to CLB’s account from Zhong Xin’s account for the purpose of paying up the 1^st instalment of CLB’s registered share capital.

33.  On 5 March 2005, a board meeting of Zhong Xin was held in Xi’an. All the directors of Zhong Xin (Xie, Gao, Zhao and Ng) attended. According to the board minutesprepared by Gao, it was resolved that Wang Xin Sheng (汪新生) (“Wang”) shall be appointed as the Finance Manager of CLB, and that Zhao and Ng shall be responsible for procuring finance (融資) for Zhong Xin.

B5.  March 2005 – December 2005: the transfer of the mining rights and exploration rights to CLB

34.  On 28 March 2005, CLB obtained the mining permit in respect of the 4 sq. km coal mine.

35.  On 5 April 2005, the valuation report of the exploration rights of the 2.19 sq.km coal mine (which, according to Gao, was equivalent to the 2.86 sq.km coal mine) was filed with 陝西省國土資源廳.  The exploration rights were valued as RMB5.37 million.

36.  On 4 August 2005, 陝西省國土資源廳 wrote to CLB (copied to 陝西省地質礦產勘查開發局, the transferor of the exploration rights) mentioning that:

(a) a report had been submitted by CLB requiring mediation on the price of the transfer of the exploration rights;

(b) the report submitted by CLB expressed that because of the change of valuation method in 2004 by the state, there was disagreement between CLB and the transferor and they were unable to sign the transfer agreement;

(c) it was however inappropriate for 陝西省國土資源廳 to conduct a mediation as the dispute was a matter between CLB and the transferor.

37.  On 9 August 2005, Wang issued a declaration to the bank in Yulin making certain allegations against Xie.

38.  On 21 August 2005, the PRC court froze the foreign currency account of CLB.

39.  On 24 September 2005, CLB passed a board resolution to make payment to 陝西省地質礦產勘查開發局 for the exploration rights.

40.  On 14 October 2005, 陝西省國土資源廳 approved the joint application of 陝西省地質礦產勘查開發局and CLB to transfer the exploration rights.

41.  The foreign currency account of CLB was unfrozen on 21 October 2005.

42.  On 21 December 2005, CLB obtained the exploration permit of the 2.86 sq. km coal mine.

B6.  May 2005 – 2008: commencement of HCA 1284/2005 and this Action, and the evolution of Bai Jun’s claims

43.  By a letter dated 18 May 2005, Bai Jun’s solicitors wrote to Angola stating, amongst others that:

(a) Pursuant to Clause 2.2 of the JV Agreement, Angola shall remit HK$20 million to Zhong Xin’s account within 10 days of the signing of the agreement.  It was only after repeated request that Angola remitted the sum to Zhong Xin’s account on 14 February 2005. This constituted a breach;

(b) Angola was in breach of Clause 2.4 of the JV Agreement in failing to pay the 2^nd RMB2 million to Bai Jun after CLB obtained mining rights to the 2.86 sq.km coal mines;

(c) In respect of Angola’s failure to remit the funds on time under Clause 2.2, Bai Jun would only give a stern warning to Angola;

(d) Angola shall pay $2 million to Bai Jun within 10 days after receiving the letter.

44.  Subsequently, by a letter dated 30 May 2005, Bai Jun’s solicitors wrote to Angola alleging that Angola was in breach of Clauses 1.2, 2.2 and 2.4 of the JV Agreement, asking Angola to remedy the breaches within 5 working days.

45.  By a letter dated 22 June 2005, Bai Jun allegedly accepted the repudiation of Clauses 1.2, 2.2 and 2.4 of the JV Agreement by Angola and demanded Angola to return all of its Zhong Xin shares to Bai Jun.

46.  On 6 July 2005, Bai Jun commenced HCA 1284/2005 against Angola, seeking the return of Angola’s 50% shareholding in Zhong Xin and damages.  Angola filed a Defence on 5 October 2005, contending, amongst others, that on the true construction of the JV Agreement, it had no obligation to provide direct capital injection to the JV Company, and its obligation was to procure the necessary finance in the sum of RMB50 million to be provided to the JV Company.

47.  By letters dated 9 August 2005 and 6 September 2005, Achieve Goal’s solicitors alleged that Zhong Xin was in breach of the Loan Agreement, including the failure to pay the arrangement fee of HK$600,000 under the Loan Agreement.  Achieve Goal therefore claimed the loan amount and interest on the basis that the events of default had been triggered.

48.  On 15 September 2005, the board of Zhong Xin resolved to pay HK$600,000 to Achieve Goal as the arrangement fee under the Loan Agreement.  Gao voted in favour of the said resolution. Xie did not attend the board meeting.

49.  On 10 October 2005, Achieve Goal commenced the original action in these proceedings against Zhong Xin, claiming the loan amount of HK$20,000,000 and interest.

50.  On 2 January 2006, in a board meeting of Zhong Xin attended only by Gao and Xie (and notwithstanding that a resolution had been passed to increase the quorum of board meeting to 3 – see §30 above), it was purportedly resolved that:

(a) Angola shall, in pursuance of the JV Agreement, inject US$ equivalent to RMB20 million into Zhong Xin by 12 January 2006 to enable Zhong Xin to pay the same to CLB as the 2^nd instalment of capital contribution. If Angola failed to do so, Bai Jun would be responsible for the same pursuant to Clause 4.3 of the JV Agreement, and after that Bai Jun shall immediately obtain 20% shares of Zhong Xin from Angola;

(b) Zhong Xin shall repay the loan amount of HK$20 million to Achieve Goal by 14 February 2006; and that given the associated relationship between Angola and Achieve Goal and the share ratio of Angola and Bai Jun in Zhong Xin, the two shareholders of Zhong Xin shall each bear a repayment obligation of HK$10 million.

51.  On 23 February 2006, Achieve Goal applied for summary judgment against Zhong Xin. At the hearing of the summary judgment application on 14 August 2006, Zhong Xin gave an undertaking that Bai Jun would apply to be joined as a claimant to Zhong Xin’s counterclaim in this Action and to sue Angola for specific performance of the JV Agreement.

52.  On 13 September 2006, Zhong Xin applied to amend the Defence and Counterclaim.  On 3 October 2006, Zhong Xin took out a further summons to join Bai Jun as the 2^nd Plaintiff (by Counterclaim) and to amend the Defence and Counterclaim.

53.  By a letter dated 10 October 2006, Angola asserted that by wrongfully claiming that the JV Agreement had been terminated in HCA 1284/2005, Bai Jun had wrongfully repudiated the JV Agreement, and Angola thereby accepted the wrongful repudiation by Bai Jun and terminated the JV Agreement.

54.  The amendments to the Defence and Counterclaim and joinder of Bai Jun were allowed on 27 October 2006. The amendments abandoned the claim for Angola’s 50% shareholding in Zhong Xin and affirmed the JV Agreement. It was specifically pleaded in §7(h) that:

“ For the avoidance of doubt, Bai Jun and, insofar as is necessary, Zhong Xin hereby confirm that, without prejudice to their rights otherwise including rights to remedies for damages for breach of contract and specific performance of the JV Agreement, they hereby abandon any claim against Angola for termination or rescission of the JV Agreement as a result of the repudiatory breach of the same by Angola and affirm the JV Agreement.”

55.  Thus, for a very long period of time from October 2006 until July 2015 when the Bai Jun Camp made their latest amendments, it had been contending that the JV Agreement shall continue to subsist.

56.  On 13 September 2007, Clarigain applied to substitute Zhong Xin in the counterclaim as a response to Angola and Zhao’s application to strike out the counterclaim on the basis that it was issued without Zhong Xin’s authority.  The joinder was allowed on 28 February 2008.

57.  On 25 February 2008, an application was made by Bai Jun (and Clarigain as the intended 1^st Plaintiff in the counterclaim) to further amend the Defence and Counterclaim, alleging that by reason of Bai Jun’s capital injection of RMB29,567,600 on 1 February 2008 and 2 February 2008 into CLB and Clause 4.3 of the JV Agreement, Angola’s 50% shareholding in Zhong Xin should be reduced by 59.49% and the same should be held on trust for Bai Jun.

58.  On 9 July 2008, Bai Jun discontinued HCA 1284/2005.

B7.  August 2007 – February 2008: change of ownership of Angola and the Purported Capital Injection by Clarigain/Bai Jun

59.  On 6 August 2007, the PRC authority extended the deadline of injecting the outstanding capital contribution into CLB to 15 September 2007.

60.  On 12 September 2007, a board meeting of Zhong Xin was held (attended by Xie, Gao, Zhao and Ng) and it was resolved that:

(a) Zhong Xin shall continue to fulfil its obligation under the SJV Agreement and arrange the injection of the outstanding US$ equivalent to RMB29.7 million into CLB.

(b) An application should be made to the relevant authority for extension of time to make the outstanding capital contribution.

61.  On 6 October 2007, Clarigain passed a board resolution resolving to, as shareholder of and on behalf of Zhong Xin, inject the outstanding capital contribution into CLB (the “Purported Capital Injection”).  The resolution expressly stated that such capital injection shall not concern its shareholding and interest in Zhong Xin.

62.  According to the record, Zeng, Li and Chan became the new shareholders and directors of Angola and Achieve Goal on 26 October 2007.  The stated consideration on the 2 relevant transfer agreements (dated 11 October 2007 and 3 December 2007 respectively) was RMB37 million, but according to Zeng the total consideration was RMB42 million.  The most substantial instalment of the purchase price in the amount of RMB30 million was only paid on 3 December 2007.

63.  On 23 December 2007, CLB received a notice dated 20 December 2007 from the PRC authority extending the deadline of injecting the outstanding capital contribution to 5 February 2008.  On 24 December 2007, a written board resolution of CLB (without the directors nominated by Angola signing) was passed to have Zhong Xin make the outstanding capital contribution.

64.  On 4 January 2008, Gao made a statutory declaration for Clarigain and got it notarised on 7 January 2008 for the purpose of carrying out the Purported Capital Injection in the PRC.

65.  On 1 and 2 February 2008, Clarigain injected a total of US$4,172,590 into CLB’s account purportedly as the outstanding capital contribution made by Zhong Xin.  This Purported Capital Injection was made without any board resolution of Zhong Xin.

B8.  May 2008 – March 2009: Gao/Xie transferring their interests in Bai Jun to Liu/Keeneye Group, and the legal proceedings in the PRC

66.  On 20 May 2008, Xie/Gao were involved in a blood-shed incident whereby Zhang and Wang suffered injuries (“the Blood-Shed Incident”).  Xie/Gao were subsequently arrested and held in custody.

67.  On 15 July 2008, Xie/Gao entered into a share transfer agreement whereby they agreed to transfer their shareholding in Bai Jun to Keeneye Holdings Limited (“Keeneye”), a company owned and controlled by Liu Jian Shen (劉建申) (“Liu”), a Shaanxi representative of the National People’s Congress, in return for Liu’s assistance to procure their release from detention.

68.  On 17 July 2008, Changle I&T commenced proceedings in the Shaanxi Intermediate People’s Court against Zhong Xin and Bai Jun (with Angola and CLB being joined as third parties), contending that the Purported Capital Injection by Bai Jun (via Clarigain) in the name of Zhong Xin was invalid and it shall have pre-emption rights to acquire 42% shareholding in CLB as represented by such capital injection (the “PRC Proceedings”).

69.  On 27 August 2008:

(a) A supplemental share transfer agreement (the “Supplemental Keeneye Agreement”) (the two agreements transferring the Bai Jun shares are together referred to as the “Keeneye Agreements”) was entered into between between Xie/Gao as transferors and Keeneye and New Purple Golden Resources Development Limited (“New Purple”, a company also owned by Liu) as transferees. Under Clause 2, Keeneye/New Purple agreed that the shareholding which Bai Jun might obtain from Angola in the litigations shall belong to Xie/Gao.

(b) Keeneye/New Purple became the registered shareholders of Bai Jun. Wang Li (王李) and Lu Ying (呂瑩) were appointed as directors of Bai Jun by a board of resolution of Bai Jun signed by Xie/Gao. See Form D2A dated 27 August 2008 received by the Company Registry on 2 September 2008.

70.  On 16 September 2008, Angola as third party in the PRC Proceedings also made a claim that by reason of the invalidity of the Purported Capital Injection, it shall have pre-emption rights to acquire Zhong Xin’s 42% shareholding in CLB.

71.  On 23 September 2008, by a written resolution, Keeneye and New Purple passed a written shareholders’ resolution to remove Xie/Gao as directors of Bai Jun.

72.  On 20 October 2008, Keeneye/New Purple transferred their Bai Jun shares to Daynew Assets Management Limited (“Daynew”) and Far Orient Holdings Limited (“Far Orient”). Daynew and Far Orient are also companies owned by Liu.The 4 companies of Liu are collectively referred to as the “Keeneye Group”.

73.  On 7 November 2008, because of the deadlock in Zhong Xin and the need to defend the PRC Proceedings, Fok Hei Yu and Desmond Chiong of Ferrier Hodgson were appointed as interim receivers and managers (the “Old IRs”) of Zhong Xin by the Hong Kong Court of Appeal.

74.  On 28 November 2008, the Shaanxi Intermediate People’s Court upheld the validity of the Purported Capital Injection by Bai Jun in the name of Zhong Xin. On 10 December 2008, both Changle I&T and Angola appealed against that decision.

75.  On 6 March 2009, the Old IRs ratified the Purported Capital Injection by Bai Jun expressly without prejudice to Angola’s interest or defence in this Action.

B9.  May 2009 – July 2009: the Settlement Agreement, the PRC Court Sanctioned Settlement, and the stay of this Action

76.  By an agreement dated 16 May 2009 (“Liu-Zhang Agreement”), Liu agreed to sell his entire shareholding in Bai Jun (indirectly owned by him) to Zhang at a consideration of HK$150 million. Pursuant to the agreement, Liu shall coordinate with Zhang to discontinue the litigations in the Hong Kong courts.

77.  By the Settlement Agreement dated 20 May 2009 between Angola (signed by Li) and Bai Jun (signed by Wang Li), it was agreed, amongst others, that:

(a) Angola and Bai Jun shall apply to the Shaanxi Higher People’s Court (“Shaanxi HPC”) to seek the court’s approval for the settlement of the dispute in relation to the Purported Capital Injection.

(b) Angola and Bai Jun shall settle all court proceedings in Hong Kong and the PRC, including the withdrawal by Bai Jun of its counterclaim in this action and the discontinuance of Achieve Goal’s original action.

(c) Angola and Bai Jun confirmed the validity of the JV Agreement, and Angola’s obligation under the JV Agreement was to procure finance in the sum of US$ equivalent to RMB50 million for Zhong Xin.

(d) Angola and Bai Jun confirmed that the HK$20 million advanced by Achieve Goal to Zhong Xin would be repaid by Angola, and the outstanding capital contribution in the sum of RMB30 million shall be borne by Angola and Bai Jun equally.

78.  On 21 May 2009, Xie/Gao issued a stop notice (the “Stop Notice”) in respect of Bai Jun’s shares. In the supporting affirmation of Fan Man Yee Alice, it was said that the grounds to set aside the Keeneye Agreements were: (a) invalid power of attorney; (b) misrepresentation; (c) uncertainty of the essential terms; and (d) no consideration provided.

79.  By an agreement dated 30 May 2009 (“SPA/Angola”), Zeng/Li/Chan agreed to sell their entire shareholding in Angola and Achieve Goal at a consideration of RMB140 million. Pursuant to that agreement, Zeng/Li/Chan shall coordinate with Zhang to, amongst others, sign a settlement agreement with Bai Jun, discharge the Old IRs, and facilitate the withdrawal of the claims by Bai Jun.

80.  On 2 June 2009, Xie/Gao commenced HCA 1315/2009 to set aside the transfer of their shares in Bai Jun to the Keeneye Group. At that time, there was only a general indorsement filed together with the writ.  The writ was left in Bai Jun’s registered office on 10 June 2009 and was deemed to be served on 17 June 2009.

81.  On 10 June 2009, the transfer of the shares of Angola and Achieve Goal was completed, and Zhang was appointed as the sole director of Angola.  Because of non-payment of the balance of the purchase price, the shares of Angola were re-transferred back to Zeng/Li/Chan on 5 October 2009 upon using a set of documents pre-signed by Zhang. The deposit of RMB30 million paid by Zhang to Zeng/Li/Chan was returned to Zhang on 4 December 2009.

82.  On 25 June 2009, on the application of Xie/Gao, an interim receiver and manager was appointed for Bai Jun (“Bai Jun’s IR”).

83.  On 29 June 2009, Changle I&T (acted by Zhang), CLB (acted by Zhang), Angola (acted by Li), Bai Jun (acted by Wang Li and Lu Ying) and Zhong Xin (acted by a PRC lawyer Liu Jian Chong (劉建倉) engaged by the Old IRs) settled the PRC Proceedings on the following terms as sanctioned by the PRC Court (the “PRC Court Sanctioned Settlement”):

(a) CLB shall return the outstanding capital contribution made by Bai Jun via the account of Clarigain, and after further discussion between the shareholders of Zhong Xin, Zhong Xin shall on its own make a fresh capital contribution to CLB.

(b) After the making of the fresh capital contribution, Changle I&T shall withdraw all its claims against Zhong Xin in respect of any alleged failure to make capital contribution.

(c) Changle I&T and Angola shall withdraw all their claims for pre-emption rights and other relief.

84.  On 2 July 2009, powers of Bai Jun’s IR were extended to cover acting in the name of Bai Jun in relation to this action and the PRC Proceedings.

85.  On 20 July 2009, Chung J discharged Bai Jun’s IR on the grounds of no serious issue to be tried and material non-disclosure.  In his written Decision, he dismissed all the 4 grounds challenging the validity of the transfer, namely (a) invalid power of attorney (§24); (b) misrepresentation (§§22 – 23); (c) duress (§§17 – 21); and (d) no consideration provided (§§25 – 28).

86.  The trial of this original action was fixed for 22 July to 4 August 2009 before Chung J (“the Original Trial”).  However, on 22 July 2009, in purported performance of the Settlement Agreement, Achieve Goal obtained leave to discontinue the original action in this action.

87.  On 24 July 2009, this action was stayed with liberty to apply pending the resolution of the dispute over the ownership of Bai Jun.

B10.  July 2009 – 2016: the disputes over Bai Jun’s shareholding

88.  On 17 July 2009, the Xi’an Arbitration Commission accepted the arbitration request of Keeneye and New Purple in respect of the Keeneye Agreements.

89.  On 24 August 2009, Xie/Gao counterclaimed against Keeneye and New Purple to set aside the Keeneye Agreements on the ground of “顯失公平、乘人之危” under PRC law.

90.  By an agreement dated 15 October 2009, Xie/Gao agreed to sell the entire shareholding in Zhong Xin to Ma Mao Gen (馬茂根) (“Ma”) at a consideration of RMB380 million, following (a) the recovery of their shareholding in Bai Jun from the Keeneye Group; and (b) Bai Jun’s recovery of Angola’s 50% shareholding in Zhong Xin.

91.  On 29 March 2010, Liu transferred all the shares of the Keeneye Group to Zhang.

92.  On 3 June 2010, the Xi’an Arbitration Commission handed down the Xi’an Award revoking (撤銷) the Keeneye Agreements.

93.  On 6 June 2010, Ma contracted to sell to one Zi Rong the entire shareholding in Zhong Xin for RMB900 million, to be completed before 6 December 2011.

94.  On 2 August 2010, Saunders J granted leave to Xie/Gao to enforce the Xi’an Award. On 12 April 2011, Reyes J set aside the leave to enforce the Award. On 6 May 2011, Xie/Gao appealed against Reyes J’s decision.

95.  On 17 May 2011, Ma and Zhang entered into an agreement whereby Ma agreed to purchase the shares of the Keeneye Group from Zhang for RMB190 million.

96.  On 22 March 2012, the Court of Appeal reversed the order of Reyes J, allowing the enforcement of the Xi’an Award.

97.  On 29May 2012, Xie/Gao amended their Statement of Claim in HCA 1315/2009 adding the pleas that as a result of the Xi’an Award, the Keeneye Agreements and the appointment of Wang Li and Lu Ying as directors are “null and void ab initio”, and Daynew/Far Orient were not bona fide purchasers for value without notice. The relief sought included, amongst others, a declaration that the Settlement Agreement was null and void and of no legal effect.

98.  At around the same time, HCA 466/2012 was commenced by Ma against Xie/Gao. In that action, Xie/Gao claimed that Ma was in breach of the agreement between them by, amongst others, covertly reaching an agreement with Zhang to purchase the shares of the Keeneye Group. Ma contended that the settlement with Zhang was done pursuant to an oral agreement between himself and Xie/Gao in May 2011.

99.  As for HCA 1315/2009, since the enforcement of the Xi’an Award was upheld by the Court of Appeal and the Xi’an Award was binding on the Court, the primary defence of the Keeneye Group (then controlled by Ma) was that by reason of the oral agreement in May 2011, there was valid accord and satisfaction of the disputes in HCA 1315/2009.

100.  HCA 1315/2009 and HCA 466/2012 were tried together.  On 11 August 2016, To J found in favour of Xie/Gao (“To J’s Judgment”), holding, amongst others,that:

(a) The oral agreement in May 2011 as alleged by Ma was concocted, and Xie/Gao were entitled to terminate their agreements with Ma.

(b) The Xi’an Award was binding and final as against Keeneye and New Purple in relation to the Keeneye Agreements. Daynew and Far Orient were remote recipients and not bona fide purchasers for value without notice, and Xie/Gao were thus entitled to recover the Bai Jun shares from them.

101.  Without analysing the appropriateness of the terms of the declarations, To J granted the declarations sought in Xie/Gao’s Amended Statement of Claim, including the declaration that the Settlement Agreement was null and void and of no legal effect.

B11.  October 2009 – present: the subsequent development in this Action,and the unsuccessful challenges against the PRC Court Sanctioned Settlement

102.  On 28 October 2009, Bai Jun, Achieve Goal, Angola, Zhao and Ng jointly applied for the dismissal of the counterclaim on the basis that a settlement had been reached (the “Dismissal Application”).  A total of 3 affirmations (filed on 4 November 2009, 20 January 2010 and 10 March 2011 respectively) were filed by Wang Li of Bai Jun in support of the Dismissal Application.  However, shortly before the hearing of the Dismissal Application on 6 March 2012, and after Zhang sold his interest in Bai Jun to Ma in the circumstances described in §95 above, 2 affirmations of Zhang (filed on 15 February 2012 and 1 March 2012) (“Zhang’s Affirmations”) were filed on behalf of Bai Jun to attack the validity of the Settlement Agreement and oppose the Dismissal Application.  In the end, the Court adjourned the Dismissal Application sine die.

103.  On 27 November 2009, the Old IRs applied in the Shaanxi HPC to overturn the PRC Court Sanctioned Settlement.  The application was dismissed on 14 April 2010.  The Old IRs’ appeal to the Supreme People’s Court was dismissed on 17 August 2010.

104.  On 13 July 2011, the Supreme People’s Court issued a Notice of Direction clarifying that in respect of paragraph 1 of the PRC Court Sanctioned Settlement, the order of execution shall be: (i) Zhong Xin shall first inject the funds of US$ 3.56 million into CLB; and thereafter (ii) CLB shall then return the funds of US$ 3.56 million previously injected by Bai Jun via the account of Clarigain.  Yet the Old IRs insisted that they would not comply with the PRC Court Sanctioned Settlement.

105.  On 15 December 2011, the Old IRs made another attempt to apply to the Supreme People’s Court for reconsideration of its previous decision dated 17 August 2010.  On 12 February 2012, CLB (purportedly via Xie as CLB’s legal representative) made a similar application.

106.  On 26 May 2012, the Old IRs (on behalf of Zhong Xin), Changle I&T and CLB entered into a settlement whereby Zhong Xin and Changle I&T recognised each other’s 70% and 30% interest in CLB and agreed that they would no longer perform the PRC Court Sanctioned Settlement.  Angola was not a party to the agreement.

107.  On 28 March 2013, the Supreme People’s Court dismissed the applications of the Old IRs and CLB (purportedly made by Xie) mentioned in §105 above.  The validity of the PRC Court Sanctioned Settlement was again upheld.

108.  On 19 May 2015, this Court allowed the Old IRs’ application to discharge themselves from their office (apparently due to lack of funds). James Wardell and Jackson Ip of Baker Tilly Hong Kong Restructuring and Recovery Limited were appointed in place of the Old IRs.

109.  On 30 June 2015, this Court ordered that the stay of this Action be lifted.  The matter therefore proceeded to trial.

110.  By amendments made on 28 July 2015, the Bai Jun Camp deleted the plea about affirmation of the JV Agreement, and the discontinued claim in HCA 1284/2005 for Angola’s 50% shareholding in Zhong Xin was added for the first time in this Action.

111.  On 15 February 2017, Bai Jun applied to the Supreme People’s Court for reconsideration of its previous decision dated 17 August 2010 upholding the validity of the PRC Court Sanctioned Settlement.  This is the 4^th time that the PRC Court Sanctioned Settlement was challenged.  The Supreme People’s Court has not reached its decision in respect of this application.

C.  ISSUES

112.  The issues in Stage 1 covered the period of 2005 to 2007.  They can be summarized as follows:

The Construction Issue

(1) On the true construction of the JV Agreement, whether the obligation of Angola was to arrange finance for Zhong Xin or to provide direct capital injection;

(2) Whether by arranging the Loan Agreement, Angola has duly performed its obligations to inject capital of RMB20 million as required by the JV Agreement;

The Termination Issue

(3) Whether Angola was in breach of its obligation to transfer US$ equivalent to RMB20 million to Zhong Xin under Clause 2.2;

(4) Whether Angola was in breach of its obligation to pay the 2^nd RMB2 million and the RMB3 million to Bai Jun under Clauses 2.4 and 2.5. Conversely, whether Bai Jun was in breach its obligation to cause the mining, exploration and land usage permits to be issued to CLB within time under Clauses 2.5 and 2.6 and the implied terms in connection thereto; these affected the date of termination and the party in breach;

The Consequence Issue

(5) What are the consequences of the breaches or termination and, in particular, how much of the shareholding in Zhong Xin should remain with Angola—50%, 20% or 0%?

113.  As for Stage 3, the Angola Camp claims that the Settlement Agreement had the effect of preventing the Bai Jun Camp from pursuing its counterclaim in the present case.  The issues are:

(6) Whether the Settlement Agreement was backdated;

(7) Whether the Settlement Agreement was unenforceable for lack of actual or ostensible authority of Wang Li who purported to enter into the same on behalf of Bai Jun; and

(8) Whether the Settlement Agreement was unenforceable for being a breach of trust, dishonestly assisted by Angola and/or breach of contract procured by Angola.

114.  The issues relating to the Purported Capital Injection and Bai Jun’s claim under Clause 4.3 of the JV Agreement in Stage 2, and the issue of sham in Stage 3, no longer require adjudication. The PRC Court Sanctioned Settlement also becomes irrelevant (except on credibility) since Angola only relies on it to contend that Bai Jun has waived its claim under Clause 4.3.

D.  AN OVERVIEW OF THE CREDIBILITY OF WITNESSES

115.  Bai Jun Camp had only Gao as witness.  On their application, Zhang’s affirmation was adduced, with leave, under section 48 of the Evidence Ordinance, Cap 8, as he has taken no part in the present proceedings for a long time.  He has always been an opponent to the Bai Jun Camp in proceedings in Hong Kong and the Mainland.  It was not reasonable to expect the Bai Jun Camp to call him.

116.  Angola camp had Zeng and Li.  Chan’s evidence concerned resignation of Zhao and Ng as directors of Zhong Xin in 2008.  It was admitted without calling live evidence.

117.  There has been cross-examination of Gao and Zeng on the Stage 2 Issue.  I do not think it is fair to place weight on the answers when parties have agreed that Stage 2 was not in issue.  In any case, how I rule on Gao’s credibility as regards Stage 2 would not affect my overall decision on the Stage 1 and 3 issues.

118.  In assessing the credibility of each witness, I had regard to the contemporaneous documents or circumstances, and the inherent probabilities of his/her evidence.  That said, I regret to say that none of the live witnesses were entirely truthful or reliable.

119.  Gao was the only witness with first-hand knowledge of the circumstances relevant to the Stage 1 issues.  Her evidence was crucial to this case. 

120.  She was a highly educated business person and yet she appeared to be, without disrespect, naïve in the way she handled Zhao.  She did not do due diligence on him and his alleged funds before committing to the JV Agreement with him.  She at times gave lengthy answers under cross-examination, many of which were digressive to avoid answering.  It was particularly serious on Day 5 (7 March 2018).  I view her evidence with caution.

121.  As regards the Angola Camp, no person (not even Zhao and Ng who are parties) directly involved in the making of the JV Agreement gave evidence.  Zhao no longer has interest in these proceedings.  Zeng was not able to contact him. Angola Camp adduced hearsay evidence through Zeng and Li. 

122.  Zeng had no involvement in Angola until around October 2007, well after commencement of this action.  He (together with Li and Chan) acquired Angola and Achieve Goal.  He was obviously a businessman who relied on what Li told him. 

123.  Insofar as Zeng’s general credibility is of any relevance, he was evasive as well.  For example, he would not say what rights Zhao/Ng had obtained from injecting RMB20 million.

124.  He had been cross-examined as to whether or not he knew that Angola had terminated the JV Agreement.  However, such evidence was conduct subsequent to JV Agreement which should not be taken into account in construing the JV Agreement. 

125.  Zeng’s evidence mainly related to the Stage 2 issues, which are now out of the picture.  I have disregarded paragraphs 65 – 81 of Zeng’s witness statement and piecemeal cross-examination of him on matters in Stage 2 to assess the credibility of Zeng when Mr Dawes SC (very properly) did not go into it in re-examination.

126.  Zeng’s role in relation to the Stage 3 issues was limited as it was Li who conducted the relevant negotiations and signed the Settlement Agreement.  However, Zeng did provide some pieces of evidence useful to the determination of the genuineness of the settlement.

127.  Like Zeng, Li only became involved since about October 2007.  Li was not willing to give evidence until after much persuasion from Zeng.  The reason was obvious.  He knew he was not truthful or reliable and was completely shaken in cross- examination.  There were to many occasions, too many to list, when Li did not answer questions directly. At times, the Court had to ask him why he was so hesitant.  Plainly he was making up evidence as he went along.  These will be demonstrated under Stage 3.  Mr Dawes SC has carefully refrained from making comments on Li’s credibility in his closing submission.

STAGE 1:  THE JV AGREEMENT

E.  THE CONSTRUCTION ISSUE

E1.  Legal principles on construction

128.  In construing a document, the court seeks to ascertain the intention of the parties and does so by identifying the meaning of the relevant words.  A recent statement of principle can be found in Marley v Rawlings [2015] AC 129 at §19, Lord Neuberger:

“ When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party’s intentions.”

129.  The Court would not simply look at the words used, but also the relevant background and factual matrix.  This includes the purpose and object of the document.  As explained by Lord Hoffmann in Jumbo King Ltd v Faithful Properties Ltd(1999) 2 HKCFAR 279, at 296D–I:

“ The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used. but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what he parties meant, they have not expressed themselves very well. ‌…. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. … the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

130.  Context is the key to interpretation: Fully Profit (Asia) Ltd v Secretary for Justice(2013) 16 HKCFAR 351 at §15, Ma CJ:

“ The statements of principle in Investors Compensation Schemeand in Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed. It is in my view not particularly helpful in most cases to refer to the ‘ordinary and natural meaning’ of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary and natural meaning of words. The surer guide to interpretation is context.”

131.  Subsequent conduct of the parties is inadmissible to construe acontract: James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583at 603E, Lord Reid; SNE Engineering Co Ltd v Chim Kee Machinery Co Ltd CACV 101/2016 (unreported, 11 July 2017) at §52,G Lam J (sitting in the Court of Appeal).

132.  In construing a contract, no part of it should be treated as inoperative or surplus.  In Dŵr Cymru Cyfyngedig (Welsh Water) v Corus UK Ltd [2007] EWCA Civ 285, Moore-Bick LJ said at §13 that:

“ In my view what points most strongly to the conclusion that they intended clause 17 to have contractual effect is the very fact that they chose to include it in the Agreement. Surplusage is by no means unknown in commercial contracts, of course, but it is unusual for parties to include in the operative part of a formal agreement of this kind a whole clause which is not intended to have contractual effect of any kind. One starts, therefore, from the presumption that it was intended to have some effect on the parties’ rights and obligations.”

133.  If there are two possible constructions, the court is entitled to prefer the one which is consistent with business common sense: Rainy Sky SA v Kookmin Bank[2011] 1 WLR 2900 at §§29 and 30, Lord Clarke.

E2.  Parties’ respective case

134.  In the analyses below, all references to “Clause(s)” shall be to those in the JV Agreement save where otherwise specified.

135.  What divided the parties was the meaning of “融資投入” in Clause 1.2.  Was the obligation of Angola to provide direct capital injection to Zhong Xin (Bai Jun Camp’s case) or just to arrange finance for Zhong Xin(Angola Camp’s case), as consideration for 50% shareholding in Zhong Xin?

136.  There is no dispute that the Angola had never injected any money under Clause 1.2 towards Zhong Xin and did not intend to do so.  If Angola Camp’s construction is adopted, it meant that, by paying the 1^st RMB2 million for preliminary expenses, Angola had obtained 50% shareholding in Zhong Xin, when the forecast of profit of the Coal Mine just for 2004 was about RMB30 – 40 million.  Zhong Xin would bear       100% liability for the finance arranged by Angola.

137.  To construe 融資投入, I look at its context in the light of (i) the overall purpose of the JV Agreement; (ii) the similarities and differences in terminology between the Unsigned Agreement and the JV Agreement; (iii) the factual matrix leading to the Unsigned Agreement; (iv) the factual matrix leading to the signing of the JV Agreement; and (v) circumstances leading to the signing of the Loan Agreement.

E3.  Overall purpose of the JV Agreement

138.  The overall purpose of the JV Agreement was to determine the consideration for the transfer of 50% shareholding in Zhong Xin to Angola and to govern the obligations of each party to the Joint Venture.

139.  There was quite a clear division of obligations on the face of the JV Agreement.  Whereas Bai Jun was to provide the Coal Mine Project and services in connection to obtaining of government approvals and necessary certificates, Angola’s obligation was all in connection with the financial side. 

140.  There was a similar theme in terms of obligations when one looks at the Unsigned Agreement although the shareholding in Zhong Xin was 40:60 between Bai Jun and Angola.

E4.  The similarities and differences in terminology between the Unsigned Agreement and the JV Agreement

141.  In the Unsigned Agreement and JV Agreement, there were numerous terms to describe financial obligations:

Unsigned Agreement	JV Agreement
(a) 現金投入 (Clause 1.2), ie inject cash (b) 資產投入 (Clause 1.2), ie inject assets (c) 負責融資 (Clause 2.1), ie be responsible for arranging finance (d) 項目投入 (Clause 2.2), ie inject a project (e) 支付 … 前期費用 (Clause 3), ie pay … preliminary expenses	(a) 融資投入 (Clause 1.2) – the disputed term (b) 匯入 (Clause 2.2, 4.1), ie remit (c) 負責 … 費用 (Clause 2.3), ie be responsible for … fees (d) 支付 (Clauses 2.4 and 4.3), ie pay

142.  The differences in terminology apparently reflected different intentions.    With respect to Mr Chan SC, the words 融資 could not just be explained away by the fact that Angola was a BVI company which did not run any business or the amount involved.  Gao herself admitted in re-examination that 融資 could include raising a loan although it would be Angola’s liability.

143.  Bai Jun’s construction meant that the words “融資” in Clause 1.2 was surplusage.  The way in which Angola was to come up with the money was of no relevance to Bai Jun.  If Bai Jun was insistent that Angola should inject money and was not bothered as to the source of Angola’s capital, the JV Agreement could have used the other terms denoting injection of cash such as 現金投入, 支付, 負責. 

144.  On the other hand, if 融資 meant arranging finance, Clause 1.2 would appear to be inconsistent with Clause 2.2, which required Angola to remit cash.

145.  Mr Dawes SC submits that in law an obligation to pay a sum of money can be vicariously performed. Clause 2.2 alone only obligated Angola to procure a result, namely the transfer of money to Zhong Xin. This could plainly be done by causing a loan to be extended to Zhong Xin.  

146.  The principle of vicarious performance is stated in Chitty on Contracts, 32^nd ed, §§19-082 and 19-083:

“ A contracting party can in the case of many contracts enter into an arrangement by which some other person may perform for him, as far as he is concerned, the obligations of the contract, and the other contracting party will be obliged to accept that performance if it is performance in accordance with the terms of the contract. The contracting party will, however, be liable for any breach that may happen, and the other contracting party is not bound or,indeed, entitled to sue the substituted person for breach of contract,although there may, of course, be a remedy in tort, e.g. where the substituted person negligently damages or causes the loss of goods entrusted to him. This is technically known as vicarious performance, and it is ‘quite a mistake to regard that as an assignment of the contract: it is not’.” (underline added)

“ … An obligation to pay money can plainly be vicariously performed …”

147.  The rationale has been further explained in North v Brown [2012] EWCA Civ 223 where the contract provided for Mr Brown to make payments to Mrs Clothier.  The English Court of Appeal held that Mr Brown could perform by directing his company to do so.  That was because the very essence of money was that it was a depersonalised medium of exchange.  It was not dependent on the personality of whoever provided it.  The contract was one by which Mr Brown undertook to procure a result, namely, the transfer of money to Mrs Clothier.

148.  Where Angola’s obligation was to inject cash, I agree, of course, it was perfectly legitimate for it to get another entity (eg Angola’s sister company) to pay vicariously on Angola’s behalf.  The obligation to repay that sister company remained with Angola. Here, the obligation to repay the loan rested with Zhong Xin. Clause 2.2 also expressly required 甲方(Angola) … 匯入 instead of中信…匯入.     I doubt if North v Brown is applicable.

149.  Mr Chan SC puts forth several other reasons why the intention was for Angola to inject cash instead of arranging finance.  Firstly, he refers to the unchallenged evidence of Gao, which I accept, that the payment schedule of 10 working days was proposed by Zhao. Mr Chan SC submits that the schedule was tight and would hardly be enough to negotiate the terms of a loan.  This indicated Zhao’s intention and readiness to remit money. 

150.  With respect to Mr Chan SC, there was no evidence one way or another as to whether 10 days were too tight to arrange a loan.  The subsequent delay in procuring the Loan Agreement could not be used to support his contention that 10 days were too tight.

151.  Secondly, Mr Chan SC points out that the JV Agreement made a clear distinction between capital raising by Angola (“甲方……融資投入”) and by Zhong Xin (“中信礦業公司融資”).  Obtaining finance was one of the acts that required approval by 80% of the directors of Zhong Xin under Clause 3.  At the time the JV Agreement was made, Zhong Xin did not have any directors appointed.  It was hardly within the contemplation of the parties that Zhong Xin was to borrow before any director was appointed. 

152.  I am not troubled by this.  Appointments can be made quickly and on paper.  Mr Chan SC’s interpretation of 融資 in the phrase 中信礦業公司融資 plainly meant raising of loan.

153.  Thirdly, Mr Chan SC submits that the JV Agreement did not prescribe any key terms on the loan that Angola must negotiate for (such as duration of the loan, security, drawdown date) and had not reserved any power for Zhong Xin/Bai Jun to veto any stringent or unreasonable terms or deny Angola the right to the shareholding as a result. 

154.  Again, I am not troubled by this.  If Angola’s obligation was really to arrange finance, it was always up to Zhong Xin to negotiate the terms and decide whether to accept them.  If the terms of the loan were unreasonable, it would be up to Zhong Xin to veto it.  Bai Jun would have the right to terminate the JV Agreement for Angola’s breach.

155.  Fourthly, Mr Chan SC relies on Clause 4.3, which referred to the balance of the registered capital (ie RMB 30 million) of the Joint Venture Company.  This Clause stipulated for “甲方 …… 按期支付”, ie Angola had the obligation to pay on the due date, failing which Bai Jun shall pay in substitution (出資補上).  He submits that such obligation could not be discharged just by arranging finance for Zhong Xin.  With respect, I find no assistance from Clause 4.3 as it did not use the term 融資 but 支付, which meant payment of cash.  And Clause 4.3 did not cover the RMB20 million.

156.  I note that the JV Agreement was not professionally drafted but it contained significant terms of agreement between business persons.  The court will strive to ascertain its meaning, to make it workable, but without re-writing the agreement. 

157.  Adopting Mr Chan SC’s construction would give rise to surplusage of the term 融資.  On the other hand, Mr Dawes SC’s construction was perfectly workable and should be preferred.  Angola would arrange finance, subject to the power of Zhong Xin/Bai Jun to veto and ultimately the power of Bai Jun to terminate.  Clause 2.2 merely meant that Angola was to remit the loan it had arranged for Zhong Xin, in discharge of its obligation under Clause 1.2 to 投入.  The object of 投入in Clause 1.2 and 匯入in Clause 2.2 was the same Zhong Xin.  Such construction would not depart from the overall purpose of the JV Agreement and tallied with Gao’s own understanding of the term 融資.

E5.  Factual matrix leading to the Unsigned Agreement

158.  Gao accepted that the Unsigned Agreement tallied with her recollection of the terms of the document she and Zhao were then about to sign. 

159.  Clause 2.1 of the Unsigned Agreement provided that Angola was responsible for arranging finance of USD equivalent of RMB50 million as the registered capital of the SJV Company (負責融資相當於人民幣5000萬元的等值美元 … 部分用作合資公司註冊資本).  Under this Clause, there could be no doubt that Angola’s obligation was to arrange finance for the Joint Venture Company.

160.  The Unsigned Agreement was never signed but 60% shares in Zhong Xin were transferred to Zhao without a cent from him and based solely on “trust”.  The only thing done pursuant to the Oral Agreement was to set up Zhong Xin.  The Oral Agreement ended peacefully without funds raised and the shares were returned to Gao.

161.  The background to which Xie and Gao entered into the Oral Agreement with Zhao was strange.

162.  Gao and Xie were sophisticated business persons.  Gao possesses a PhD in economics and had conducted research at the University of Hong Kong.  She has had rich business experience in the Mainland, having worked with Hutchison Whampoa for 10 years.  She claimed to have set up over 100 Sino-foreign joint venture enterprises and had worked with people from corporate legal departments.

163.  Xie was the CEO of a large state-owned enterprise in the metals sector and the CEO of another large state-owned enterprise in the real estate sector.

164.  Zhao had no prior business relationship with Gao and Xie before they met in March/April 2004.  Yet Gao relied on his representation that he was a manager of several funds.  She had not done any due diligence as regards Zhao or the companies he named as fund providers.  She did not even inquire of the name of the funds he claimed to control.  She claimed to have asked Zhao for proof of funds but to no avail. 

165.  It is Bai Jun Camp’s own case that under the Oral Agreement, RMB2 million had to be paid by Bai Jun for progressing with various procedural matters relating to the Coal Mine Project.  Notwithstanding the concluded Oral Agreement, Gao said that Zhao only had an obligation to pay RMB2 million after signing the Unsigned Agreement.  Zhao never paid.

166.  According to Gao, despite her pressure in the months followingMay 2004, Zhao used all sorts of excuses not to sign the Unsigned Agreement. 

167.  In the meantime, Gao had gone on to push forward the Coal Mine Project which resulted in important agreements and documents being signed or obtained including but not limited to a valuation report of the Coal Mine dated 25 May 2004, the Reform and Expansion Agreement between Zhong Xin and Renmin Mine dated 29 July 2004 and a viability report 《常樂堡人民煤礦投資項目可行性分析報告》dated 30 July 2004. 

168.  Zhao eventually backed out after 4 months because of difficulty in arranging finance.  Gao still thought Zhao was an honest person although she had described him his conduct as child’s play (兒戲) when he failed to provide proof of funds.

169.  Mr Dawes SC submits that this set of circumstances would only make sense if one considered that Xie and Gao was in lack of funds.  Despite what Xie and Gao described to be a profitable investment, it was disclosed under cross-examination of Gao that there were in fact about 10 mines in the vicinity of the Coal Mine, all seeking investors.  Although this Coal Mine was of better quality (according to Gao) because of its potential in expanding the mining areas, there was still risk in investing money in it.  In fact, according to Gao’s WS, there were other mines of better quality or area. Plainly Xie and Gao did not want to invest their own money, sothey were keen for Zhao to raise capital by giving him as much as 60% shares.

170.  Whilst I am prepared to draw the inference that there was risk and Xie and Gao were not willing to invest their own monies if that could be avoided, I am not prepared to draw the inference that they were in lack of funds.  Their financial strength was not an issue raised in the pleadings or witness statements.  On the other hand, they had already invested time, effort and money since the government invited investment in the spring of 2003.  It was understandable that they would want to source for other capital.

E6.  Factual matrix leading to signing of the JV Agreement

171.  Gao said that in around November 2004, she had been in discussion with a number of interested investors, including Citic Pacific Limited, a Li Jinming from Wenzhou (not mentioned in Gao/WS) and a Dr Jiang (CEO of the Asian branch of a USA clean energy company).  Gao even said that she and Xie could have mortgaged their own properties to arrange for the first RMB20 million.

172.  Gao met Zhao by chance in November.  Zhao asked about the Coal Mine Project and expressed interest in joining again.  He apologized for backing out for lack of funds and told her that he had enormous funds in hand now, and more if necessary.  He even mentioned about injecting the Coal Mine into a US listed company to raise more capital.  Gao said if his capital was firm, she could still discuss cooperation with him. 

173.  Zhao said that Xie and Gao’s money was hard earned and using one’s own money was risky.  He said it was better for them to cooperate,using money from funds.  The Project could be quickly listed.  They should not aim at earning profits by substantive efforts in running a coal mine. 

174.  Gao claimed that her friend Dr Jiang got to know Zhao and his business partner Mu Xinming (“Mu”) of CMAC in November 2004.  Dr Jiang was invited to join CMAC as a Technology Director and he travelled to the USA to look at the operation of CMAC.  Dr Jiang somehow saw US$20 million in the books of CMAC on his trip and told Gao about itafter his return from the USA. She regarded Dr Jiang as a trustworthy person.

175.  Then, once again, without due diligence of Zhao/his funds, Gao and Xie committed Zhong Xin to an agreement with CIT and the JV Agreement with Angola.

176.  Mr Dawes SC’s (i) challenged the credibility of Gao; (ii) questioned the drafting of Clause 2.1; (iii) questioned the radical change in parties’ intentions in a few months; (iv) suggested that a reasonable investor would not make direct capital injection but would procure finance for a risky investment; (v) suggested that the share transfer could have taken place after funds were available if the obligation was to provide funds; (vi) questioned how the RMB50 million would be booked in Zhong Xin’s account.  I will analyse each of these in turn.

177.  Firstly, on credibility, Mr Dawes SC questioned why Gao would have entered into the JV Agreement without seeing proof of funds, similar to the time under the Unsigned Agreement.  She had not received the RMB2 million under the Unsigned Agreement.  On her own evidence, it was her lawyer friend who reminded her to get the 1st RMB2 million from Zhao under the JV Agreement and then Xie asked Zhao for it.

178.  Mr Dawes SC alsopoints out that this story about Dr Jiang’s association with Zhao was only first mentioned in Gao’s oral testimony.  Gao claimed that Zhao told her that Mu was in Beijing and was unable to sign and affix the company seal.  Gao accepted Zhao’s word. 

179.  The purported proof of funds (being a certificate dated 5 January 2005 from each of CMAC and Morgan Stern Merchant Bank Ltd and the bank account summary of CMAC) were only obtained after the JV Agreement was signed, after much pressing by Gao.  Ironically, CMAC’s certificate (and Morgan Stern’s too) did not bear the company seals. 

180.  When pressed further, Gao said that her understanding at that time was that the RMB20 million would not come from CMAC but from an unidentified fund controlled by Zhao.  Gao claimed to have no doubt on his source of funds because she “felt” he was in control or else he would not have said he would inject RMB20 million within 10 days and surely he would not commit the same mistake twice.  I find nothing in the evidence to support her feeling. 

181.  I reject Gao’s story about Dr Jiang’s relationship with Zhao.  Gao’s evidence boiled down to naïve trust in Zhao, and was incredible.

182.  Secondly, on drafting of Clause 2.1, it was suggested to Gao in cross-examination that the JV Agreement could have been drafted differently such that Zhao should pay the RMB20 million at the time of signing the same, so that Clause 1.2 would have been written eg as “甲方以相當於人民幣5000萬元的等值美元投入 [中信].”

183.  Gao asserted (for the first time in re-examination) that adding 融資before 投入was Zhao’s idea.  If so, it was all the more important to construe the JV Agreement so that 融資 would not be surplusage.

184.  She also said that the JV Agreement was based on the prior Unsigned Agreement with input from both sides and she had included 2 “preventive provisions”.  I will come back to these preventive provisions later in this Section.

185.  Thirdly, Mr Dawes SC submits that there was no reason why the intention of the parties under the JV Agreement departed so radically from their intention a few months ago under the Oral Agreement, such that Angola would undertake a much more burdensome obligation to provide money.  That was particularly so since (i) Angola would have a lower return under the JV Agreement in that it would only obtain 50% instead of 60% shareholding of Zhong Xin; and (ii) Angola had withdrawn from the Oral Agreement in September 2004 precisely because of lack of funds and difficulty in procuring finance.

186.  I agree. It was Gao’s own evidence in her witness statement that Zhao advised her that she should not earn profits by hard efforts.  It was incredible that Zhao himself would be ready to use his own hard cash.

187.  Mr Dawes SC submits that it must be closer to the truth that Gao and Xie were unable to source alternative funding for the Coal Mine Project given the risky nature of the investment.  Zhong Xin was of zero value as it had not yet obtained the 50% stake in CLB through capital injection; it had no collateral for obtaining a loan.  By November 2004, since Zhong Xin had committed to contractual obligations under the《中信礦業集團參與榆陽區人民煤礦改制擴建合同書》 with the Yulin Government to inject RMB50 million into the SJV Company, Gao and Xie were under pressure. In those circumstances, they approached Zhao again for cooperation, even if Zhao had disappointed them once by breaching the Oral Agreement.  I agree this was the more likely scenario than Gao just meeting Zhao by chance.

188.  Fourthly, Mr Dawes SC points out that investment in the Coal Mine Project was risky. The evidence of Gao showed that at the time prior to the JV Agreement, Shaanxi was a poor province.  The Coal Mine was one of many small-scale, state-owned, coal mines with problems of low production, low profit, safety hazards, and various problems with employees.   It was understandable that a reasonable investor would not be willing to make direct capital injection but prefer to procure finance for Zhong Xin.  The investor would then only indirectly bear the responsibility of repayment as the company’s shareholder.

189.  Mr Dawes SC submits that requiring Angola to procure finance was more consistent with business common sense.  His theme was that Xie and Gao did not own the Coal Mine but the Chinese partner did.  They simply found the investment opportunity and performed some “leg work” at the initial stage.  Gao claimed to have spent RMB10 million prior to the JV Agreement, which was not supported by documents and not mentioned in her witness statement.  Reciprocally, Angola would procure finance for Zhong Xin, which was crucial to the success of the Coal Mine Project.  The obligations of Bai Jun and Angola were “equal” in the sense that neither of them was required to invest real capital into the Joint Venture as consideration for their respective 50% shareholding.  They would, however, jointly bear any financial obligations undertaken by Zhong Xin as shareholders.

190.  With respect, Mr Dawes SC’s cross-examination of Gao on the existence of more than 10 coal mines competing for investors was not something raised in the pleadings or the witness statements and Gao did not have the opportunity to provide documentary evidence to the contrary.

191.  Gao claimed to have spent about RMB10 million before the JV Agreement was entered into.  That was in answer to a question from this court.  There was no documentary evidence as it was not an issue in the case but, as Mr Chan SC pointed out, Angola had in fact challenged Xie and Gao’s expenses.

192.  That money was spent on preliminary work was important.  There had been over 1 ½ years of liaison by Xie and Gao with the Chinese party and experts, feasibility study, training/reform of the system in the Coal Mine, etc and those required capital input.  They might not have spent RMB10 million but it would have been a significant amount of some millions.  Mr Dawes SC’s suggestion that Xie and Gao only did “leg work” and just found an investment opportunity was an understatement. 

193.  When Gao asserted that she and Xie could have raised a mortgage on their own assets, that was not challenged in the witness statements either.  

194.  In the light of these circumstances, I accept the submission in paragraph 188.  The inference I am prepared to draw is that Xie and Gao did not want to invest their own assets if they could have found other sources of capital.  Time was pressing in November because of their commitment to the Chinese side.  Whether they met Zhao by chance or by arrangement was irrelevant.  What was relevant was that they had not found better investment offers than those coming from Zhao.

195.  Xie and Gao had spent some millions.  Zhao would correspondingly provide RMB7 million and running expenses.  Requiring Xie and Gao to bear 50% of the financial obligations and Zhao to bear the other 50%, as shareholders of Zhong Xin, was in accordance with business common sense.  It tallied with Gao’s description of ensuring equal injection, equal shareholding, equal benefit, equal obligation, equal management and equal say on important matters in view of the need to get 80% board consent (§34(g), Gao’s WS).

196.  Fifthly, had Angola’s obligation been to provide funds, Mr Dawes SC submits that the share transfer ought to have taken place after the funds were available. Alternatively, a memorandum of understanding or letter of intent could be entered into to allow Angola to find funding and the JV Agreement signed when funds were available.  The injection could take the form of share allotment to Angola at a premium, or by way of sale of 50% shares of Zhong Xin to Angola at substantial consideration, followed by injection of the same by Bai Jun back into Zhong Xin. 

197.  With respect, these different manners by which Angola could have acquired shareholding in Zhong Xin was not explored in cross-examination.  I do not place much weight on them.

198.  Sixthly, Mr Dawes SC questions how the RMB50 million, being neither loan nor capital, would be booked in Zhong Xin’s accounts.  Again, this was not explored in cross-examination and I do not place weight on it.

199.  I now turn to Gao’s evidence.  Hers was direct evidence whilst Angola’s was necessarily based on inference.  That does not mean, of course, that the court is obliged to accept Gao’s evidence at face value.  The court applies the same principles in paragraph 118 above in assessing her credibility.

200.  It is important not to lose sight of the material changes from the Unsigned Agreement.  The reduction of Angola’s shareholding by 10% was one.  The structure of the provision of the RMB50 million was the other. 

201.  Because of the previous failure to cooperate, Gao included 2 “preventive provisions” not found in the Unsigned Agreement: 

(a) Zhao’s obligation was reduced to raising only RMB20 million in the first tranche with an exit provision if he could not do so.  It gave him more time to raise the balance.  This reduced amount was specified to be remitted by Angola under Clause 2.2.

(b) If the balance of RMB30 million was not available, Angola’s shareholding in Zhong Xin could be reduced accordingly.  Gaowas apparently confident that the Coal Mine profits could have generated enough to cater for the balance of RMB30 million.

202.  Plainly the initial focus was on the RMB20 million.  The timing for Angola to come up with capital under the JV Agreement was to ensure that Zhong Xin could meet its schedule for capital injection in the CLB JV Contract. 

203.  Mr Chan SC submits that it was unlikely that Bai Jun and Angola would be prepared to agree on terms that left it uncertain as to whether money could be available for capital injection; and to leave only a short 10-day period to negotiate for a loan.  I repeat that there was no evidence as to whether 10 days were long or short.  Given the lack of investors, Gao and Zhao had to live with that uncertainty.

204.  Further, as pointed out by Mr Chan SC, Angola and Zhao’s own pleading at §15 of the Points of Defence had undergone amendmentsthat were telling:

(a) On 8 April 2008, Angola’s pleaded case was that its obligation was “to use its best endeavours to procure the necessary finance in the sum of RMB50 million to be provided to Zhong Xin.” At that time, the Rules of the High Court did not require a statement of truth.

(b) On 3 June 2009, its amended case was that “Zhao (through a corporate entity later known as Angola) would pay a sum by way of direct capital injection into the said Coal Mine Projects via a joint venture vehicle (later known as Zhong Xin)”  (underline added).  This plea was verified by a statement of truth signed by Zhao and Li.  Zhao was then still participating as a party.  He was involved in both negotiating the Unsigned Agreement and the signing of the JV Agreement.  It was not clear why Li signed.  That plea stood a month before the Original Trial.

(c) In November 2015, apparently following Angola’s discovery of the Unsigned Agreement 3 months before, the newly pleaded case was that:

“ Angola would be responsible for the procurement of financing equivalent to USD equivalent of RMB50,000,000 part of which would be used as the registered capital of the PRC entity;” (underline added) (§15(c))

For unknown reasons, this amended version was neither verified by Zhao nor Li.

205.  Even without the Unsigned Agreement, I agree with Mr Chan SC that it was inconceivable that Zhao would have got his obligation wrong in version (b); and no one had ever explained why Zhao got it wrong.  However, this criticism fell away as a result of Gao’s confirmation of the terms of the Unsigned Agreement.  With new owners of Bai Jun involved, it is important to ascertain the true intention of the parties at the time of the JV Agreement.

206.  However, Mr Chan SC invited this court to consider: if Zhao really believed that Angola’s obligation was to procure finance, why did he procure Gao to sign the Loan Agreement in such a fraudulent way?  This leads to the next sub-issue.

E7.  Circumstances leading to the signing of the Loan Agreement and Xie and Gao’s subsequent reaction

207.  The Loan Agreement was signed in circumstances of fraud and conspiracy according to Gao.  Mr Dawes SC submits that these circumstances were relevant to setting aside of the Loan Agreement, which has become irrelevant as a result of the discontinuance of the original action by Achieve Goal.  They are irrelevant to the construction issue and reliefs sought by Bai Jun relating to the Loan Agreement.

208.  I agree, but those circumstances do have the effect of putting a party’s credibility in doubt. 

209.  Angola Camp’s case is that the Loan Agreement represented performance of its obligation to arrange finance under the JV Agreement.  Gao signed the board minutes dated 7 February 2005 authorizing the loan (“the Board Minutes”).  She made no complaint in solicitors’ correspondence except to state that the loan came in late.  The inference was that she knew that Angola’s obligation was just to procure a loan.

210.  Gao’s evidence was that she was informed by Zhao on 5 February 2005 that funds were available and she should go to Hong Kong to sign the relevant documents.  When she arrived on 7 February, she was told that Zhao was not available and was given the board minutes dated 7 February 2005 (‘the Board Minutes”) to sign.

211.  Gao called Zhao on that day and Zhao made 2 fraudulent misrepresentations to her: namely, that (i) Angola did not have the necessary resources to inject into Zhong Xin (“1^st Representation”); and (ii) Angola located an “outside source” to advance a loan of HK$20 million (“2^nd Representation”).  Bai Jun’s case is that these Representations were to induce Bai Jun to agree to the purported Loan Agreement and to advance Angola Camp’s construction of the JV Agreement.

212.  Zhao promised that it was only a temporary measure and he would repay the loan shortly when his funds could be ready.  Gao requested Angola to borrow over the phone but Zhao said that Angola did not have shareholding in CLB to provide security for a loan.  Gao simply accepted Zhao’s explanation without query.  Ironically, the Loan Agreement entered into by Zhong Xin was not secured by any collateral provided by Zhong Xin.

213.  It turned out that HK$13 million of the “loan” came from Angola’s bank account and the other $7 million from the personal account of Ng.  Angola and Achieve Goal were closely related at the time of the signing of the Loan Agreement in that:

(a) Ng and Zhao had been appointed by Angola to act as Zhong Xin’s directors under the JV Agreement since 30 December 2004;

(b) Ng became a 50% shareholder and director of Achieve Goal since 14 February 2005;

(c) Achieve Goal became a shareholder of Angola on 14 February 2005;

(d) Ng became the indirect shareholder of Angola through Achieve Goal on the same date;

(e) Zhong Jian became 50% shareholder and director of Achieve Goal on 14 February 2005; he signed the Loan Agreement on behalf of Zhong Xin as directed by Ng and Zhao;

(f) Ng effectively took over the entire control of Angola shortly thereafter in 2005 through a trust document dated 6 June 2005;

214.  In fact, when Zeng and Li acquired Angola, they acquired both Angola and Achieve Goal together from Zhao and Ng on 26 October 2007.  Zeng also testified that as far as he understood, “Achieve Goal and Angola were the same thing”; that they were both Ng and Zhao’s companies and he could not tell the difference between them.  He understood both companies to be controlled by Ng.

215.  The 1^st Representation was false because Angola did have funds available for injection into Zhong Xin.  The 2^nd Representation was false because Achieve Goal was not an outside source separable from Angola. 

216.  The Representations were discovered to be false only at the end of 2005 and early 2006.  Bai Jun’s solicitors wrote to Angola’s about this discovery on 13 February 2006.  Shortly thereafter on 21 March 2006, Achieve Goal amended its statement of claim so that the plea that it “advanced a sum of HK$20,000,000.00” was amended to “caused a sum of HK$20,000,000.00 to be advanced” to Zhong Xin.

217.  Around the time of the Original Trial, Achieve Goal discontinued its original claim for recovery of the loan.

218.  Mr Chan SC submits that, for 8 years, no evidence had been adduced to rebut Gao’s WS dated 15 July 2009, for use in theOriginal Trial.  I thus proceed with my analyses on the premise that the Representations were false.

219.  This experienced business lady did not consider if Zhao was,once again, engaged in child’s playin failing to inject cash.  She did not exercise her right to terminate pursuant to Clause 4.1.  She signed the Board Minutes without even seeing a draft loan agreement.

220.  I accept that she had no choice (there being no other investors) because the time was pressing and the urgency was orchestrated by Angola.

(a) The deadline for verification of capital of CLB was within one month after CLB’s establishment on 18 January 2005: Clause 12 of the CLB JV Contract. 

(b) There was a statutory deadline requiring capital injection within one month after its incorporation, ie 18 February 2005.

(c) The auditor’s capital verification report of CLB stated the deadline to be 21 February instead.  Without the RMB20 million, the so-called Joint Venture Company should be deregistered in a month’s time, according to the oral evidence of Li. 

The slight discrepancy in dates was not material but the Chinese New Year was in between the date of incorporation and deadline for capital injection.

221.  However, Gao accepted that an application to extend the time to contribute the capital could be made to the relevant authority by making use of Clause 1 of the Supplemental SJV Agreement.  Clause 1 provided that Zhong Xin could make the capital contribution of RMB20 million within 60 days from the date of “the agreement”.

222.  Gao gave inconsistent answers as to whether the 60 days started to count from the date of this Supplemental SJV Agreement (5 February 2005) or the original CLB JV Contract (12 December 2004). 

223.  In my view, as a matter of construction, the 60 days should be counted from 5 February 2005.  This was because the Supplemental SJV Agreement made a distinction between 協議 which was the Supplemental SJV Agreement (eg in its preamble, Clauses 1, 2, 5, 9, 10 and 11) and 合資經營合同 which was the CLB JV Contract (eg in the preamble and Clause 9).

224.  The preamble to the Supplemental SJV Agreement made clear that this Agreement was to provide for matters not covered by the CLB JV Contract, ie to provide for the time for Changle I&T to inject assets as capital and it should be counted from the date of the Supplemental SJV Agreement.

225.  Clause 3 of the Supplemental SJV Agreement provided that “甲方 (ie Zhong Xin) 在確認上述所有資產進入合資公司的同時”, Zhong Xin had to transfer the equivalent of RMB20 million into the share capital account of the Joint Venture Company.  The control over time was with Changle I&T and not Zhong Xin.  (As a matter of fact, Changle I&T completed the asset injection before 20 February 2005, as recorded in the capital verification report.) 

226.  In fact, in her oral evidence, Gao had said that this clause was included in the Supplemental SJV Agreement to cater for the possibility that the money promised by Zhao might come only after Chinese New Year.

227.  Anyway, whilst Gao admitted that it was possible, she said it was not desirable to make use of the Supplemental SJV Agreement to seek extension of time from the PRC authority to inject capital.  Reasons had to be given and there was not sufficient reason at that time.  However, I am unable to find any clause in the Supplemental SJV Agreement which required the provision of reasons. 

228.  Not only that.  Given that Zhao has failed her a second time, Gao had not seen fit to mortgage her properties to raise the RMB20 million.   Although Chinese New Year was approaching, there was nothing to stop her from at least trying to apply for a short extension from the Chinese side and apply for a mortgage.  She did not do so.

229.  She had not turned to Mr Li Jinming from Wenzhou.  She explained that she had turned him down when she decided to cooperate with Zhao and Angola, so it would be difficult to ask him for help at that juncture.  I am unable to believe that she had turned down Mr Li Jinming when she had never seen proof of funds from Zhao.  Mr Li Jinming probably never existed or offered terms worse than Zhao’s.  Gao simply had no other potential investor in hand

230.  More importantly, Gao did not put her present complaints about Angola’s breach in writing between early February and May 2005: 

(a) Gao and Xie met Zhao and Ng a number of times in Beijing, Shenzhen and Hong Kong between 5 March and May 2005.  None of the documents allegedly containing Gao’s complaints to them have been adduced.  Gao did not even identify the kind of documents involved though pressed.

(b) Zhao’s promise to repay was never recorded.

(c) He had allegedly told Gao on 18 February 2005 that a tripartite repayment agreement could be made among Zhong Xin, Achieve Goal and Angola to resolve the matter.  The draft of that agreement was discussed on 5 March 2005 in another meeting right after the board meeting of Zhong Xin on that date.  However, that draft agreement was not produced in the evidence and the meeting was not recorded in writing.  When pressed as to why not, Gao seemed to suggest that the meeting actually did not take place (“我們3 月5 號就想找他們坐下來談，但是他們說太晚了。因為還有中方從榆林趕過來的人，他們還要吃飯喝酒。”).  Gao took Mr Dawes SC around in circles during his cross-examination on items (a) to (c) on Day 5. 

(d) Although by May 2005, Gao and Xie had understood that Zhao and Ng had forced her in unreasonable circumstances to sign the Loan Agreement with harsh terms (see below in this sub-section), the very first solicitor’s letter dated 18 May 2005 issued to Angola made no such allegation and made no complaint about the Loan Agreement.  She made no mention about the “tripartite agreement”.  Instead, Bai Jun’s complaints were (i) the failure to remit the RMB20 million on time (which she testified to be a “slip” in writing), as to which Bai Jun did not intend to take further action; and (ii) the failure to pay the RMB2 million pursuant to Clause 2.4. The letter mentioned Angola’s stance that its obligation under Clause 1.2 was to arrange finance for Zhong Xin and yet Gao’s side did not refute that stance.

(e) It was only in its statement of claim in HCA 1284/2005 dated 6 July 2005, that Bai Jun first alleged that Zhao was to inject cash.

231.  In the light of such circumstances, Mr Dawes SC submits that Gao and Xie would not have agreed to the Loan Agreement if Angola had the responsibility to provide cash capital.  He also queried why the Board Minutes had to spell out that the loan was arranged by the shareholder Angola (“在本公司股東Angola Group Holdings Limited 的安排下”) but for the fact that that was precisely Angola’s duty.  I agree.

232.  On the other hand, Mr Chan SC raised several queries to the conduct of Angola:

(i) Why did Zhao have to get Gao to sign the Loan Agreement in the bizarre circumstances?

(ii) Why was the Loan Agreement on such harsh terms?

(iii) Why did Zhao have to use false Representations?

233.  First query: the circumstances of signing were bizarre. Gao was not told about the loan before coming to Hong Kong.  She was not even shown a draft loan agreement when she was asked to execute the Board Minutes.  She was merely given a preliminary draft upon request and that draft was not even attached to the Board Minutes. She was effectively deceived into signing the amendment to the Board Minutes (to change the lender from Sunspring to Achieve Goal) after 9 days on the misconception that a draft loan agreement was ready to be discussed.  After she had signed the amended resolution, she was given the Loan Agreement which was already signed.

234.  Even accepting this to be true,I find it hard to imagine that she would have committed herself to signing documents, the contents of which were unknown to her.

235.  Then the Loan Agreement was signed with no proper authorization from Zhong Xin:

(1) The Loan Agreement and drawdown notice were signed by Zhong Jian on behalf of Zhong Xin.  He was the brother in law of Zhao and held no position in Zhong Xin.

(3) The Board Minutes did not constitute sufficient authorization of the Loan Agreement in that it was against Clause 3.2 of the JV Agreement, which required consensus of 80% or more directors before a loan in the name of Zhong Xin may be executed.  Only 3 out of 4 directors signed that resolution without prior discussion.

I accept that this was bizarre.

236.  Second query: the Loan Agreement was in very harsh terms.  It was hard to imagine that Bai Jun (or a proper board of Zhong Xin) would have accepted them but for the pressing circumstances, the false Representations and lack of other investors.

237.  The loan tenure was 12 months.  This short tenure could hardly enable the Coal Mine to expand its productivity and earn profit soon enough to repay the loan.   Declaration of dividends would require the co-operation of the Chinese party to the CLB Joint Venture and Zhong Xin would not have control over that.

238.  Next, Article 6A.01 of the Loan Agreement required Zhong Xin to “procure to obtain the following to the satisfaction of [Achieve Goal] within sixty (60) days from the date of this Agreement” failing which the entire amount of drawdown shall be kept intact and Zhong Xin had to immediately repay the loan (Articles 6A.02, 03):

“ (a) Issuance or government approval for the issuance of exploration rights (探礦權) of 2.86 km² and 8.68 km² mining areas to the PRC Project Company;

(b) Transfer of 4 km² mining rights (採礦權) from Yulin Renmin Coal Mine (榆林人民煤礦) to the PRC Project Company without any third-party encumbrances or interests;

(c) Transfer of all the land usage rights held by Yulin Renmin Coal Mine (榆林人民煤礦) to the PRC Project Company without any third-party encumbrances or interests; and

(d) Transfer all the buildings, equipments, mining facilities and other assets held by Yulin Renmin Coal Mine (榆林人民煤礦) to the PRC Project Company without any third-party encumbrances or interests.” (underline added)

239.  Such conditions were much more stringent that those in the JV Agreement, in particular:

(i) Only 60 days as opposed to 90 working days were provided for the transfer of the various rights (Clause 2.5 of the JV Agreement);

(ii) The rights that had to be obtained within the specified period were much more extensive, including the exploration rights for an additional 8.68 km², the land usage rights, and the assets of Changle I&T (Clause 1.6 of the JV Agreement).

(iii) Article 6A.02 provided that the loan “shall be kept intact” unless and until Article 6A.01 was fulfilled.  In fact, the loan had to be utilized for CLB to obtain the mining permit and exploration permit.  Article 6A.02 was self-defeating.

240.  Still further, Article 6A.04 provided for a pledge of Zhong Xin’s shares in CLB as collateralized equity, which would enable Achieve Goal to effectively take over the entire 70% shareholding in CLB upon failure of any of the most stringent conditions.

241.  Achieve Goal (related to Angola) was to receive commission of RMB600,000 under the Loan Agreement, something not contemplated by the JV Agreement. All in all, the only entity that would obtain any benefit from the harsh Loan Agreement was Achieve Goal/Angola.

242.  Third query: why did Zhao have to use false Representations instead of properly proposing a loan to Zhong Xin?  If his obligation was to procure finance, he could have legitimately used his corporate vehicles as lenders.  And yet little time was given to Gao and a valid board to consider.

243.  It was plainly a conspiracy among Angola, Achieve Goal, Zhao and Ng to defraud Bai Jun Camp and lure it to enter into the Loan Agreement.  Zhao had wanted to get the best of everything – from 50% shareholding in Zhong Xin to the handling fee under the Loan Agreement and rights as creditor upon Zhong Xin’s default in repayment of the harsh loan. 

244.  The deceptive circumstances in which the Loan Agreement was entered into was in line with Zhao’s philosophy that using one’s own money was risky and to force her to accept bizarre terms. They formed one of the many factors to be weighed against a host of other factors that pointed away from Gao’s interpretation of Clause 1.2.

245.  Mr Chan SC also relies on the fact that out of 5 directors sent by Zhong Xin into CLB, it was agreed between Angola and Bai Jun that 3 were to be from Angola and 2 from Bai Jun; and the CFO was nominated by Angola.  It was strong indication that Angola was concerned with the usage of money which was actually out of its own pocket.

246.  I place little weight on this because Xie was then the legal representative in charge of the bank accounts.  He equally had control over the usage of money.

247.  However, the burden remains on Gao to satisfy the court as to the proper interpretation of the JV Agreement.  The circumstances in Section E7, even if admissible, created more doubts on her credibility than enhance it.

248.  Having regard to the analyses in Section E and construing Clauses 1.2 and 2.2 in the context of the JV Agreement the factual matrices, Mr Dawes SC’s construction was logical and workable.  融資 under Clause 1.2 would not be surplusage and must have meant the same as under the Unsigned Agreement, ie that Angola’s obligation was to arrange finance instead of injecting cash.

E8.  Estoppel / Waiver

249.  I just deal with this defence in case I am wrong in my finding as to Angola obligation.  Angola Camp’s case is that the Bai Jun Camp was estopped from insisting that Angola should invest its own monies in Zhong Xin or had waived the right to insist on such investment. 

250.  Three elements are necessary to establish estoppel or waiver:

(a) A clear and unequivocal representation by words or conduct by the promisor to the promisee that he (the promisor) would not enforce or exercise some legal rights;

(b) Reasonable reliance by the promisee on the representation; and

(c) That it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.

See Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1 at §55; Hua Tyan Development Ltd v Zurich Insurance Co Ltd (2014) 17 HKCFAR 493 at §18; Chitty, at §§24-007, 008

251.  Detriment was unnecessary to show reliance.  It was enough if the promisee has altered his position in reliance on the promise so that it would be inequitable to allow the promisor to act inconsistently with it, eg if the promisee has forborne from taking steps that he would otherwise have taken to safeguard his legal position, or if he has performed, or made efforts to perform the altered obligation: Chitty, at §4-095.

252.  Mr Dawes SC submits that by virtue of Gao’s endorsement of the Board Resolution without any complaint and utilizing the RMB20 million, Bai Jun had made an unequivocal representation (by conduct) to Angola that procuring a loan for Zhong Xin would be sufficient performance of Clauses 1.2 and 2.2 of the JV Agreement.  In reliance on Bai Jun’s representation, Angola had altered its position by procuring the loan from Achieve Goal instead of investing its own money.  It would be inequitable for Bai Jun to act inconsistently with the promise.  

253.  In my view, the plea of estoppel / waiver can be dismissed outright.  From the above analyses in Section E7, it lies ill in the mouth of Angola Camp to say that it was inequitable for it to go back on the false Representations that it made.

E9.  Finding on the Construction Issue

254.  I find in favour of Angola – that its obligation under the JV Agreement was to arrange finance.

F.  THE TERMINATION ISSUE

F1.  Each party’s case on termination of the JV Agreement

255.  On Bai Jun Camp’s case, the termination was by letter issued by its solicitors on 22 June 2005; or on 6 July 2005, at the latest, when the writ of summons in HCA 1284/2005 was issued.   By that letter, Bai Jun Camp purported to accept Angola Camp’s repudiation of the JV Agreement.  The alleged relevant breaches of the JV Agreement were: (a) failure to provide the 1^st capital instalment of RMB20 million or to do so in time; and (b) failure to pay the 2^nd Payment of RMB 2 million.  Either breach would give Bai Jun a right to terminate pursuant to Clause 4.1.

256.  On Angola Camp’s case, the termination was by letter on 10 October 2006 when it purported to accept the repudiation of the Bai Jun Camp: (a) in making the wrongful claims in HCA 1284/2005 based on the assertions in the preceding paragraph; and (b) delay in obtaining the mining permit, the exploration permit, and the land usage rights.

257.  I shall deal with each of the alleged breaches in turn.

F2.  Whether Angola was in breach of its obligation to provide the 1^st capital instalment of RMB20 million to Zhong Xin

258.  Having regard to the analyses in Section E on the Construction Issue, I find that Angola’s procurement of the Loan Agreement was due performance of its obligation, but it was in breach of Clause 2.2 in being out of time. 

F3.  Whether Angola was in breach of its obligation to pay the 2^nd RMB2 million to Bai Jun and RMB3 million to Bai Jun under Clauses 2.4 and 2.5

259.  There is no dispute that CLB only obtained the mining rights of the 4 sq.km coal mines on 28 March 2005 and the 2^nd Payment was payable then.  Angola did not pay.  Its defences were:

(a) Bai Jun had failed to discharge the obligation of obtaining mining rights within 90 working days under Clause 2.5.  By reason of that breach, Bai Jun was liable to pay liquidated damages in the sum of RMB2 million pursuant to Clause 4.2.  There would be a legal set-off against the liability to pay the 2^nd RMB2 million under Clause 2.4.

(c) Bai Jun was in breach of an implied term to procure the transfer of land usage rights referred to in Clause 2.6 of the JV Agreement within a reasonable time (the “Implied Term”). 

These defences are dealt with individually below.

F4.  Whether Bai Jun was in breach of its obligation in causing the mining permit to be issued within time

260.  Angola Camp averred that as the JV Agreement was based on Hong Kong law, the Hong Kong calendar applied.  The mining permit was obtained one working day late. 

261.  On the other hand, Bai Jun Camp averred that based on the Mainland calendar, it was within time. Further, Bai Jun claimed that the JV Agreement was actually signed on 21 December 2004 but back-dated to 1 December.  Counting from 21 December, the mining permit was obtained within time, whether based on the Hong Kong or Mainland calendar.

262.  As a matter of legal principle, it should be ordinarily presumed that language is used consistently within the four corners of an agreement: Interactive Investor Trading Ltd v City Index Ltd [2011] EWCA Civ 837 at §29 per Tomlinson LJ.

263.  The JV Agreement was governed by Hong Kong law.  I agree with Mr Dawes SC that the definition of “working day”, ie a non-holiday, must be determined in accordance with the Schedule to the General Holidays Ordinance, Cap 149. 

264.  The JV Agreement referred to working days in various clauses, eg Clause 2.1 (completion of legal formalities of Zhong Xin in respect of its shareholding) and Clause 2.2 (remittance of money into Zhong Xin’s account). The performance of Clauses 2.1 and 2.2 shall take place in the BVI (as Zhong Xin is a BVI company) and Hong Kong (as Zhong Xin’s account was maintained at HSBC Hong Kong) respectively.

265.  “Working day” should have a consistent meaning in all clauses of the JV Agreement pursuant to Hong Kong law and should not depend on where performance of a clause was to be carried out.  Otherwise this would lead to a difference in meaning within Clause 2.

266.  I do accept Gao’s evidence that the JV Agreement had been backdated because it tallied with the circumstances then:

(a) Clause 1.5 of the JV Agreement (which effectively recited the key contents of the CLB JV Contract signed on 12 December 2004) suggested that the JV Agreement was only signed subsequently;

(b) The date of signing was mentioned as early as in the letter from Bai Jun’s solicitors dated 18 May 2005 (within 5 months of the JV Agreement).  It was before any complaint of delay in obtaining the mining permit was ever raised.  Angola had not denied that signing date in any contemporaneous reply.

267.  Parties are free to backdate a contract such that it can take effect retrospectively: Northern and Shell Public Limited Company v John Laing Construction Limited [2002] EWHC 2258 (TCC) at §§38 and 40; affirmed by the English Court of Appeal in [2003] EWCA Civ 1035, 19, 23, 51, 52.  The backdating therefore would not assist Bai Jun Camp.

268.  In any case, Bai Jun previously admitted in §12 of its Reply and Defence to Counterclaim in HCA 1284/2005 that the mining permit was not issued within 90 working days of the JV Agreement. 

269.  Accordingly, counting from 1 December 2004 (date of the JV Agreement), the mining permit was obtained one day out of time.  Bai Jun was in breach of Clause 2.5.

270.  Under Clause 4.2 of the JV Agreement, breach of Clause 2.5 would entitle the innocent party to liquidated damages of RMB2 million but not to terminate the JV Agreement.  Angola could have applied the liquidated damages receivable to set off its liability to pay the 2^nd RMB2 million. Angola was not in breach.

F5.  Whether Bai Jun was in breach of the Implied Term to obtain the land usage rights

271.  Clause 2.6 of the JV Agreement provided that:

“ 2.6 乙方承諾合資公司獲得的有關採礦權，探礦權及土地使用權的有關權屬證書都已得到有關政府部門的審核通過，不存在任何潛在的糾紛或被有關部門罰處的風險。” (underline added)

272.  Angola Camp pleaded that it was a fundamental term of the JV Agreement that Bai Jun must procure the transfer to CLB the land usage rights referred to in Clause 2.6 within a reasonable time or else the mining operation would be illegal.  It was a condition precedent to the performance by Angola of its further obligations under the JV Agreement.

273.  Angola Camp pleaded that the 2^nd RMB2 million was not payable prior to the termination of the JV Agreement (whether it took place on 22 June 2005 or 10 October 2006) as the land usage rights were indisputably only obtained by CLB on 16 June 2017. 

274.  There is no dispute that in order for a term to be implied into a contract, the following conditions must be satisfied: 

(a) It must be reasonable and equitable;

(b) It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(c) It must be so obvious that "it goes without saying";

(d) It must be capable of clear expression; and

(e) It must not contradict any express term of the contract.

Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381, §59, Ribeiro PJ.

275.  An implication is necessary in order to give effect to the reasonable expectation of the parties: AG of Belize v Belize Telecom Ltd [2009] 1 WLR 1988at §23 per Lord Hoffmann.

276.  The expert reports on Mainland law were adduced without cross-examination of the experts and there was no substantial dispute on the law.  Non-registration would not affect validity of the agreement to transfer the land but the title may be affected.  Invalid transfer carried the serious legal consequences of re-entry by the Mainland government and demolition of facilities built on the land.

277.  Apart from expert evidence, Angola Camp has not put forth evidence in support of the existence of the Implied Term.  To the contrary, Gao had described in detail about how the land usage rights were obtained (Gao’s WS, §§158 – 170).  She stated that The People’s Coal Mine has all along been in production.  The relevant land had been injected into the Joint Venture and the consideration for the transfer of the land had been paid.  Angola had assigned Wang Xinsheng and Zhang to apply for the land usage rights.  However, they had not proceeded with it expeditiously but created crisis for CLB’s operation.  In the meantime, Xie was purportedly removed as legal representative; Gao and Xie were imprisoned.  The National Land Resources Department (國土資源部) and Treasury had dispute as to who should receive the consideration for the transfer, which was eventually settled.  Gao’s evidence on these aspects was not disputed by Angola Camp.

278.  No one could deny the importance of the land usage rights.  Despite the expert evidence, I find that the Implied Term defence has no merits:

(a) On a proper construction of Clause 2.6, the warranty of clean title only applied to land usage rights already obtained.

(b) The Implied Term contradicted the clear timetable laid down in the JV Agreement for payment of the 2^nd RMB2 million (and the RMB3 million).

(c) There were 3 types of land related rights, ie the mining right, exploration right and land usage right.  Clause 2.5 of the JV Agreement stipulated the deadline for completion of legal procedure as regards the first two rights.  However, no deadline was prescribed for the land usage right.  Such differential treatment evinced a clear intention of the parties not to impose a deadline for transfer of the land usage right.

(d) The Implied Term was never raised before any court action.

(e) In §13(b)(c) of Angola’s defence and counterclaim in HCA 1284/2005 filed on 5 October 2005, a different implied term was pleaded to the effect that Bai Jun had to properly account for how the sums previously paid by Angola under Clause 2.4 were used before Angola was obliged to pay further expenses.  That pleading mentioned nothing about the Implied Term.

(f) It was not until 3 June 2009 (about a month before the Original Trial) when the previous implied term was deleted that the Implied Term was pleaded for the first time.  I agree with Mr Chan SC that the Implied Term could not be reasonable, necessary or “went without saying”, when it only first occurred to the pleader and Angola 3+ years since the dispute had arisen.

(g) There could not be any dispute that Changle I&T was the original land owner and was contractually bound to transfer the land usage rights to CLB.  CLB could occupy and has lawfully occupied the land as owner or (if the transfer was not complete) as licensee of Changle I&T.  The Implied Term was not necessary to give business efficacy to the JV Agreement.  In fact, CLB had been enjoying the land usage rights in substance for over 13 years free from challenge.

279.  I hold that the Implied Term did not form part of the JV Agreement.  Bai Jun was not in breach of its obligation to obtain land usage rights.

F6.  Whether Angola had failed to pay the 3^rd Payment of RMB3 million; conversely, whether Bai Jun was in breach of its obligation in causing the exploration permit to be issued within time

280.  There is no dispute that CLB only obtained the exploration rights of the 2.86 km coal mines on 21 December 2005, much beyond 90 working days, however one were to compute those days.  Clause 2.5 would have entitled Angola to liquidated damages of RMB2 million for Bai Jun’s delay in performance. 

281.  Angola had to pay RMB3 million but never did.  Even applying the damages in set-off, Angola had still failed to pay RMB1 million.

282.  The RMB3 million would not be an issue if the court finds that the JV Agreement was terminated by Bai Jun on 22 June 2005, since the condition to pay was not fulfilled prior to that date.

283.  However, if the JV Agreement was terminated on 10 October 2006, on Angola Camp’s case, the court would still have to consider whether the sum was payable prior to termination on that date. 

284.  Gao avers (Gao’s WS, §§70 – 75) that the delay was caused by Angola’s obstruction, which led to (a) the freezing of CLB’s account in August 2005; and/or (b) the false letter allegedly issued by Wang to the bank in June 2005 (though the only letter produced by Gao was dated 9 August 2005).  CLB’s account was only freed on 21 October 2005.  

285.  Mr Dawes SC submits that Gao failed to explain why these had anything to do with the failure to procure the exploration permit within 90 working days, ie by 24 March 2005 (on Angola’s computation) or by 10 May 2005 (on Bai Jun’s computation).

(a) Gao alleged that payment could be made to 陝西省地質礦產勘查開發局 (the transferor) after the valuation report of the exploration rights was filed with 陝西省國土資源廳 on 5 April 2005.  However, this could not be done because of the false rumour spread by Wang in the office of CLB between April to June 2005 that Ng was the real owner of the RMB20 million and that only Ng could use it. It was difficult to understand how that could have stopped CLB from making the payment when, on Gao’s own evidence, Xie kept the chop of CLB’s bank account at least prior to June.  (Gao’s WS §§69 – 70)

(b) Gao further claimed that if she were to prove Angola’s obstruction between April and June 2005, she had to bring maybe 100 bundles of documentary proof.  Nothing close to that has been produced in the evidence.

(c) It was put to Gao that there was a dispute between CLB and the transferor on the valuation of the exploration rights as shown by the letter dated 4 August 2005 from 陝西省國土資源廳to CLB and that was the real reason for the delay.  She tried to explain that away by claiming that the dispute was due to the new valuation method promulgated by the State after April 2005; and since CLB did not pay immediately after 5 April 2005 (due to Angola’s obstruction), the transferor requested the exploration rights be re-valued according to the new method. However, the letter clearly stated that the change in valuation method took place in 2004.  Gao’s explanation was incredible.

286.  Further, although Gao was keen to put the blame on the freezing of CLB’s foreign currency account caused by Wang, it was clear that prior to the unfreezing of the account on 21 October 2005, payment had already been made to the transferor; and the joint application of the transferor and CLB to transfer the exploration rights had been approved on 14 October 2005.  See the approval letter from 陝西省國土資源廳探礦權轉讓審批通知書 dated 14 October 2005. 

287.  I find that Bai Jun had no valid cause for the delay in obtaining the exploration rights.  It had to pay the liquidated damages but Angola was still in default as to RMB1 million.

F7.  What was the date of termination and who was in breach as at that date?

288.  From the analyses in Section F above, the only breach that Bai Jun could rely on to terminate was delay in arranging the Loan Agreement under Clause 2.2.  Failure of Angola to pay the RMB 1 million under Clause 2.5 would not entitle Bai Jun to terminate but only damages.

289.  However, instead of instant termination of the JV Agreement, Bai Jun gave 2 chances to Angola to remedy the breach:

(a) In the first solicitors’ letters dated 18 May 2005, Bai Jun just to give a serious warning and demanded that there should not be similar occurrences in future.  Bai Jun expressly stated that if in future cooperation there was the same or similar problem of delay in making capital available, Angola had to bear all responsibility for financial loss directly or indirectly arising from it.  That letter went on to ask for injection of the 2^nd RMB 2 million. Angola did not reply.

(b) On 31 May 2005, Bai Jun’s solicitors raised, amongst others, the issue of delay in performance of Clause 2.2 which caused the “costs of investment” of Bai Jun to increase and failure of Angola to pay the 2^nd RMB 2 million.  Again, the solicitors went on to demand for payment of that RMB 2 million.  They threatened legal action. Angola did not reply.

290.  Then came the solicitors’ letter of 22 June 2005.  Bai Jun relied on the breaches set out in the previous 2 solicitors’ letters.  This time, Bai Jun purported to accept Angola’s termination.

291.  One asks rhetorically, how could that delay be remedied?  Zhong Xin had already utilized the funds and shareholding in CLB had been acquired.  Angola could not even offer to pay RMB 2 million as remedy for the delay because the obligation to pay liquidated damages under Clause 4.1 only arose upon termination (同時).  Bai Jun had not told Angola what the increase in costs of investment was (even at the trial) to enable Angola to give any remedy.

292.  Mr Dawes SC points out that at one stage Bai Jun Camp pleaded that they abandoned the claim for Angola’s 50% shareholding in Zhong Xin and affirmed the JV Agreement: §7(h) of the defence and counterclaim. That state of pleading had stood from October 2006 to the Original Trial in 2009, when the proceedings were stayed.  The present pleading of Bai Jun Camp has deleted that plea.

293.  In my view, Bai Jun’s deleted plea indicated that it did not truly rely on delay in performance as a ground to terminate. 

294.  I find that Bai Jun had no valid ground for termination on 22 June 2005.  Bai Jun’s wrongful termination entitled Angola to terminate on 10 October 2006 (“the Termination Date”).

G.  THE CONSEQUENCE ISSUE

295.  It follows that apart from RMB1 million to be paid by Angola, the rest of Bai Jun’s counterclaim should be dismissed.  The following discussion on the Consequence Issue is on the premise that I have erred in finding Angola’s obligation was to arrange finance and/or that Bai Jun did not have a valid cause to terminate on 22 June 2005.

G1.  Each party’s case on the consequence issue

296.  The pleaded case of Bai Jun Camp (PoC §6(d) is that Angola’s entitlement to any shareholding in Zhong Xin was “dependent and conditional” upon (a) its making the RMB20 million direct capital injection under Clause 2.2; and (b) each and every payment under Clause 2.4. Accordingly, upon termination, Bai Jun was entitled to claim back for Angola the 50% shareholding of Zhongxin and liquidated damages, Bai Jun made no submission as regards unliquidated damages.

297.  On the other hand, Angola Camp contended that this was not a case of total failure of consideration.  Clause 4.1 of the JV Agreement expressly provided for the consequences of Angola’s breach, which was “termination” (終止) of the contract (instead of rescission or revocation), plus mandatory compensation of RMB2 million.  With this express term providing for the consequences of breach, there was simply no room for restitution of the shares in Zhong Xin. 

298.  In any case, Mr Dawes SC submits that the breach in failing to provide capital injection of RMB20 million would only sound in damages, quantified at RMB29.7 million, being the sum that Bai Jun Camp injected into CLB on behalf of Zhong Xin.  That was the extent of Bai Jun’s loss in ensuring that Zhong Xin received the intended benefit of the bargain which Angola had promised but failed to deliver.  But it surely has no claim on the shares. 

G2.  Legal principles on rights upon termination

299.  Unlike cases of mistake, fraud or lack of consent, termination of a contract on acceptance of renunciation does not render it rescinded ab initio.  The more exact description of the position is that the injured party is thereby absolved from future performance of his obligations under the contract.  Even so, rights which have already been unconditionally acquired are not divested or discharged.  Chitty, at §§24-049 and 24-053:

“ It has become usual to speak of the exercise by one party of his right to treat himself as discharged as a “rescission” of the contract. But, as Lord Porter pointed out in Heymans v Darwins Ltd:

‘To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligations under the contract is a more exact description of the position. Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect.’” (at §24-049)

“ Although both parties are discharged from further performance of the contract, rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. Where, at the time of discharge, money is due under the contract by the innocent party but that sum remains unpaid, the innocent party is not required to pay that sum if it would then be recoverable by him in a restitutionary claim (for example, on the ground that there had been a (total) failure of consideration). Otherwise, the innocent party can retain or recover sums paid or due before the time at which the repudiation is accepted by him and may maintain an action for damages in respect of any cause of action vested in him at that time.” (emphasis added) (§24.053)

300.  This particular paragraph was cited from McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477.  In the same judgment, Dixon J went on to say that:

“ It does not, however, necessarily follow from these principles that when, under an executory contract for the sale of property, the price or part of it is paid or payable in advance, the seller may both retain what he has received, or recover overdue instalments, and at the same time treat himself as relieved from the obligation of transferring the property to the buyer. When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor’s promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract. ‘The very idea of payment falls to the ground when both have treated the bargain as at an end; and from that moment the vendor holds the money advanced to the use of the purchaser’ (Palmer v. Temple). In Laird v. Pim, Parke B. says: ‘It is clear he cannot have the landand its value too’; the case, however, was one in which conveyanceand payment were contemporaneous conditions (see Laird v. Pim). It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract (Mayson v. Clouet).”

301.  The above passage was expressly followed by the Hong Kong Court of Final Appeal in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234, 260 – 261 which commented as follows:

“ 58. Such recoverability [of a deposit] has been explained on the basis that such advance payments are impliedly conditional on the contract being completed. [McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, p 477 was cited.]

59. His Honour added:

‘The right so to recover it is legal and not equitable.  It arises out of the nature of the contract itself.’ (p.479)”

302.  Mr Chan SC relies on the principle at common law that where the buyer repudiates his obligation under the contract or commits a fundamental breach, the seller is entitled to terminate the contract and to deal with the goods or land as their own: Benjamin’s Sale of Goods,10^th ed, §15-105.  With respect, this principle does not in any way undermine the principles in the preceding paragraph. 

303.  Termination for breach has to be distinguished from termination for total failure of consideration.  An innocent party is only entitled to restitution in the latter scenario, ie complete failure of the performance for which the payer had bargained: Chitty, at §29-017.  If even a very small part of the benefit which formed the basis for the payment has been conferred, no action will lie: Goff & Jones, The Law of Unjust Enrichment, 9^th ed, at §§12 – 16.

304.  The failure is judged from the payer’s point of view. Any performance of the actual thing promised, as determined by the contract, is fatal to recovery under this heading: Chitty, at §29-057.

305.  Failure of basis must not be confused with receipt of benefit.  The transferor may receive a benefit from the transferee, but it does not follow that the basis for the transfer has, therefore, been satisfied.  The benefit must be what was understood to be the basis of the transfer.  Receipt by the promisee of something which the promisor did not promise will not prevent a total failure of consideration.  See Goff & Jones, §13-07.

G3.  Rights of Bai Jun upon termination

306.  Clause 4.1 only provided for liquidated damages for failure to comply with Clause 2.2 in relation to the capital.  Did that bar a claim for return of shares?

307.  Clause 1.2 defined the consideration for the shares.  Angola has not suggested that transfer of 50% shareholding to it before its performance was for free.  Otherwise, Clause 1.2 would be surplusage.  I agree with Mr Chan SC that Angola’s 50% shareholding was conditional upon performance of the obligation (be it direct capital injection or arrangement of finance) in respect of the RMB20 million, the most fundamental obligation of Angola.

308.  However, I cannot accept Mr Chan SC’s contention that the 50% shareholding was conditional upon every payment under Clause 2.4. The RMB 7 million was a relatively small amount for specified operational purposes and did not form part of the consideration for the shares. They did not go to the “root” of Angola’s obligation.  

309.  If Angola had paid RMB20 million, and if Mr Chan SC was correct, did it mean that upon a single failure to pay eg RMB 2 million, Angola had to return the shares instead of just paying liquidated damages?  If so, how much of the shareholding had to be returned?  These questions need not be answered for their obviously absurdity.

310.  In my view, insofar as the obligation relating to the RMB20 million was concerned, Clause 4.1 was intended to compensate Bai Jun for monetary losses arising out of non-payment, short payment or delayed payment.  The RMB20 million was supposed to be provided within 10 working days.  The loss arising from such breach could be quickly ascertained and RMB2 million was considered to be reasonable compensation at the time of signing the JV Agreement.  In principle, Clause 4.1 did not exclude the remedy of return of the shares in an appropriate situation.

311.  The next question is whether there had been total failure of consideration.  Mr Dawes SC submits that there had not been, for 2 reasons:

(a) Angola had paid the 1^st RMB2 million to Bai Jun; and

(b) Angola had caused RMB20 million to be remitted to Zhong Xin’s account, without which Zhong Xin simply could not have got its shareholding in CLB.

312.  With respect, I am unable to accept contention (a).  I repeat paragraphs 308 and 309.

313.  As for contention (b), whilst the loan was not what Bai Jun contracted for, the very purpose of the joint venture was achieved when Zhong Xin applied the money to obtain shareholding in CLB.   Bai Jun enjoyed the same shareholding if Angola had performed its obligation of injecting cash. 

314.  Bai Jun had never returned or caused Zhong Xin to return the RMB20 million.  Bai Jun suffered “reflective loss” as a shareholder of Zhong Xin in having to shoulder 50% of the liability under the loan.  In that respect, Bai Jun may have a cause of action to set aside the Loan Agreement as at the Termination Date, but that is now water under the bridge.

315.  I accept contention (b) and hold that any failure of consideration was not total. Bai Jun cannot get back the shares.

316.  Then Bai Jun queried what percentage of shares Angola could retain—50% or 20%?  The answer is found in the structure of payments of the consideration—in 2 stages under Clauses 2.2. and 4.3. 

317.  Upon the first payment of RMB20 million, Bai Jun would have rights as a 50% shareholder until the time came for payment of the remaining RMB30 million.  If, eg, Zhong Xin had declared a dividend before the termination of the JV Agreement, I have no doubt that Angola would have got 50% of it.

318.  On its plain wording, Clause 4.3 did not govern rights arising from payment of RMB20 million.  What it did was to give Angola an option to pay the remaining RMB30 million.  If Angola had paid, it could have kept its 50% shareholding.  If it had not and Bai Jun had, Angola’s shareholding would be diluted to 20%. 

319.  Having abandoned its case on Stage 2, Bai Jun Camp could not revive Clause 4.3 to say that by its injection (through Clarigain) of the remaining RMB29.7 million into Zhong Xin, Angola’s shareholding had been diluted.  This was because the Termination Date came earlier than the due date for Angola to exercise its option under Clause 4.3. 

320.  Bai Jun has not made submission on its damages claim, whether for misrepresentation or rescission, apart from the RMB 2 million liquidated damages.

321.  In summary, I hold that Bai Jun is not entitled to return of the shares upon termination for breach.  Angola should pay RMB1 million to Bai Jun, being the balance of the RMB3 million after setting off liquidated damages of RMB 2 million. The rest of Bai Jun’s claim is dismissed.  Angola’s counterclaim under the JV Agreement is also dismissed.

STAGE 3:  THE PURPORTED SETTLEMENT

H.  WHETHER THE SETTLEMENT AGREEMENT WAS BACKDATED—EVENTS LEADING TO ITS SIGNING

H1.  Relevant background

322.  Shortly before the Original Trial was due to start on 22 July 2009, Angola Camp issued a summons on 3 July 2009 to amend its pleading.  Angola Camp purported to introduce a new defence that its dispute with Bai Jun Camp had been settled by the Settlement Agreement dated 20 May 2009, which had been sanctioned by the PRC Court on 29 June 2009. 

323.  The Settlement Agreement was purportedly signed by Wang Li on behalf of Bai Jun and Li on behalf of Angola.  Bai Jun Camp disputed its existence and enforceability on the grounds that:

(a) The Settlement Agreement was most likely signed after 29 June 2009 but back-dated to 20 May;

(b) It was invalid and unenforceable for lack of (actual or apparent) authority of Wang Li, to the knowledge of Angola Camp;

(c) It was a breach of trust and/or procurement of breach of contract, dishonestly assisted by Angola Camp.

324.  Xie and Gao were kept in the dark in respect of the settlement and so their position was really to attack the credibility of Angola’s case.  In this respect, they resorted to Zhang’s affirmations.

H2.  Zeng’s evidence

325.  Zeng’s knowledge of the settlement either came from the documents he read or was based on what Li told him.  Zeng confirmed that the various negotiations leading to the Settlement Agreement and the PRC Court Sanctioned Settlement were conducted by Li on behalf of Angola Camp.  Zeng was not personally involved except for 2 telephone calls:

(a) A call with Zhang in April 2009 wherein Zhang suggested that Bai Jun and Angola should settle.  Zhang wanted to acquire both entities and he said he would look for Gao to have a comprehensive settlement. Zeng asked Zhang to look for Li. 

(b) A call with Li in which Li sought his approval of the main terms of the Settlement Agreement before it was signed.  According to Zeng, one of the terms he approved over the phone was that for the subsequent RMB 30 million capital injection, Angola would make the injection first and Bai Jun would repay RMB 15 million afterwards.  That was different to Clause 1.3(5) in the Settlement Agreement which provided for Angola and Bai Jun to each inject 50%.  Zeng tried to argue that they were the same.  Anyhow, this telephone conversation did not mention the Mainland Proceedings or the intended PRC Court Sanctioned Settlement.

326.  Zeng could not recall when he first saw the Settlement Agreement.  Overall, his evidence carried little weight as far as the date of signing of the Settlement Agreement was concerned.

H3.  Li’s evidence on how the Settlement Agreement came into existence

327.  Li was a Mainland lawyer and the key witness who had negotiated and signed the Settlement Agreement on behalf of Angola Camp and the subsequent PRC Court Sanctioned Settlement.  His credibility was crucial. 

328.  Yet Li’s WS spent only one paragraph about how the Settlement Agreement came into existence.  He claimed to have talked to Wang Li and Zhang (separately) about the Settlement.  He said after several talks with Wang Li, the Settlement Agreement was signed.  He gave no details about the process except to name 2 hotels.  He made a blank denial of knowledge of the dispute between Xie and Gao and new shareholders of Bai Jun.  He claimed he only knew that the registered directors of Bai Jun were Wang Li and Lu Ying; and Xie and Gao were neither shareholders nor directors.  He did not say what type of letter of authorization was produced by Wang Li and Lu Ying to the PRC Court for the PRC Court Sanctioned Settlement.

329.  At this trial, Angola had to rely on Li’s affirmations filed in support of the application to stay these proceedings.  Those affirmations were made by Li in his capacity of a director of Angola.  Li described 7 important stages of negotiations and settlement (“the 7 Major Events”)which led to the Settlement Agreement.

330.  It turned out that Li was wholly shattered in cross-examination.  He was evasive and utterly unreliable.  He had lied to this court and failed to make disclosure of the truth to the PRC Court. 

H4.  Li’s lie on affirmation

331.  Li-3^rd, Li-4^th and Li-5^th [1] were all made within 2 months of the purported date of the Settlement Agreement when memory of events would have been still fresh in Li’s mind.

332.  Li-3^rd dated 8 July 2009 was the very first affirmation made by him on behalf of Angola and Zhao to adduce the Settlement Agreement. Li stated that he was a “director” of Angola. 

333.  That statement was a lie because, indisputably, pursuant to the SPA/Angola signed on 30 May 2009, shares in Angola had been transferred to Zhang; and by a board resolution dated 10 June 2009, Zhang took up directorship in the place of Zeng, Li and Chan.  This was confirmed by Li in his oral evidence as soon as Mr Chan SC referred to Li-3^rd. 

334.  According to Li, there were 2 sets of documents so that if Zhangcould not make payment within 2 months, the shares and directorship would be reverted to Zeng, Li and Chan.  Zhang did become the sole director and shareholder of Angola until the position was reversed, allegedly, on 5 October 2009.  But whichever way one looked at things, Li-3^rd was filed within those 2 months.

335.  When cross-examined on his statement of directorship, Li’s answer was, “This question, I am not in a good position to answer.” He obviously knew he had no explanation for the lie.

336.  Then Li tried to proffer some justification for not disclosing the true position of the transfer to and possible re-transfer from Zhang and the position of directorship:

(a) The true position was not disclosed to third parties so that Zeng, Li and Chan could present to the outsiders that they were still directors “on condition that Zhang did not oppose.”  That was out of concern that Zhang might not be able to pay.  That was made clear to Zhang on 30 May 2009.  The irresistible inference of this answer was that Li’s intention was to make a false representation of directorship to outsiders, including the Hong Kong court and PRC Court.

(b) According to Li, though Zhang had not yet paid up for the transfer, it had no bearing on Li’s presentation of himself as a director and exercise of his rights as a director.  The agreement between them was confidential and Zhang “agreed totally to that”.  With respect, if Zhang had so agreed, there was no need to execute the formal SPA/Angola at all.  Even if the shares were transferred to Zhang, Li could have remained as a director pending payment by Zhang. 

(c) Li then asserted that the need to transfer the shares and directorship of Angola to Zhang before full payment was to enable Zhang to show it to his funder.  In my view, this assertion contradicted sub-paragraph (a) above because that would mean Zhang could disclose to a third party funder.

(d) What was more telling was that Li went on to say that the intention was not to keep it confidential against all, but some parties only, especially not to make known that fact to Bai Jun.  He said there were some (unidentified) documents to be signed in Hong Kong, especially documents about litigation and Zhang knew about that.  This was not credible, for it was Angola’s case that by the time of the share transfer, the Settlement Agreement had already been signed and there was no further document pending signature by Bai Jun or Angola when Li‑3^rd was filed.  There could be no other reason why Bai Jun had to be singled out from disclosure except to harm Bai Jun or Xie and Gao. 

(e) When questioned as to why Bai Jun was not told about the arrangement, Li said that he did not know whether Wang Li knew about the transfer of Angola’s shares on 30 May 2009 to Zhang.  Li gathered that there must be communication between Zhang and Wang Li because Zhang was minded to have global acquisition.  This answer of Li was simply incredible.  In view of the global acquisition, there was all the more reason for the arrangement to be disclosed to Bai Jun/Wang Li.  This would prevent Zhang from agreeing to any unfavourable terms with Bai Jun which Zeng, Li and Chan might have to bear when Zhang could not pay the price for the transfer.  Li had to say that it was his speculation and he was not certain.

(f) Li subsequently offered yet another reason for the non-disclosure of the true directorship—that there might be an issue of representation before the PRC Court:

“We still hoped that Shaanxi Higher People’s Court could conducta hearing concerning that Settlement Agreement. Had we told Bai Jun, at the time of the court hearing in Shaanxi Higher People’s Court, whether it was Zhang who represented Angola or us who represented Angola?”

However, Li could not explain why Angola could not tell the Shaanxi HPC the true arrangement.

(g) In fact, Li’s evidence jumped between (i) admitting that the PRC Court Sanctioned Settlement was approved without full disclosure to the Shaanxi HPC of the change in ownership and directorship of Angola; (ii) asserting for the first time in the witness box that Judge Zhang was told that they had settled and that they “might be” settling and they “might be transferring the shares”; and (iii) that Li did not see the point about telling the PRC Court about the transfer and possible re-transfer of ownership.

(h) Anyway, by the time of filing Li-3^rd, the PRC Court Sanctioned Agreement had already come into being.  Any issue of representation before the Shaanxi HPC no longer existed.  The suggestion that Li could still claim to be a director of Angola in Li-3^rd could not hold water. 

337.  It was evident from the preceding paragraph that Li was making up lie after lie as he went along in the witness box.

H5.  Li’s questionable account on affirmation as to the 7 Major Events

338.  Li-4^th effectively recorded the 7 Major Events in reply to Gao’s challenge on affirmation as to the authenticity of the Settlement Agreement:

Table of 7 Major Events

	Time	Persons involved in meeting	Contents of meeting	Location	Remarks
1	19.2.2009	Li as director of Angola and Wang Li as director of Bai Jun	Angola and Bai Jun to withdraw all litigation in Shaanxi and HK; global settlement	Shenzhen Shangri-la
2	20.2.2009		Issued draft of Settlement Agreement		Did not sign this time
3	20.4.2009	Zhang and Li as director of Angola	Discussed withdrawal of proceedings by Angola and Chinese party CLB	Xi’an
4	22.4.2009	Zhang and Gao	Global settlement of Angola and Bai Jun, including Gao	Beijing	No agreement reached
5	19.5.2009	Li as director of Angola and Wang Li as director of Bai Jun	Global settlement after meeting	Xi’an
6	20.5.2009	Li as director of Angola and Wang Li as director of Bai Jun			Signed Settlement Agreement
7	10.6.2009	Zhang, Wang Li and Li	Negotiated global withdrawal of proceedings by Angola and Bai Jun	Hong Kong	Met solicitor Anthony Siu

H5.1.  1^st and 2^nd Major Events

339.  Li-4^th and Li’s testimony showed that there was a draft prepared by Li before the Settlement Agreement was signed.  Such draft was sent out to Wang Li by email.  However, such draft was never mentioned by Zeng, nor disclosed by the Angola Camp.

H5.2.  3^rd and 4^th Major Events

340.  Li-4^th claimed that discussions in the 3^rd and 4^th Major Events were for the purpose of withdrawal of proceedings by Angola Camp and Bai Jun.  However, that was inconsistent with §18(3) of Li’s WS, which said that the discussions were for the sale and purchase of Angola’s interest in Zhong Xin.

341.  Li's WS tallied with the common ground that the SPA/Angola was entered into on 30 May 2009. In fact, Gao confirmed that in April, Zhang had intended to acquire the entire shareholding of Zhong Xin from all parties interested, including Angola, Keeneye Group, Gao and Xie.  For that purpose, Zhang had talked to Gao.  The intentions were reflected in the lawyers’ correspondence in that period.

342.  Li himself recognized that it was an important stage of negotiation and settlement—to obtain consent from Xie and Gao to reach a global settlement.  Li himself admitted under cross-examination that he learnt from Zhang that Zhang would see Gao with a view to acquisition of her shareholding; and that it was possible that there was a settlement of the Shaanxi HPC litigation.

343.  I find it to be more probable that the 3^rd and 4^th Major Events were for the purpose of Zhang’s acquisition of Gao’s shareholding.

H5.3.  5^th and 6^th Major Events

344.  Li-3^rd claimed that the Settlement Agreement was signed by the parties in Xi’an on 20 May 2009 after extensive discussion between Li and Wang Li. 

345.  Li-4^th listed all locations where other Major Events took place but it was silent as to the location of signing of the Settlement Agreement.  This silence was deafening, as pointing to the truth that there was no settlement or that the Settlement Agreement was not signed on 20 May 2009.

346.  Mr Chan SC pointed out that in written form there was no mention of contact with Wang Li but only several telephone calls in April 2009.  Li only first mentioned a meeting in April on the second day of his evidence.

347.  Li further testified that he had stayed in Xi’an for about half a month and met Wang Li 2 – 3 times.  He produced some receipts of a Xi’an hotel, where he claimed the signing of the Settlement Agreement took place. 

348.  I find that Li was embellishing the evidence as he went along so as to make up the location of signing a Settlement Agreement.

349.  I will deal with the 7^th Major Event, an event subsequent to the signing of the Settlement Agreement, in Section J2 below.

H6.  Li’s attempt to conceal the role of Zhang in the settlement

350.  Li-4^th claimed that the discussions in May 2009 for global settlement were only between Li acting on behalf of Angola and Wang Li on behalf of Bai Jun.  Li said it did not include Zhang.

351.  However, it was common ground that by 16 May 2009, Zhang had already signed the Liu-Zhang Agreement to acquire Bai Jun.  Zhang was thus the beneficial owner of Bai Jun.

352.  According to Zhang-1^st filed on 21 January 2012, Zhang had started negotiation with Zeng, Li and Chan right after he had acquired shareholding in Bai Jun “to seek global settlement”.  The result was the signing of SPA/Angola two weeks later.  Zhang affirmed that he “would become the person representing both Bai Jun and Angola.  Accordingly, there should no longer be any disputes between the two companies and the disputes could therefore be settled.”

353.  It was impossible that in between the 2 sale and purchase agreements, Zhang was not involved in any discussions leading to the Settlement Agreement.  In fact, §6 of Zeng-5^th admitted that “by around mid-May 2009, all parties (ie Mr Zhang, Mr Liu and myself) had already agreed on the terms of the global settlement in principle.”  And one would remember that Li instead of Zeng was personally involved in the negotiation.  Thus, Zhang’s version in the preceding paragraph was probably true.

354.  In Li-5^th, Li said that Zhang was present during the negotiation as a witness to the signing of the Settlement Agreement on 20 May 2009.  Having confirmed the contents of Li-5^th in the witness box, Li testified that he did not really remember whether Zhang was present or not because Zhang was not a party to the settlement.  Li went on to say that he felt Zhang was not really a witness, as a witness would have to sign on the document.

355.  The following series of questions and answers demonstrated Li’s evasiveness:

“ Ct: Why was the name of a witness not on the Settlement Agreement?

A: Because in that period it was possible for Zhang to be in Xi’an. But even though this concerned him, it was a settlement between Bai Jun and me to confirm the validity of that Settlement Agreement. It should be made a decision of the Shaanxi Higher People’s Court.

Ct: Precisely, to give more weight, shouldn’t you ask Zhang to sign as a witness. That was the whole purpose of getting a witness.

A: Because even at Shanxi Higher People’s Court, parties needed to re-sign.

Ct: By all parties of the litigation?

A: All parties.

Ct: Including the witness?

A: No, Zhang represented Changle I&T.

Ct: That’s not a reason not to ask him to sign on 20 May.

A: I felt that his being a witness was not important to us.

Ct: Why get him there when he was not a party and of no importance?

A: I didn’t invite him; Wang did.”

Such evidence could not explain why Li, then with fresh memory of the settlement, chose to describe Zhang, on oath, as a witness.

356.  Ironically, if it was really Wang who invited Zhang to be a witness, Zhang’s affirmation corroborated it. As stated in Li-1^st, §8, it was Zhang who instructed Wang Li to sign the Settlement Agreement on or about 21 June 2009.

357.  Zhang also stated that the Settlement Agreement was backdated to 20 May at the request of Li.  Zhang had already been in control of Bai Jun since 16 May 2009.  There was no reason why he had to say on oath that the Settlement Agreement was backdated if that was not the case. 

358.  When Zhang’s assertion of backdating was pointed out to Li, Li said he could not remember if Zhang was there at all or whether Zhang played any role in the Settlement Agreement at all. Li just did not deny the back-dating. 

359.  I find that Li was simply lying to conceal the role of Zhang in the settlement and his knowledge of Zhang’s beneficial ownership in Bai Jun. I also find that Zhang probably had told the truth about backdating. The earliest date on which the Settlement Agreement could have been signed by Wang Li was 21 June 2009.

J.  WHETHER THE SETTLEMENT AGREEMENT WAS BACKDATED—EVENTS SUBSEQUENT TO ITS SIGNING

360.  Subsequent events showed that the Settlement Agreement could not have been signed on 20 May 2009.  They included: (i) the SPA/Angola; (ii) the 7^th Major Event; (iii) inaction in implementation of the Settlement Agreement; (iv) the PRC Court Sanctioned Settlement; (v) Angola’s summons to amend pleadings; and (vi) non-disclosure of the Settlement Agreement to solicitors.

J1.  SPA/Angola dated

361.  It was Angola Camp’s case that the intention of Zhang was to acquire both Angola and Bai Jun to achieve an overall settlement of all disputes in relation to the Coal Mine.  Yet the terms of SPA/Angola dated 30 May 2009 showed that the Settlement Agreement could not have come into existence 10 days before:

(a) Recital 1 stated that Achieve Goal still held the loan against Zhong Xin.  Similarly, clause 9 confirmed the existence of the debt, although it was described as a debt owed by Gao and Xie to Achieve Goal.  These provisions should not have been there if the Settlement Agreement had already been signed because the latter had provided in clause 1.3(5) that this loan inclusive of interest would be repaid by Angola.

(b) Clause 5 stipulated that Zeng, Li and Chan (Party A) should cooperate with Zhang (Party B) to sign a settlement agreement with Bai Jun.  This clause would have been unnecessary if the Settlement Agreement had already been signed.

362.  In respect of (a), Li agreed that the loan of RMB20 million would not have existed after the Settlement Agreement as there was a simple settlement of account between Angola and Achieve Goal.  He tried to argue that the existence of the debt was uncertain because the Settlement Agreement had an effective period of 3 months.

363.  However, clause 5 of the Settlement Agreement effectively allowed the Settlement Agreement to operate so long as Angola was willing to perform; and it had always been Angola’s case that it was willing to perform. For example, so long as one party had made an application to the PRC Court for settlement, clause 5 would extend the time for performance of this agreement indefinitely.  I reject Li’s argument.

364.  In respect of (b), Li testified that the settlement agreement to be signed referred to the PRC Court Sanctioned Settlement.  This could not be correct when one bore in mind that it was Li (a PRC lawyer) who drafted both the Settlement Agreement and the SPA/Angola.

(a) The PRC Court Sanctioned Settlement was, according to Li, a term of art that referred to settlements reached upon mediation by the PRC court. 

(b) The Mainland Proceedings were mainly concerned with the dispute between Changle I&T and Zhong Xin.  Any settlement to be signed in respect of those proceedings would not be with Bai Jun only.

(c) For the same reason, one would expect the Settlement Agreement to be referred to as an agreement made by the parties to the dispute before the Shaanxi HPC.

(d) If, by the SPA/Angola, Zhang had in effect control over Angola and the Settlement Agreement had been signed, it was difficult to envisage a situation whereby Zeng, Li and Chan had to cooperate with Zhang to sign a settlement agreement with Bai Jun.

(e) Most if not all of the matters mentioned in clause 5 requiring cooperation of Zeng, Li and Chan involved Bai Jun.  The requirement for cooperation would make sense if Zhang did not want Gao and Xie to know about his acquisition of Angola and Bai Jun, and Zeng, Li and Chen knew about Zhang’s intention.  This also explained why Li tried to conceal Zhang’s role in the settlement.

J2.  The 7^th Major Event

365.  This referred to a meeting on 10 June 2009 amongst Zhang, Wang Li and Li when they met the solicitor, Anthony Siu, in Hong Kong.  That was also the day when Zhang became a director of Angola.

366.  This meeting was not referred to in either Zeng’s WS or Li’s WS.  According to Li’s oral evidence, what occurred at that meeting was recounted in the letter dated the following day from Wang Li to Anthony Siu. There were 2 pertinent matters in that letter: 

(a) The recital to the letter stated,

“ 根據我公司 (ie Bai Jun) 和ANGOLA GROUP HOLDINGS LIMITED的會談結果，雙方同意對2004年12月1日簽署的《合作協議書》的全部爭議以和解方式解決，即本公司不再以出資問題減持ANGOLA的股份，雙方互不追究違約責任和出資責任。”.

There was no reference to the Settlement Agreement, nor was a copy provided to Anthony Siu. 

(b) Clause 2.1 of the Settlement Agreement stated,

“ 甲方 (ie Bai Jun) 撤銷蕭一峰律師行在香港訴訟案件的全部代理權，保證百浚在香港撤訴和訴訟接管人案件的順利進行”

Contrary to this express provision, Wang Li positively instructed Anthony Siu to continue to represent Bai Jun and to withdraw proceedings in HCA 1987/2005 on behalf of Bai Jun if Anthony Siu agreed.

367.  Wang Li had signed the Settlement Agreement on behalf of Bai Jun.  Li testified that he was also present at the office of Anthony Siu with Wang Li.  Neither Wang Li nor Li could have missed the contents of the Settlement Agreement.  When the inconsistency between Clause 2.1 and the letter to Anthony Siu was put to Li, Li simply had no explanation.

368.  Instead, Li asked rhetorically, if there was no Settlement Agreement, why would Anthony Siu be asked to withdraw the litigation?  With respect, the answer was obvious.  Zhang was then in effective control of Bai Jun and Angola, to Li’s knowledge. Wang Li / Zhang had reason to ask Anthony Siu to withdraw the proceedings.

369.  There were other subsequent letters which expressed the continued intention to retain Anthony Siu as the legal representative of Bai Jun.  See the letters dated 16 June 2009 referred to by Zeng and the letter by Angola to solicitors of the IRs of Zhong Xin on the same day. 

370.  It was not until 19 June 2009 that Wang Li purported to dismiss Anthony Siu’s representation of Bai Jun through his PRC lawyer, Wang Fanggang 王方剛of Grandfield Law.  Anthony Siu applied to the court to cease to act on 22 June 2009.

371.  The 7^th Major Event did not support the existence of the Settlement Agreement on 20 May 2009.

J3.  Inaction in implementation of the Settlement Agreement

372.  After 20 May 2009, there had been total inaction on the part of Angola and Bai Jun in terms of implementation of the Settlement Agreement.  It was only a month later on 22 June 2009 that Angola Camp first submitted an application for hearing to the Shaanxi Court.  

373.  Why didn’t Angola apply earlier?  Li claimed, for the first time in the witness box, that the delay was caused by the Shaanxi HPC’s diary.  I can find no written evidence of an earlier application and his alleged communication (on an unspecified date) with the judge of the Shaanxi HPC about the hearing date.   Li’s evidence was recent fabrication. 

374.  That Angola’s application was only first made on 22 June 2009 was consistent with (i) Zhang’s affirmation evidence that the Settlement Agreement was signed on 21 June; (ii) the unexpected receipt of the notice of hearing 4 days later by Mr Liu Jiancang (劉建倉lawyer for Zhong Xin’s IRs); and (iii) the PRC Court’s quick entertainment of the application within 7 days. 

375.  When his explanation concerning the PRC Court’s diary was challenged, Li put forth another explanation.  He said that on 10 June 2009, he had gone with Wang Li, both to instruct Anthony Siu to withdraw the present action and to Wong & Chan to tell them about the Settlement Agreement. 

376.  This explanation was contradicted by §13 of Li-4^th, wherein Li stated that because of the prejudicial nature of the settlement, it was a deliberate decision of Angola not to mention the Settlement Agreement even to its own lawyers until after obtaining the PRC Court Sanctioned Settlement Certificate on 29 June 2009. 

377.  When Li-4^th was put to him, Li had to admit that his affirmation evidence was wrong and that it should have been in July that he first informed Angola’s solicitors about the existence of the Settlement Agreement.

378.  Even assuming the letter to Anthony Siu & Co dated 11 June 2009 was to be treated as an act to implement the Settlement Agreement, there had been about 3 weeks’ inaction since 20 May 2009.  There was simply no explanation from Angola as to why the parties had taken that many days to implement the Settlement Agreement while costs of litigation continued to be incurred in the meantime.

J4.  The PRC Court Sanctioned Settlement

379.  Despite its importance and that its effect was to be “confirmed” by the PRC Court, the Settlement Agreement was typed up in traditional Chinese characters.  More peculiarly, Li confirmed that a copy of the Settlement Agreement was not shown to the PRC Court! 

380.  The Settlement Agreement was allegedly negotiated in the Mainland, drafted by Li and signed in Xi’an.  Li himself was used to using simplified characters, eg SPA/Angola and the share re-transfer agreement in respect of Angola’s shares to Zeng, Li and Chan in October 2007.

381.  Li’s explanation was that the Settlement Agreement was in traditional characters as it was meant for use in the Hong Kong court and by Hong Kong lawyers.  This explanation never appeared in his affirmation and it was not clear where he got this idea from, as the Hong Kong court and lawyers were used to reading simplified characters. 

382.  The irony was that he had kept the Hong Kong court and Hong Kong lawyers in the dark until much later.  He just could not explain why simplified characters were not used for the benefit of the PRC Court, the first court that should have access to the Settlement Agreement and have it “confirmed”. I reject Li’s explanation.  I also find that the Settlement Agreement was unlikely to be drafted or signed in the Mainland as alleged.

383.  Further, the terms of the PRC Court Sanctioned Settlement and what the PRC Court was told showed that the Settlement Agreement was not in existence on 20 May 2009:

384.  Firstly, Clause 1 of the PRC Court Sanctioned Settlement provided as follows:

“ 為解決榆林常樂堡礦業有限公司股東出資爭議，本調解書生效後，由榆林市常樂堡礦業有限公司將百浚天成公司通過Clarigain帳戶代出資款項退回，由中信礦業集團公司股東經協商後，以中信礦業集團有限公司名義依法重新向榆林市常樂堡礦業公司注資356萬美元。” (underline added)

385.  Clause 1 envisaged a cumbersome process of returning the 2^nd injection of capital of US$3.56 million, negotiation of Zhong Xin’s shareholders and then re-injection of the same capital by Zhong Xin into CLB. This would have been completely unnecessary if the Settlement Agreement had been entered into because Clause 1.3 thereof provided that Angola and Bai Jun had agreed to each inject 50% of the RMB 30 million capital.  The PRC Court could simply have been asked to confirm that term.

386.  To this anomaly, Li gave all sorts of explanations.  He claimed to have told Judge Zhang the fact of settlement, the proposed injection of capital, the withdrawal of Hong Kong litigation, but had not told the judge about the proportion of capital each party was to bear.  The judge had not put down the details. At one stage, Li even claimed that Judge Zhang asked them to return the capital and then negotiate. 

387.  Such answers were irrational and were clearly made up by Li as he went along his oral evidence.   They were also an affront to the PRC Court as I am sure no judge would have missed the importance of such details or failed to ask for a copy of the Settlement Agreement in proof.

388.  Secondly, that the PRC judge had been told about the existence of the Settlement Agreement was also contrary to the contemporaneous report of what happened on 29 June 2009 prepared by Mr Liu Jiancang, which Li confirmed to be correct.  In that report, there was no reference to any settlement agreement being reported to the PRC Court.  To the contrary, it was expressed by Changle I&T and Angola that if there was no settlement on that day, there would not be any mediation subsequently.  Liu Jiancang stated that because he did not know that was a court hearing beforehand, he had to get instructions from the IRs to decide whether there should be mediation.

389.  Thirdly, by a letter dated 5 November 2010, Angola purported to record in a document to be submitted to the PRC Court that pursuant to the PRC Court Sanctioned Settlement, it had been agreed that Angola would be injecting the entire US$3.56 million.  That was completely at odds with the 50:50 split with Bai Jun under the Settlement Agreement.

390.  When confronted with this document, Li tried not to answer, distorted its meaning and finally asserted that he had in fact no knowledge since he had left by that time.  However, this was unlikely because he was recorded as a lawyer of Angola in the Mainland proceedings concerning the validity of the PRC Court Sanctioned Settlement.  See the judgment of the PRC Court dated 17 August 2010.

391.  For reasons given in Section J4, I reject Li’s evidence that he had told the PRC Court about the existence or terms of the Settlement Agreement.  If the Settlement Agreement had existed, I doubt if the parties had intended it to take effect before the date of the PRC Court Sanctioned Settlement.

J5.  Angola’s summons to amend the pleadings

392.  The existence of the Settlement Agreement was never mentioned in these proceedings until 3 July 2009 when Angola took out a summons to amend its pleadings to plead the Settlement Agreement. 

393.  In the 6 weeks between 20 May and 3 July 2009, various legal steps had been taken by the Angola Camp without referring to the Settlement Agreement.  Those legal steps included:

(a) Preparation of the summons for removal of Zhong Xin’s IRs (issued on 31 March 2009), leading to the actual hearing on 26 June 2009.

(b) Preparation of the amendment summons (issued on 13 May 2009) which sought to amend Angola’s defence without mentioning the Settlement Agreement.  A consent summons was filed after skeleton submissions were served.  The re-amended defence and counterclaim of Angola (verified by a statement of truth of Li) and Zhao, filed on 8 June 2009 as a result, did not mention the Settlement Agreement at all.

(c) A supplemental list of documents was filed by Angola and Zhao on 4 June 2009 but the Settlement Agreement was not amongst the documents disclosed.

(d) At the pre-trial review held on 5 June 2009, there was no mention of the Settlement Agreement at all.

394.  Similarly, the Settlement Agreement was not mentioned in HCA 1315/2009 until 9 July 2009.

395.  Angola’s failure to disclose a purportedly binding and amicable agreement for 6 weeks since its making and to continue with litigation was wholly contrary to the purpose of making the Settlement Agreement.

J6.  Non-disclosure of the Settlement Agreement to solicitors

396.  Before 3 July 2009, the Settlement Agreement was never disclosed to solicitors of Bai Jun (Anthony Siu) or of Angola (Wong & Chan).  Li’s testimony on this aspect was most evasive.  For example, when it was suggested to him that up to 6 July 2009 his solicitors did not even have a copy of the signed Settlement Agreement, Li said,

“ Perhaps so. Perhaps not received. No, no. Because only on 29 June that the court agreed for that settlement and we were waiting for that. Waiting for handing down of the document. So should be after 6 July that Wang Xin Min received both the Settlement Agreement and PRC Court Sanctioned Settlement.”

397.  Li claimed that the disclosure only became necessary because of Bai Jun’s refusal to withdraw the present proceedings.

398.  That aside, Li had given all sorts of reasons for the non-disclosure to solicitors:

(a) Concessions had been made to the prejudice of Angola in the settlement;

(b) There was a confidential clause in the Settlement Agreement.

(c) There were ongoing disputes between Gao and Xie on the one part, and Wang Li and Lu Ying on the other, known to Angola, regarding the ownership and control of Bai Jun as early as 2 June 2009;

(d) It might take some time after 29 June 2009 to receive the PRC Court Sanctioned Settlement. 

(e) The Settlement Agreement was a “provisional agreement” just to last for 3 months and the parties were waiting for the Shaanxi HPC’s approval of the Court Sanctioned Settlement.

399.  Reasons (a) and (b) were invalid.  A confidential clause would not prevent disclosure as between the direct parties to the agreement and their solicitors.  It was strange that upon a binding agreement being reached, there was still fear of prejudice arising from concessions.

400.  Reason (c) was also invalid.  The dispute concerned shareholding of Bai Jun.  It was not clear how disclosure of the Settlement Agreement to Angola’s solicitors would have affected Angola’s position.

401.  Reason (d) was unconvincing.  There was nothing to prevent Li or Wang Li from giving the solicitors in Hong Kong a copy, with a remark eg that it would take effect upon sanction by the PRC Court, if that be the true intention.

402.  Reason (e) simply lacked basis.  Li made long speeches to dodge Mr Chan SC’s question as to whether or not the Settlement Agreement was conditional upon sanction by the PRC Court.  On a fair reading of the Settlement Agreement, it was not so conditional.  Clause 5 expressly stated that the Settlement Agreement would be enforceable indefinitely upon any performance within 3 months, which would have included an application to the Shaanxi HPC.  In fact, if the Agreement had to depend on PRC Court sanction, why did Bai Jun suddenly instruct Anthony Siu to withdraw the present action before the sanction was given? 

J7.  Findings on backdating of the Settlement Agreement

403.  In the light of the analyses in Sections H and J above, I find that Li was an utter liar.  His evidence as to whether there was a settlement and the date of the Settlement Agreement was not to be believed.  For any of the reasons in Section J, it was plain that the Settlement Agreement could not have existed on 20 May 2009.  I find that it was probably created, earliest, between 21 June (date claimed by Zhang) and 6 July 2009 (“the Actual Signing Period”).  It was deliberately backdated to 20 May 2009 at the suggestion of Li and signed by Wang Li on the instructions of Zhang.

404.  However, as stated in paragraph 267 above, the parties are free to backdate an agreement to give it retrospective effect.  The Settlement Agreement would still be enforceable if Wang Li had actual or apparent authority to sign the Settlement Agreement on behalf of Bai Jun.  

K.  WHETHER WANG LI HAD ACTUAL AUTHORITY OF BAI JUN TO EXECUTE THE SETTLEMENT AGREEMENT

K1.  Legal principles on lack of actual authority

405.  The onus of proving authority, actual or apparent, lies on the party asserting it (Angola) against the principal (Bai Jun), whether the third party or the agent: Bowstead, 21^st ed, §§3-001 (Article 22(2)), 3-007 and 8-013.

406.  However, the principal is obliged to plead lack of authority: Hong Kong Civil Procedure 2018 at §18/8/4A; Bowstead, §§3-001 and 3‑007; Aspial Investment Ltd v Mayer Corporation Development International Ltd (2014) 17 HKCFAR 401 at §20 per Tang PJ. 

407.  In Wisecal Ltd v Conwell International Ltd [2011] 4 HKLRD 275, at §27, per Tang VP, the principal pleaded that she had never authorized the agent but had not pleaded that even if he had, he had exceeded the authority.  The latter plea was not entertained on appeal.

408.  The points of reply (“PoR”) of Bai Jun Camp pleaded that by reason of To J’s Judgment, the appointment of Wang Li as a director of Bai Jun was null and void and so he had no actual authority (§35A(1)–(2)). Zeng and the rest of Angola Camp always had notice of the shareholders’ dispute in Bai Jun and that Xie and Gao were necessary parties to any global settlement.  Bai Jun Camp also relied on (a) the Stop Notice; and (b) the writ in HCA 1315/2009, which it said Angola and Zhang had notice of before the Settlement Agreement was signed.

409.  On Day 3 of the trial, Bai Jun Camp applied to amend its pleading to add a new defence in §34 of PoR that Wang Li had no actual authority for lack of authorization by the then board of directors of Bai Jun (“the authorization resolution”):

“ [After denying the existence and terms of the Settlement Agreement]It is further averred that the alleged Settlement Agreement was purportedly entered into on behalf of Bai Jun by Wang Li who did not have authorization to bind Bai Jun without the authorization of the board of directors of Bai Jun.”

410.  Mr Chan SC contends that, despite the Companies Registry record, a single director (not being the managing director) would not have the authority to enter into contracts to bind the company without a board resolution: Company Law in Hong Kong, Practice and Procedure 2017 §9.038.  The board may not delegate any of its powers to one or more of its members or to any other person, unless the articles empower it to do so.”  Pennington’s Company Law, 8^th ed, pp 145 – 146.

411.  This court refused to grant leave to raise this new issue on Day 4 of the trial for its lateness.  Otherwise there would be prejudice to Angola because it would have been deprived of the opportunity to make inquiry with Wang Li on whether there was an authorization resolution.

412.  But by way of passing, Angola Camp has never filed a rejoinder.  As the burden of proof of authority is onAngola Camp, the failure to plead and prove the existence of an authorization resolution actually prejudiced it rather than Bai Jun.  However, in the context of this case, this point is not significant having regard to other weighty evidence against Angola set out under Section L below on apparent authority.

K2.  To J’s Judgment

413.  To J's Judgment was dated 11 August 2016.  The material parts of it were as follows:

(a) The Keeneye Agreements and the related share transfer documents under which Keeneye Group obtained legal title of the shares of Bai Jun on 27 August 2008 are null and void and of no legal effect (§7 of the sealed judgment);

(b) The Resolutions purportedly made on 27 August, 23 September and 8 October 2008 and any other resolution purporting to change the directors and the company secretary of Bai Jun after the Purported Transfers are null and void and of no legal effect (§8 of the sealed judgment); (note: the board resolution dated 27 August 2008 was signed by Gao and Xie appointing Wang Li and Lu Ying as directors of Bai Jun; the shareholders’ resolution dated 23 September 2008 signed by Keeneye and New Purple removed Xie and Gao as directors of Bai Jun);

(c) The Settlement Agreement (backdated to 20 May 2009) is null and void and of no legal effect (§9 of the sealed judgment).

414.  It is not disputed that To J’s Judgment was not binding on Angola Camp (who was not a party to HCA 1315/2009), although Angola Camp did not make a collateral attack on the factual findings of To J or the orders that he made.  The question is the effect of his order, which in turn had an impact on whether or not Wang Li had validly remained as a director in May/June 2009.

K3.  Legal principles on the effect of rescission

415.  A distinction should be drawn between self-help rescission at common law and judicial rescission in equity.  In the former case, the contract is brought to an end by the claimant’s announcement of his election to rescind and the consequences take effect automatically.  The role of the Court is only to pronounce upon the efficacy of that election and give effect to its consequences; there is no scope for the exercise of judicial discretion in deciding whether to rescind or what the consequences should be.  However, this can only be invoked in a limited class of cases such as fraud or duress.  In the latter case, the contract remains in force until the order takes effect; and it can be invoked for all or almost all grounds of rescission, such as fiduciary misdealing, undue influence and innocent misrepresentation.  In equity, a contract or other transaction is only rescinded in accordance with the terms of a court order.  The innocent party’s equity to rescind is an entitlement to apply to the court for such an order.  The contract remains in force until the order takes effect.   See Snell’s Equity, 33^rded, §§15-011 – 15-012.

416.  Where a contract is voidable, the effect of its being rescinded or avoided ab initio only means that the parties are to be restored to their original position from the moment of avoidance.  It remains that there was a contract prior to avoidance, and things already done are not undone:FAI General Insurance Company Ltd v Ocean Marine Mutual Protection and Indemnity Association Ltd (1998) 41 NSWLR 559 at 563F – 565E per Giles CJ.  Put another way, on rescission, the transfer of legal title remained but Xie/Gao were entitled to take steps to reverse it: FAI General at 564A–C.

K4.  The competing contentions

417.  There could be several possible dates when To J’s Judgment should take effect:

(a) July/August 2008 — date of the Keeneye Agreements;

(b) 2 June 2009 — date of the writ in HCA 1315/2009;

(c) 24 August 2009 — the date when the counterclaim was mounted in the Xi’an arbitration;

(d) 3 June 2010 — the date when the Xi’an Award was issued;

(e) 2 August 2010 — the date when the Hong Kong court gave leave to enforce the Xi’an Award.

(f) 11 August 2016 — the date of To J’s Judgment.

The first 2 dates were before the Actual Signing Period.

418.  The rival contentions are whether To J’s Judgment was meant to avoid the Keeneye Agreements from date (a) (Bai Jun Camp’s contention) or dates (d) or (e) (Angola Camp’s contention).  Mr Chan SC has since abandoned his contention that To J’s Judgment was a judgment in rem. 

419.  The bases for §§7 – 9 of To J’s Judgment were these:

(a) To J noted that the Xi’an Award revoked (撤銷) the Keeneye Agreements on the vitiating factors of “顯失公平、乘人之危”, and that the leave to enforce the Xi’an Award was restored by the Court of Appeal.  He found that the Xi’an Award “has the same effect as a judgment of this court and is now binding and final as against Keeneye and New Purple”: §232 of the Reasoned Judgment in HCA 1315/2009, 11 August 2016.

(b) He held that Daynew and Far Orient were not bona fide purchasers of the Bai Jun shares for value without notice and so Xie/Gao were entitled to recover the Bai Jun shares registered under the name of Daynew and Far Orient: §§234 – 238 of the Reasoned Judgment.

420.  There is no PRC legal opinion on the meaning of the terms “顯失公平” (manifest unfairness) or “乘人之危” (exploitation of the other party’s precarious position).  (The translation is provided by Mr Dawes SC, which I adopt.)  One can only have regard to the reasons for the Xi’an Award to get a glimpse of their meaning.

“ 《中華人民共和國合同法》第五十四條 (“Article 54”) 規定：下列合同，當事人一方有權請求人民法院或者仲裁機構變更或者撤銷：

(一)   因重大誤解訂立的；

(二)   在訂立合同時顯失公平的。

一方以欺詐、脅迫的手段或者乘人之危，使對方在違背真實意思的情況下訂立的合同，受損害方有權請求人民法院或者仲裁機構變更或撤銷。

這一條對可撤銷可變更合同的規定是為了保護合同訂立時意思表示不真實的一方利益。這裡對意思表示真實與否的判斷並非僅表現在合同訂立時的意思表示本身，即合同當事人是否同意，而應著眼於合同履行後所表現出的客觀結果是否明顯不公平。所謂乘人之危，是指當一方當事人乘對方處於危難之機，為牟取不當利益，迫使對方作出不真實的意思表示，嚴重損害對方利益的。顯失公平是指一方當事人利用優勢或利用對方沒有經驗，致使雙方的權利義務明顯違反公平、等價有償原則的。因此，因外在的危難或緊急情況而被迫作出的明顯對自己不公平的意思表示或一方故意利用其優勢訂立了當事人之間利益不平衡的合同均屬於意思表示不真實。意思表示不真實一方可以向法院或仲裁機構申請撤銷或變更。”  (underline added)

421.  Mr Dawes SC submits that PRC law shall be presumed to be the same as Hong Kong law and the closest analogy to the 2 vitiating factors is “unconscionable bargain”.  The 3 essential elements of unconscionable bargain are (a) serious disadvantage of the exploitee; (b) terms of bargain being oppressive; and (c) morally culpable conduct of the exploiter.  See Lo Wo v Cheung Chan Ka [2000] 2 HKLRD 370 at 381B-382F.

422.  Mr Dawes SC submits that To J himself treated the Keeneye Agreements to be voidable.  This was evidenced by the fact that he had analyzed the defence of whether or not Daynew and Far Orient were bona fide purchasers for value without notice.  This defence would not have been available if the Keeneye Agreements were void from the start.

423.  To J did not decide on the validity of the Keeneye Agreements but merely confirmed the effect of an earlier Xi’an Award.   Mr Dawes SC submits that rescission of the Keeneye Agreements thus took place on date (d) or (e) in 2010.  Accordingly, he submits that Wang Li remained a validly appointed director with actual authority to bind Bai Jun as of the Actual Signing Period.

424.  Mr Dawes SC disagrees with Mr Chan SC’s suggestion that the avoidance or rescission of the Keeneye Agreements should take effect on date (b) when the writ in HCA 1315/2009 was issued, because that is tantamount to saying that the date of rescission should be the date of election to rescind, as opposed to the date of the order to rescind, contrary to the principles in Snell’s Equity, 33^rd ed, §§15-011 and 15-012.

425.  On the other hand, Mr Chan SC submits that all 3 limbs of vitiating factors in Article 54 cited in the Xi’an Award are different aspects of addressing the same fundamental element, ie that the contract was established against the true intention of the party.  The 2 grounds (顯失公平) and (乘人之危) are placed in Article 54 side by side with the ground of substantial mistake (重大誤解) and appear to be just 2 different ways to prove the same lack of true intention or consent.  He submits that the corresponding vitiating factors under common law are mistake or non est factum: Chitty §3-009; Snell §15-003; not unconscionable bargain.

426.  Mr Chan SC also points out that there is no evidence on what “撤銷” under Chinese law means.  However, as a matter of translation, it could both refer to setting side a voidable contract and declaring a contract void ab initio.  Given the underlying vitiating factors to be akin to that of mistake, one would naturally assume that the consequence of such vitiating factors should be the same as a fundamental mistake which negates or nullifies true consent. 

K5.  Proper construction of Article 54 and the Xi’an Award

427.  Having considered the submission, I agree with Mr Chan SC that重大誤解 was more analogous to fundamental mistake that vitiated true intention and consent.  顯失公平 was more analogous to unconscionable bargain.  乘人之危 (exploited the innocent party’s precarious position, analogous to unconscionable bargain) was placed in the same category as 欺詐 (fraud) or脅迫 (duress) and they were all regarded as vitiating true intention and consent; only the innocent party could apply for rescission.

428.  Article 54 expressly provided that when ascertaining whether there was true intention or consent, one should not just look at things at the time when the contract was entered into but also at the objective results subsequent to performance of the contract to see if those results were plainly unfair.  Article 54 therefore contemplated a situation where the contract has been performed and yet had to be 撤銷 (set aside or rescinded) on application.

429.  To J himself looked at subsequent circumstances to see if Daynew and Far Orient were bona fide purchasers for value without notice.  On a proper construction, I agree with Mr Dawes SC that rescission in the context of Article 54 was judicial rescission and not self-help rescission.  Rescission should take effect from the date of a court order.

K6.  Whether Wang Li had actual authority of Bai Jun

430.  As between Xie and Gao as plaintiffs and the defendants in thatcase, no bar to rescission (even as from the date of the Keeneye Agreements) was raised or held to have existed.  However, Angola was a purported third party to To J’s Judgment, who had acted on the faith of the subject matter of the rescission.  

431.  I agree with Mr Dawes SC that To J’s Judgment was to confirm the earlier Xi’an Award and so it should take effect from 3 June 2010.  On that day, Wang Li had actual authority as a director of Bai Jun. However, this finding does not carry any implication that Wang Li also had actual authority to enter into the settlement. 

L.  WHETHER WANG LI HAD APPARENT AUTHORITY OF BAI JUN TO EXECUTE THE SETTLEMENT AGREEMENT

L1.  Legal principles on apparent authority

432.  The doctrine of apparent authority is primarily concerned with the question whether the principal is bound.  As Mr Chan SC submits, it is based on estoppel: Bowstead, §8-015.  The same principles on pleading and burden of proof in paragraphs 405-407 above apply.

433.  To show apparent authority, it has to be shown: (i) that a representation had been made by the principal that the agent had authority to enter into the relevant transaction on behalf of the principal; and (ii) reliance on that representation.

L2.  Each party’s case on apparent authority

434.  Angola Camp’s case is that:

(a) The Companies Registry record showed Wang Li to be a director at the time when the Settlement Agreement was entered into.  (In view of my finding on backdating, the time should mean the Actual Signing Period and not 20 May.)

(b) Li was aware that Wang Li was acting in that position.

435.  On the other hand, Bai Jun Camp’s case is that Angola Camp knew or ought to have known about the vitiating factors of the Keeneye Agreements and that the appointment of Wang Li was invalid: PoR, §35A(3).

L3.  Representation by the principal

436.  The representation can either be an actual oral or written representation allowing the agent to act in certain ways; or arise from the principal’s putting the agent in a specific position carrying with it a usual authority and the third party becomes aware that the agent is so acting: Bowstead, §8-015.

437.  This concept is based on the doctrine of holding out by one who need not be the principal but one who has actual authority from the principal to do so: Bowstead, §§8-019 – 8-020.

438.  Wang Li could not have any actual authority to hold himself out as having the authority of a director. 

439.  The Companies Registry record was a representation to the public that Wang Li was Bai Jun’s director.  The appointment of Wang Li (and Lu Ying) was effected by a board resolution signed by Xie and Gao, who were then still directors of Bai Jun.  Xie and Gao were only removed on 23 September 2008.  Xie and Gao plainly had the authority to make the representation on behalf of Bai Jun.

440.  Further, Form D2A was filed by Focus Win Ltd bearing the email address account@anthonysiu.com. Plainly, Xie and Gao had instructed their own solicitors, Anthony Siu & Co, to file Form D2A.  The representation was thus made with actual authority of the principal.

441.  Li’s evidence was that he caused Angola Camp’s solicitors (Wong & Chan) to do a company search at some point in time after Wang Li surfaced in Zhong Xin’s board meeting on 18 July 2008 and confirmed his status as a director of Bai Jun.  However, Mr Chan SC points out that the only company search was done after To J’s Judgment as it bore the annotation “take note of the judgment in HCA1315/2009” as header.  The only company search made by Angola on discovery was one after 26 April 2009 [H1/66].  Angola could not have looked at this search to confirm Wang Li’s directorship in 2008.

L4.  Reliance

L4.1  Legal principles on reliance

442.  If there was apparent authority arising from the status of a director, Bai Jun Camp has to demonstrate that Angola Camp had actual knowledge of Wang Li’s lack of authority or that its belief in his authority was dishonest or irrational, which includes turning a blind eye and being reckless: Thanakharn Kasikorn Thai Chamkat v Akai Holdings Ltd (2010) 13 HKCFAR 479, §§49 – 51, 62.

443.  In a criminal context, deliberate shutting one’s eye to the obvious was described as follows in Westminster City Council v Croyalgrange Ltd[1986] 1 WLR 674 at 684:

“ It is always open to the tribunal of fact, when knowledge on the part of a defendant is required to be proved, to base a finding of knowledge on evidence that the defendant had deliberately shut his eyes to the obvious or refrained from inquiry because he suspected the truth but did not want to have his suspicion confirmed.” (underline added)

444.  Deliberately refraining from making inquiries is to be distinguished from a mere failure to make reasonable inquiry.  Taylor’s Central Garage (Exeter) Ltd v Roper(1951) 115 JP 445 at the end of the judgment emphasized the difference in this way:

“ There is a vast distinction between a state of mind which consists of deliberately refraining from making inquiries, the result of which the person does not care to have, and a state of mind which is merely neglecting to make such inquiries as a reasonable and prudent person would make. … The case of shutting the eyes is actual knowledge in the eyes of the law; the case of merely neglecting to make inquiries is not actual knowledge at all ….”

445.  As far as “recklessness” is concerned, the Court of Final Appeal has held, again in a criminal context, that:

“ … it has to be shown that the defendant’s statement of mind was culpable in that he acted recklessly in respect of a circumstance if he was aware of a risk which did or would exist, or in respect of a result if he was aware of a risk that it would occur, and it was, in the circumstances known to him, unreasonable to take the risk. Conversely, a defendant could not be regarded as culpable so as to be convicted of the offence if, due to his age or personal characteristics, he genuinely did not appreciate or foresee the risks involved in his actions.”

Sin Kam Wah & Anor v HKSAR [2005] 2 HKLRD 375 at §44; following the House of Lords in R v G [2004] 1 AC 1034 at §41.

446.  In short, this test requires a subjective awareness on the part of the person charged with recklessness of the risk, and it was objectively unreasonable for him to take the risk. 

447.  However, it is not to be supposed that the tribunal of fact will accept a defendant's assertion that he never thought of a certain risk when all the circumstances, probabilities and evidence of what he did and said at the time showed that he did or must have done so: R v G, Lord Bingham, at §39. 

L4.2  Knowledge of the Relevant Circumstances and vitiating factors leading to avoidance of the Keeneye Agreements 

448.  Bai Jun’s case is that Angola Camp “ought to have known” about the vitiating factors and a series of relevant circumstances (“the Relevant Circumstances”) which showed Wang Li’s lack of authority. Bai Jun Camp’s case should be considered in the light of this short chronology of relevant events:

July/Aug 2008	Agreement whereby Xie and Gao (detained) agreed to transfer the shares of Bai Jun to Keeneye Group
16 May 2009	Liu-Zhang Agreement whereby Zhang indirectly became full beneficial owner of Bai Jun
20 May 2009	Alleged date of the Settlement Agreement (rejected by me)
21 May 2009	Stop Notice
30 May 2009	Zhang entered into SPA/Angola to acquire 100% of Angola
2 June 2009	HCA 1315/2009 commenced by Xie and Gao to set aside the Keeneye Agreements

(Between 21 June 2009 and 6 July 2009 was the Actual Signing Period of the Settlement Agreement)

25 June 2009	ex parte order of Chung J to appoint IRs for Bai Jun
29 June 2009	PRC Court Sanctioned Settlement
3 July 2009	Angola Camp issued summons to stay the action to introduce amendments to plead the Settlement Agreement
15 July 2009	Xi’an Arbitration started by Keeneye Group with Li as legal representative of Keeneye and New Purple
23 July 2009	Chung J set aside the appointment of IRs for Bai Jun on the ground of (i) no reasonable cause of action; and (ii) material non-disclosure
18 Sept 2009	CA upheld Chung J’s decision, solely on the ground of material non-disclosure

449.  According to Bai Jun, the Relevant Circumstances were these:

(a) The circumstances leading to avoidance of the Keeneye Agreements were set out in reasons for the Xi’an Award.  As a result of the Blood-Shed Incident, Xie and Gao were detained by the police for suspected assault.  During their detention, Xie and Gao approached Liu Jianshen (劉建申), the controller of the Keeneye Group. The Keeneye Agreements were signed as a condition for Liu to render assistance.

(b) In the Keeneye Agreements, no transfer price was specified but there was an agreement to agree the price, failing which the price shall be the amount of capital actually paid up by Xie and Gao in the operation of Bai Jun.  On the face of it, this referred to the HK$100 paid up capital. 

(c) Keeneye refused to negotiate the purchase price and insisted on payment by reference to the paid up capital.  The fact was that at the time of the Keeneye Agreements, the value of CLB was around RMB1.7 billion.  Transfers of the shares in Bai Jun to Keeneye and New Purple were completed, with onward transfers to Daynew and Far Orient before Xie and Gao were released.

(d) The Settlement Agreement and PRC Court Sanctioned Settlement come into existence.

450.  It is Bai Jun Camp’s case that Zhang was aware of these Relevant Circumstances.  He had acquired the beneficial interest and control of the Keeneye Group on 16 May 2009.  There was detailed due diligence done beforehand.  His knowledge could be attributed to Angola Camp as of 10 June 2009 when he became the sole shareholder and director of Angola.   In any event, prior to 10 June 2009, Zeng, Li and Chan had also acquired knowledge of a substantial part of the Relevant Circumstances through their communication with Wang Li and Zhang. 

451.  In the meantime, on 21 May 2009, Gao had issued a Stop Notice and served it on Zhang and Li.  On 2 June 2009, she issued the writ in HCA1315/2009.

452.  It is Bai Jun’s case that the Settlement Agreement was deliberately backdated and entered into with knowledge of the vitiating factors and the Relevant Circumstances. 

453.  On the other hand, Angola Camp’s case is that there was no evidence of service of the Stop Notice on Zhang or Li.  The Stop Notice neither referred to the writ in HCA 1315/2009 nor set out any vitiating factors in respect of the Keeneye Agreements, but only contained the reliefs sought. 

454.  Even if it was faxed out, Mr Dawes SC queried how Gao knew that Li was Zhang’s lawyer.  Zhang’s lawyers responsible for acquisition of Zhong Xin were Wang Yong (王勇) and Wang Fanggang (王方剛) of Grandfield Law, not Li.  It was not put to Li during cross-examination that he was Zhang’s lawyer at the time the Stop Notice was issued.

455.  As for the writ in HCA 1315/2009, there was no suggestion that Li was aware of it. 

456.  Mr Dawes SC submits that backdating of the Settlement Agreement and faxing of the Stop Notice to Li, even if established, were not sufficient to demonstrate that Angola Camp’s reliance on Wang Li’s authority was dishonest or irrational.  That was because:

(a) A mere claim to shares could be meritorious or bogus.  Unless it was shown that Angola had reasons to believe that the claim would succeed, it could not be said that Angola Camp’s reliance on Wang Li’s apparent authority was dishonest or irrational.

(b) More importantly, the grounds to set aside the Keeneye Agreements had been presented to Chung J in Xie and Gao’s application to appoint a receiver for Bai Jun.  The grounds were invalid power of attorney, misrepresentation, duress and lack of consideration.  Chung J held that there were no serious issues to be tried.  The PRC law ground of 顯失公平，乘人之危 did not feature in the application before Chung J.

(c) Further, Chung J relied on the fact that after she was released and up until 15 May 2009, Gao was still writing letters to Liu confirming their agreement to transfer the Bai Jun shares subject to negotiation of price.  Chung J held that Xie and Gao’s entitlement rested with the share price as opposed to the shares.

457.  Mr Dawes SC submits that Bai Jun Camp must have presented their best case to Chung J. With Chung J’s holding, it could not be said that Angola Camp’s reliance on apparent authority of Wang Li was dishonest or irrational.

458.  With respect, Mr Dawes SC was referring to events at the interlocutory stage.  Chung J’s views were not entirely endorsed by the Court of Appeal.  At this trial, there was nothing to deter Bai Jun Camp from adducing evidence in proof of dishonest or irrational reliance.  As demonstrated below, Zhang, Zeng and Li knew a lot more about the circumstances surrounding the dispute on transfer of shares to Keeneye, than was disclosed to Chung J.  These people, connected in one way or another to Angola, knew of the lack of authority in Wang Li to settle.

L4.3  Zhang’s knowledge of lack of authority of Wang Li

459.  Zhang was at all material times the representative of Changle I&T, a director and general manager of CLB, who was in charge of the operation of the Coal Mine.  He was apparently in the best position to know the corporate structure, operation and financial position of CLB.

460.  Zhang was one of the persons injured in the Blood-Shed Incident.  He would have knowledge of the detention of Xie and Gao, the government’s decision not to prosecute Xie after an understanding was reached with Zhang (an alleged victim), compensation by Xie’s family and Xie and Gao’s subsequent attempt to enlist the assistance of Liu.

461.  According to Gao, in around April 2009, Zhang had approached her to express his interest in acquiring the entire interest in Zhong Xin. He informed Gao that he had contacted all interested parties including Xie and Gao, Liu of Keeneye Group and Zeng, Li and Chan of Angola. He told Gao that Li Tao was his lawyer.  In fact, Li confirmed under cross-examination that he had heard of this from Zhang.  The 4^th Major Event also referred to the meeting between Zhang and Gao on 22 April 2009 and I find this meeting to have taken place.

462.  Gao provided to Zhang the documents she had signed with Wang Li and Lu Ying, including in particular, the Keeneye Agreements.  She specifically warned Zhang of the defects in ownership to the shares of Bai Jun acquired by the Keeneye Group.  Gao told him that even if there was no problem with the shareholding of Wang Li and Lu Ying, and even if Bai Jun could get back any Zhong Xin shares from Angola in the present case, the beneficial interest would still go to Xie and Gao.  She told Zhang that he could not simply get all shareholding from Wang Li, Lu Ying and Angola.  (§181 of Gao's WS.)

463.  This part of Gao’s evidence was not challenged. It was supported by Zhang’s due diligence exercise and the correspondence between Gao and王勇 in April 2009, wherein the two transfers, to Angola and to Keeneye, were specifically mentioned.  Gao specifically pointed out to 王勇 the potential defects in ownership of the Bai Jun shares:

“ 我仔細看了你發來的資料，所有的資料均圍繞著一個主題，即中信內部股權是否明晰？兩次股權轉讓是否手續完善，是否存在瑕疵？⋯⋯我可以坦誠地向你說：我作為中信原始的股東和董事，迄今為止，我們是在拿不出任何合作夥伴獲取股份（直接或間接的股份）而支付價款的憑證，因為兩次轉讓原本屬於我們的股份都發生了對方拿了股份而毀約或不履約不兌現承諾之情況。因此，就法律意義上的轉讓來說，目前所謂被轉讓的股份均為有瑕疵的轉讓或有可能或已經在進行訴訟的轉讓。(間綫後加)

… …

我希望以我個人的名義，在法律和法規及行規允許的情況下，給你提供我可以提供的文件，看一些內部的文件。這不是義務，而僅僅是出於幫助你們將一些基本事實了解清楚, 以使你們能對事情有一記本地判斷，並能負責人地為他人提供法律幫助，以免事後為事件的結果承擔不必要的法律責任的考慮。” (underline added)

I accept Gao’s evidence to be true.

464.  By the Liu-Zhang Agreement signed on 16 May 2009, Zhang acquired 100% ownership of Bai Jun.  There were these clauses:

“ 4C. 甲方 (Liu) 本合同簽署三十日內，將甲方持有的與標的公司（常樂堡礦業除外）相關的所有公司、權利人的合同、文件、訴訟材料、印鑑等全部資料完整移交給乙方(Zhang)”

“ 7. 本合同簽署後，甲方及代表甲方的相關利益主體與高海燕、謝和平及代表高海燕、謝和平的相關利益主體所簽訂的所有針對標的公司的合同（以本合同附件內容為準）中甲方及代表甲方的相關利益主體的權利及義務均由乙方承接。”

465.  It was an irresistible inference that Zhang knew about the dispute between Xie and Gao and Liu on the performance of the Keeneye Agreements by the date of Liu-Zhang Agreement; and Zhang had agreed to take over the liability from Liu.  Like Zeng and Li, Zhang plainly knew that any global settlement could not have left out Xie and Gao.

466.  Subsequently, Gao issued the Stop Notice on 21 May 2009 to protect Xie and Gao’s interest in Bai Jun.  She said it was faxed to Zhang and Li on the following day but there was no such record.

467.  Gao seemed to suggest that she had personally faxed it to Zhang.  However, she digressed to say that she had asked her solicitors in Hong Kong to translate only the first page but not the affirmation into Chinese.  She never explained how she or her solicitors had faxed the documents to Angola Camp’s solicitors, still less to Li.  She only said it was not possible to take all her documents to court; and if she did, there would have been 30-50 bundles.

468.  One asks rhetorically, what was the point of issuing a Stop Notice supported by an affirmation if it was not to be served?  On 22^nd May 2009, the only potential buyer she knew was Zhang.  She was not even aware that he had acquired Liu’s interest in Bai Jun.  Issuing the writ in HCA1315/2009 in the next 10 days corroborated her keenness to protect her rights.  Given these facts, I find on balance of probabilities the Stop Notice was served on Zhang and Li (who, she was told, was Zhang’s lawyer).

469.  The writ in HCA1315/2009 was amended on the 8^th. The amended writ was left at the registered office of Bai Jun on 10 June and was deemed served on the 17^th. 

470.  Zhang’s full control of Bai Jun was evidenced by a letter of authorization given by Wang Li to Wang Fanggang, a lawyer from Grandfield Law, who represented Zhang. On the strength of that letter of authorization, Wang Fanggang had started issuing instructions, eg on 16 June 2009, by writing to solicitors to inform them of Bai Jun and Angola’s settlement and to terminate the proceedings in Hong Kong. (I note that Wang Fanggang did not refer to the Settlement Agreement or any document evidencing a settlement between Bai Jun and Angola.)

471.  It was thus clear that Zhang was aware of the vitiating factors and Relevant Circumstances which led to the ultimate avoidance of the Keeneye Agreements, and the dispute over ownership of the Bai Jun shares and Xie and Gao’s interest in the Bai Jun shares. 

472.  Further, Zhang had acquired the full beneficial interest in Angola.  Angola would have been fixed with Zhang’s knowledge in the preceding paragraph by reason of Zhang’s directorship since 10 June 2009. 

473.  All of these happened before the Actual Signing Period of the Settlement Agreement.  And yet Zhang’s involvement was concealed from the Hong Kong court when Wang Li filed his affirmation in opposition to the appointment of IRs for Bai Jun in HCA 1315/2009.  Wang Li described the signing of the Settlement Agreement but did not mention about Zhang’s involvement.  Zhang’s role as beneficial owner of Bai Jun and Angola was also concealed from the PRC Court. 

L4.4  Zeng, Li and Chan’s knowledge of lack of authority of Wang Li

474.  Before 10 June 2009, the directors of Angola included Zeng and Li.  Li admitted under cross-examination that before Zeng, Li and Chan’s decision to buy Angola’s shares, he was aware of the litigation between Bai Jun Camp and Angola Camp; and between Angola Camp and Zhong Xin for recovery of the RMB 20 million loan.

475.  At all material times since Keeneye Group became involved in Bai Jun, Zeng and Li had had 2 major concerns: (i) shareholder status of Keeneye/Liu; and (ii) the authority of Wang Li to enter into settlement on behalf of Bai Jun.  

476.  These concerns were discussed in a meeting of Zhong Xin held on 18 July 2008 at Wong & Chan’s office in Hong Kong, just 3 days after the Keeneye Agreements were signed.   It was attended by Wang Li, Lu Ying, Zeng and Li.  Xie and Gao were not there because they were detained. According to Li’s testimony, that was the first occasion that he heard of someone having acquired Bai Jun from Xie and Gao.  Liu was then the boss of Wang Li. 

477.  A memorandum was taken of the matters discussed (“the Memorandum”) and signed by Li.  This paragraph in it was telling:

“ 曾衛（發言）：我們並不看重誰擔任董事長，關鍵是ANGOLA和百浚，包括這一次受害的中方總經理能不能達成和解協議，如果謝和平、高海燕不承擔刑事責任，這個和解是沒有辦法談的，在此之前，我們跟高、謝又多次接觸，但是這兩個人利欲熏心，毫無誠信，我們從此不會和他們談，如果你們收購了百浚，我們股東之間可以對談，怎麼談都可以。

李濤（發言）：我們看到了你們所持有的謝和平、高海燕親筆簽署的《委任代替董事函》，我們認可你們代替董事的身分，但是你們如果跟我們談和解，還必須看到謝和平、高海燕具體對你們的授權範圍。現在你們說收購了百浚在中信礦業50%的股份，但是我們沒有看到任何股權轉讓方面的文件⋯⋯” (underline added)

478.  Apart from the 2 major concerns mentioned in paragraph 475 above, it was plain from Zeng’s remarks recorded in the Memorandum that global settlement must involve Xie and Gao.  As Li admitted under cross-examination, Zeng had had several contacts with Xie and Gao in Hong Kong. 

479.  With regard to the first concern (Keeneye Group’s status as shareholders of Bai Jun), Li testified that it was uncertain (as reflected in the Memorandum) whether Xie and Gao had actually transferred their shares to Liu because he had never seen the transfer documents.  He said it was “confirmed” subsequently, but he admitted he had not really seen the transfer documents.  Then how did he confirm? 

480.  The simplest way was to ask Wang Li/Lu Ying to produce the transfer documents but Li had not done so.  His explanation as to why not was completely evasive.  He digressed to mention other meetings which did not really produce any transfer documents concerning Keeneye Group or Liu.  He also talked about confirming the identities of Wang Li and Lu Ying 5 months later. He claimed that Wang Li had given him a detailed account of the situation of transfer in February 2009. 

481.  Li said that there were lots of ways to confirm identity, agreed that shares could be held on trust and that he met Wang Li a second time in a solicitor’s firm.   He had to admit that at that second meeting, he had not seen any documents about transfer of shares to Liu.  Li said he had asked his solicitors to do something after the 2^nd meeting but he could not recall what it was.

482.  Li also said he got confirmation from a company search. It was Li solicitors who did the company search but Li could not tell when. He later jumped between whether he had obtained the company search in February or April 2009.

483.  However, the transfer of shareholding in Bai Jun from Xie and Gao to Keeneye Group was only registered in the Hong Kong Companies Registry on 26 April 2009.  Li had no cause to do a company search then (even through his solicitors) because he allegedly was already in Xi’an with Wang Li. 

484.  Even that company search did not disclose who was behind the Keeneye Group and Li agreed that shares could be held on trust.

485.  Then Li testified that Keeneye Group would not give their transfer documents to Angola because they thought “it was confidential commercially”.  There was no logical reason why Keeneye needed to keep that secret when Zhang had acquired Bai Jun and Angola.  By mid-July 2009, Keeneye Group and Angola Camp had become so close that they retained Li as their legal representative in the Xi’an arbitration. 

486.  Li said that he relied on the company search and only saw the transfer documents by the time he acted for the Keeneye Group in the Xian arbitration, ie in July 2009, about a year from the 2^nd meeting.  By then Wang Li had togive Li the documents.  Li admitted that he had read the transfer documents of 15 July and 7 August 2008 to learn where the dispute lay.  That was prior to the arbitration but he could not recall when.

487.  Li further explained that he got the information from Zhang:

“ Li. In April 2009, the volume of materials we received was substantial. The first message we learned from Zhang was that Xie and Gao had definitely left the company. For a long time, they had not managed the JV Company. That explained that they truly left the JV Company.

Q. How did you get the information? From Zhang?

Li. From Zhang orally.  Zhang told me personally that Xie and Gao had confirmed the transfer of shares.  Even Zhang had acquired their shares.  No.  Zhang perhaps had looked for Xie and Gao to see if acquisition had taken place.  With all these messages I gathered by then, I was in a position to know.  So Zhang also supported Wang Li to settle with Angola.  According to what I understood from what I gathered.  During that period, I was still struggling to get his documents confirmed.  Therefore, by that stage it was not important to confirm their identity.”

488.  Such vacillation in answers showed that Li had known a lot from Zhang which he was trying to hide.  Li’s evidence as to whether, how and when he had confirmed the shareholder status of Keeneye Group/Liu was nothing less than convoluted and unreliable.

489.  With regard the second concern, as stated in the Memorandum, noting Wang Li and Lu Ying’s alternate directorship, Li expressly asked for proof of their authority from Gao and Xie.  Despite the clear wording in the Memorandum, Li insisted under cross-examination that the focus was on who the chairman of CLB should be because Gao and Xie were still in detention. I reject his wrong interpretation of the Memorandum.

490.  The evidence on how Li verified the identity of Wang Li and Lu Ying as directors and their authority to settle was equally convoluted:

(a) Li said he had seen with his own eyes documents confirming their identity as directors and yet he could not point to any document. 

(b) The Major Events recorded in Li-3^rd did not mention him seeing Wang Li in April.  Li then said it was so recorded in Li-4^th when it did not.  He added that he had stayed in Xi’an for half month and met Wang Li 2-3 times.  He also talked about meeting Wang Li in May when they stayed longer.  He was plainly embellishing his evidence as he went along but he just would not identify any document he had seen in Xi’an that gave authority to Wang Li to settle.

(c) Li suggested under cross-examination that there were 2 other ways to confirm the authorization of Wang Li to settle: (i) through litigation when Wang Li was authorized as a director; and (ii) that Xie and Gao were absent in the management of the Coal Mine after their release. However, for litigation, there would be special authorization to show to the court.  If Li had considered that sort of authorization was sufficient, he would not have asked for authorization in the Memorandum.  As for Xie and Gao’s absence in the management, at best it showed that Wang Li had authority to run Bai Jun but not to settle.

(d) Li agreed that it was important to ascertain Wang Li’s authority to represent Bai Jun in any settlement agreement was signed:

“ It should be prior to signing the agreement dated 20 May that I caused an investigation. I worried, if Wang Li was to sign the agreement with Li, but it was still unclear as to his main identity or capacity, it was possible that the agreement would be deemed invalid because he was not within the boundary of authorization.”

This plainly was a strong piece of evidence from Li that he had concerns as to Wang Li’s authority to enter into the Settlement Agreement.

(e) As stated above, Li jumped between whether the company search was done in February or April 2009.

(f) Li agreed that he had kept a copy of a document specially authorizing Wang Li to represent Bai Jun in the PRC Court.  However, Li agreed that he had not made a request to Wang Li for proof of authorization to settle.  Li explained that it was because Keeneye Group had already acquired all shares of Bai Jun; Wang Li and Lu Ying were already exercising their rights as directors for quite a substantial period of time. Still, that did not address the concern in the Memorandum that Xie and Gao must be involved in a settlement.

491.  None of the methods described by Li in Section L4.4 above could address the 2 main concerns of Zeng and Li.  The effect of Li’s evidence was that he would rather rely on Wang Li’s oral representation as to shareholder status and authority to settle than to ask for direct documentary proof.

492.  Zeng’s evidence as to the knowledge of the transfer of shares of Bai Jun to Zhang was contradictory to Li’s.

(a) On the one hand, Zeng-5^th filed on 10 February 2012 stated that he got the Liu-Zhang Agreement dated 16 May 2009 by September 2009, latest.  At that time, Zeng was pressing Zhang hard for the balance payment of RMB110 million to complete the sale and purchase of Angola.

(b) On the other hand, Zeng testified that he only got a copy of the Liu-Zhang Agreement after completion of the arbitration in 2010.  It was not clear why and how Angola could have got that copy disclosed in a confidential arbitration in which Angola was not a party.

493.  Zeng could not explain the discrepancy in his evidence.  His evidence was also at odds with Li’s evidence that Li only got the Keeneye Agreements in around July 2009 when working in the Xi'an arbitration.

494.  In the light of the evidence of Zeng and Li under Section 4.4, it was clear that they subjectively knew the distinction between Wang Li (i) having authority as a director and (ii) having authorization to enter into a settlement.  Zeng and Li were keen to have proof of item (ii).  Plainly they were aware of the difficulties in handling Xie and Gao as controllers in the past and they were prudent to ascertain the position between Xie and Gao on the one hand and Keeneye Group on the other before taking the risk of negotiating settlement with the new owners of Bai Jun. 

495.  Li’s proceeding to sign the Settlement Agreement without getting item (ii) would, if true, be irrational.

496.  On the other hand, given the subsequent settlement talks, Angola Camp must have obtained the relevant documents to address their 2 concerns by February or April 2009 when negotiations were conducted (ie the 1^st to 4^th Major Events).  That must have included the Liu-Zhang Agreement and SPA/Angola which showed Zhang’s beneficial ownership of Bai Jun.

L4.5  Zeng and Li’s knowledge from communication with Zhang

497.  Zeng, Li and Chan apparently had a close relationship with Zhang right from the start of their acquisition of Angola.  The three of them claimed that they first met Xie and Gao through the introduction of Zhang. 

498.  Zeng and Li expressly admitted that they had been told of the circumstances relating to the performance of and disputes under the Keeneye Agreements:

(a) Zeng testified that in a telephone conversation, Zhang told him about his intention to acquire both Bai Jun and Angola and that Zhang would look for Gao to have a comprehensive settlement. 

(b) Li also testified that he had heard from Zhang about his intention to acquire the Keeneye Group and that Zhang was looking for Gao because there was an issue about the payment in respect of transfer of shares between Wang Li, and Xie and Gao.  Zhang wanted to carry out two negotiations, one with Wang Li, the other with Gao, in order to ascertain the price of the payment; and then Zhang would be the person to pay.  Zhang thought that if he could resolve the conflict between Wang Li and Gao, then Zhang would be able to acquire the shares of Bai Jun.  Li added that, in law, it was not necessary for Zhang to look for Gao but Zhang did so to do a global acquisition.  It seemed that Zhang had proposed a price to Gao, and a price to Liu, but that had nothing to do with Angola, Li said. 

(c) Li-4^th put in the discussion between Gao and Zhang on 22 April 2009 as the 4^th Major Event.  It was plain that Angola knew that a global settlement could not be reached without the participation of Xie and Gao and that the two of them clearly retained some interest in Bai Jun.

(d) Li-4th also explained why the Settlement Agreement was not disclosed to Angola’s lawyer between 20 May and 3 July 2009. It was because he was told by Wang Li that there were ongoing disputes between Xie and Gao, and Wang Li and Lu Ying, regarding ownership and control of Bai Jun as early as 2 June 2009 when HCA 1315/2009 was issued. 

“ 14. This is especially so when it was known to us that there are ongoing disputes between GAO/XIE and WANG/LU regarding the ownership and control of Bai Jun as early as 2 June 2009 with the commencement of the legal proceedings in High Court No. 1315/2009 between them. For us to disclose the terms of the Settlement Agreement, before we know for sure that the claims made by Bai Jun against Angola would be withdrawn in these proceedings, would be highly unfair and prejudicial to Angola’s position in these proceedings.”

In his oral evidence, Li confirmed,

“ I knew that after 2 June. Dispute arose from right to control the company. That took place in Hong Kong. That means for the latter part of June I knew some of the conflicts. But that kind of conflict did not shake my belief in directorship held by Wang Li.”

This was important admission that Angola had always been aware of the disputes that led to HCA 1315/2009 and the existence of the action itself.  This knowledge of Li was plainly acquired before the Actual Signing Period.

499.  Zeng testified that by around mid-May 2009, all parties (ie he himself, Zhang and Liu) had already agreed on the terms of the global settlement in principle.  Liu was then the actual controller of Keeneye Group.  Plainly, in the negotiation of settlement, be it through Zeng or Li, Angola was not just talking to Wang Li or simply relying on the fact of his directorship in Bai Jun registered in the Companies Registry.  Angola Camp just would not tell the court what the authority of Wang Li to settle was.

500.  In the light of such evidence, it was incredible for Li to make a blank denial of the knowledge of the dispute between Xie and Gao and the new shareholders of Bai Jun and use only one paragraph in his witness statement to talk about the Settlement Agreement (§328 above).  He deliberately avoided exposing his substantial knowledge of the truth that Xie and Gao had interest in Bai Jun and that Zhang was then giving instructions.

L4.6  Irregularities in the PRC Court Sanctioned Settlement 

501.  The PRC Court Sanctioned Settlement was obviously part and parcel of the same plot against Xie and Gao:

(a) Li admitted that the Settlement Agreement should have been signed by a legal representative or someone specifically authorized to do so.  Yet Wang Li was not the legal representative of Bai Jun.  Zeng and Li could not explain how they were satisfied with his authority to settle.

(b) Under the Agreements for the acquisition of the Bai Jun shares, especially the one dated 27 August 2008, Keeneye Group was not entitled to the benefit of any shares recovered from Angola in the present action.  That was to the knowledge of Zeng, Li and/or Zhang. Yet the terms of the Settlement Agreement, if fully implemented, would have the effect of depriving Xie and Gao of their rights in those shares.   Wang Li had no authority to enter into a Settlement Agreement with such effect.

(c) The uncontradicted evidence of Mr. Fok Hei Yu, the then receiver of Zhong Xin, was that the PRC Court Sanctioned Settlement was conducted without the knowledge and instructions from both the IRs of Zhong Xin and the directors of CLB nominated by Zhong Xin (eg Fok, §§7 – 8; Fok-2^nd, §15).

(d) Zhang’s purported representation of Xie (as the registered legal representative of CLB) was without the knowledge, authorization or consent of Xie (Gao's WS, §22).

(e) IRs of Bai Jun have already been appointed pursuant to the order of Chung J under HCA 1315/2009 on 25 June 2009 to the knowledge of Angola and Wang Li (who was a party to that action).  Wang Li still purported to represent Bai Jun to sign the Settlement Agreement in the Actual Signing Period and represent Bai Jun in the PRC Court Sanctioned Settlement.

502.  Mr Chan SC also submits that the terms of the Settlement Agreement were simply unworkable and detrimental to the interest of Zhong Xin for various reasons.  I do not need to examine those reasons.  Suffice to say that if Wang Li did not have authority to act on behalf of Bai Jun, whether the terms were workable or detrimental would be irrelevant.

L4.7  Dishonest and irrational reliance

503.  The evidence in Section L4 showed that in all probabilities, Zhang, Zeng and Li, and hence Angola, knew a lot more than they wanted to admit or had placed before Chung J in June and July 2009. 

504.  Zhang had gained control and interest of both Bai Jun and Angola by 10 June 2009, at the latest, but Li testified that Zhang did not really have control over this action or the settlement.  Li claimed that there was an oral term that Zhang’s rights were conditional on Zhang’s payment of the first instalment of the purchase price to Zeng, Li and Chan within 10 days; and he would have no entitlement if he failed to pay.  During those 10 days, Li claimed, Zhang’s position had no bearing on the rights of Angola’s directors. However, Li had to agree with Mr Chan SC that if there was such a condition, there was no reason why it did not appear in the SPA/Angola.  I reject Li’s evidence in this aspect.

505.  Zhang’s interest in Bai Jun was concealed from the Hong Kong court, PRC Court and Gao at the time the Settlement Agreement was actually signed.   In fact, Angola had never intended to disclose Zhang’s acquisition of Bai Jun and Angola until about January 2012, following the internal dispute among Zeng, Li and Chan and Zhang over the performance of the SPA/Angola (Zhang-1^st filed on 21 January 2015, §5). That was also the time when Gao got to know of Zhang’s involvement.

506.  Zhang, Zeng and Li were rational enough to ask for proof of authority to settle from Wang Li (since about 10 months before the purported date of the Settlement Agreement) but went ahead with the settlement despite lack of proof.  There could only be 2 reasons: (i) they were reckless or irrational in taking the risk of Wang Li having no authority to settle; or (ii) they had knowledge in hand that satisfied the 2 concerns as to Keeneye/Liu’s shareholder status and Wang Li’s authority to settle as coming from Zhang as the true beneficial owner of Bai Jun.

507.  Li concealed the fact of having a settlement from the Shaanxi HPC.  He lied to the Hong Kong court when he introduced the Settlement Agreement.  He suggested to Zhang to backdate the Settlement Agreement.  Great efforts were made to conceal Zhang’s beneficial ownership of Bai Jun and Angola and his involvement in the Settlement Agreement.  The Settlement Agreement was concealed from Xie and Gao when Zhang, Zeng and Li knew that Xie and Gao’s involvement was necessary in a global settlement.

508.  The irresistible inference was that Zhang, Zeng and Li knew about the existence of the Stop Notice and the HCA1315/2009 action and wanted to undermine Gao’s success thereunder.  They also wanted to prevent Angola from being fixed with Wang Li’s lack of authority.  If Xie and Gao had known of Zhang’s involvement, chances were that Zhang would not be able to acquire Bai Jun. That was why the Settlement Agreement was backdated to 20 May in order to avoid any complications arising from judgments/rulings adverse to Angola.

509.  These were all pointers to a clear conclusion: that Zhang, Zeng and Li (and hence Angola) were dishonest in relying on the apparent authority of Wang Li.  They knew that Wang Li’s “authority” to settle truly came from Zhang and not Wang Li’s mere status as a director, any company search, or any resolution of Bai Jun. 

L5.  Conclusion for Stage 3

510.  The Settlement Agreement was signed sometime between 21 June and 6 July 2009.  It was deliberately backdated to 20 May 2009. The application to adjourn the Original Trial on the ground of there being a Settlement Agreement was plainly misleading to Chung J.

511.  The Settlement Agreement was signed by Wang Li without authority to settle.  It was dishonest and irrational for Zeng/Li/Zhang to rely on any apparent authority of Wang Li to uphold the validity of the Settlement Agreement.  This action has not been settled.

M.    WHETHER THE SETTLEMENT AGREEMENT WAS UNENFORCEABLE FOR BEING A BREACH OF TRUST,DISHONESTLY ASSISTED BY ANGOLA AND/OR BREACH OF CONTRACT PROCURED BY ANGOLA

512.  These causesof action would not be of much assistance to Bai Jun if it cannot succeed under either Stage 1 or Stage 3.  I just deal with these 2 causes briefly.

M1.  Legal principles on procuring breach of contract

513.  The tort of procuring a breach of contract requires the following elements to be proved:

(a) There was a contract between A and B;

(b) There was a third party C who had knowledge of that contract;

(c) C did an act which induced or persuaded A to breach the contract.

(d) C did that act with intent to cause A to breach the contract, the breach of that contract being an end in itself, or a means to an end, and not merely the foreseeable consequence of C’s act.

(e) As a result, B suffered pecuniary loss.

See Xiamen Xinjingdi Group v Eton Properties Ltd [2016] 2 HKLRD 1106, at §204.3 following OBG v Allen[2008] 1 AC 1 §§39-44.

514.  With this tort, the defendant is responsible for the third party’s breach of contract which he procured, and hence provides a claimant with an additional cause of action.  The third party who breached his contract is liable for breach of contract.  The person who persuaded him to breach his contract is also liable, in his case in tort.  Hence this tort is an example of civil liability which is secondary in the sense that it is secondary, or supplemental, to that of the third party who committed a breach of contract.  It is a form of accessory liability. OBG v. Allen, §§171-172.

M2.  Legal principles on dishonest assistance in breach of trust

515.  A person who dishonestly assists a trustee in committing a breach of his duty may be liable to the beneficiary.  It is unnecessary for the primary breach to be dishonest or fraudulent: Snell’s Equity, 33^rd ed, §30-077.

516.  Dishonesty is an objective standard: Peconic Industrial Development Ltd v Chio Ho Cheong HCA 16255/1999, unreported, 1 June 2006, at §§180 – 184, A Cheung J (as he then was); following Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476, §§10, 12 – 16, Lord Hoffmann.  It has to be proved with cogent and compelling evidence. See by analogy Re H (Minors) [1996] AC 563, 586D – 587F, per Lord Nicholls.

517.  It is an objective standard because the courts apply the normally acceptable standards of honest conduct in determining whether the accessory is dishonest.  It mattered not that the accessory judged by different standards.  However, when deciding whether the accessory was dishonest, the court also takes into account the circumstances known to him at the time he acted, personal attributes such as his experience and intelligence and the reason why he acted as he did.  The accessory has the requisite dishonest state of mind if he deliberately closes his eyes and ears, or deliberately refrains from asking questions, lest he learns something he would rather not know, and then proceeds regardless.  Hui Cheung Fai & Anor v Daiwa Development Ltd and Ors HCA 1734/2009, unreported, 8 April 2014, §§130-134, Deputy Judge Fung SC; following Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming [1995] 2 AC 378, 389C-F, Lord Nicholls; Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476, §§10, 12-16, Lord Hoffmann. 

M3.  Application of the legal principles

518.  The contract in question was the Supplemental Keeneye Agreement dated 27 August 2008 which specified clearly in clause 2 that despite the sale of shares in Bai Jun, Xie and Gao retained the rights of Bai Jun in these proceedings and the rights to the shares in Zhong Xin that might be obtained through these proceedings. 

519.  Mr Chan SC submits that, as the Zhong Xin shares were held in the name of Bai Jun, the true effect of this clause was that insofar as Bai Jun was entitled to recover any shares from Angola, the same would be held by Bai Jun for Xie and Gao.  As such, Keeneye Group, through the control of Bai Jun had agreed that Bai Jun was holding the litigation rights in these proceedings on trust for the beneficial owners Xie and Gao.  The Settlement Agreement was inconsistent with clause 2 of the Supplemental Keeneye Agreement as it effectively gave up Bai Jun’s claim in the present action without consent of Xie and Gao. 

520.  For the cause of action in procuring breach of contract, Bai Jun was not a party to the Supplemental Keeneye Agreement.  The proper plaintiffs should be Xie and Gao.

521.  Putting aside this difficulty, Angola (as the third party) would have the dishonest intent to assist Bai Jun given the reasons in section L4.7 above.

522.  However, even if these 2 causes of action could be established, they would only sound in damages.  They could not be a ground to set aside the Settlement Agreement or to enable Bai Jun Camp to recover the Zhong Xin shares from Angola. 

N.  CONCLUSION AND ORDERS

523.  I order as follows:

(1) Angola shall pay RMB1 million to Bai Jun, being the balance of RMB 3 million payable under Clause 2.4 of the JV Agreement less liquidated damages of RMB 2 million payable by Bai Jun;

(2) On a nisi basis, there be interest on the sum in paragraph (1) at P+1% for the period from 21 December 2005 to the date of judgment and thereafter at judgment rate until payment;

(3) Bai Jun Camp’s counterclaim for a declaration that Angola was not entitled to the 50% shareholding in Zhong Xin and an order for transfer of the shareholding to Bai Jun is dismissed.

524.  No order needs to be made as regards the Loan Agreement.

525.  The core of Bai Jun’s counterclaim is for shareholding held by Angola.  Angola Camp is the true winner on the Stage 1 issue. In the interim, Angola Camp has withdrawn its claim under the Loan Agreement, of which costs should go to Bai Jun.  The Stage 2 issue became unnecessary but I do not see how it could be said that it was not an unreasonable cause to raise or to defend.

526.  In my view, Angola should have 80% of the costs of the action on party-and-party basis relating to Stage 1 and generally under the JV Agreement. 

527.  Costs should follow the event on the Stage 3 issue.  Stage 3 came about because of gross litigation misconduct on the part of Angola Camp in misleading the Hong Kong and PRC Courts.  This trial could have ended 9 years ago but for such misconduct.  I am of the view that Angola Camp should bear costs of Bai Jun on indemnity basis from and including 3 July 2009, the date when Angola Camp issued the summons to stay the action and to amend the pleadings to introduce the Settlement Agreement.

528.  Taking a broad brush approach and doing a notional set off, I, on a nisi basis, order Angola Camp to bear 30% of Bai Jun’s costs of the whole action on indemnity basis. 

529.  I am most grateful to counsel for their thorough preparation and great assistance to the court.  Their cooperation in putting together a set of undisputed facts after an 11 day trial was particularly useful.

530.  I also wish to thank the solicitors who have helpfully put together the trial bundles, clearly sorted out for the court’s easy reference.  The core bundles contained really core documents and were of great help.