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

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

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(By original action)

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(By counterclaim)

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D E C I S I O N

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Background

1.  I adopt the usual abbreviations for entities in previous decisions of this case.

2.  CLB is a Chinese joint venture that owns a mine in the Shaanxi Province.  Xie has been its legal representative.

3.  Zhong Xin holds over 70% of the shares of CLB and thus have control over CLB.  Interim receivers have been appointed for Zhong Xin.

4.  Zhong Xin is owned, as to 50% by Clarigain/Bai Jun, and as to 50% by Achieve Gold/Angola.  The shareholders’ dispute in this case will be tried on 1 March 2018, scheduled for 9 days.

5.  Clarigain wholly owns Bai Jun.  Bai Jun is wholly owned by Xie and Gao.  Xie and Gao are thus ultimate beneficial owners of 50% of Zhong Xin.

6.  The former interim receivers, FTI, gave a power of attorney for Xie to be legal representative of Zhong Xin.

7.  By an order dated 19 May 2015 (“the order”), FTI was replaced by the current interim receivers (“the IRs”).

8.  On 21 September 2015, the then directors of CLB passed a resolution to, amongst others, replace Xie with Mr Wardell of the IRs as Chairman of the board and CLB’s legal representative.

9.  The IRs have tried to register the change of legal representative with the Shaanxi Administration for Industry and Commerce (“SAIC”), but to no avail.  If Xie continues to remain as legal representative, he will retain apparent authority to act on behalf of CLB against any third parties.

10.  This is an application by the IRs for directions as to whether they may be at liberty to commence proceedings against (a) Xie; (b) Gao; (c) Clarigain; and/or (d) Bai Jun, for breach of the order, in obstructing the IRs from collecting, getting in, or receiving the assets and property of Zhong Xin and from managing the businesses of Zhong Xin and for directions on the form of proceedings that shall be commenced.

The parties’ respective case

11.  It is the IRs’ case that Xie has obstructed the IRs by actively lobbying the SAIC not to register the change in legal representative.  The IRs have requested Xie to execute an undertaking to renounce his position and to support Mr Wardell’s appointment but Xie refused.

12.  At this call-over hearing, the IRs seek directions for filing an affirmation in reply and to set down the matter for argument for one day.  The application is supported by Achieve Gold/Angola.

13.  However, Clarigain/Bai Jun oppose the application on the following grounds:

(1)  That no leave is required;

(2)  If leave is required, Xie is the only potential defendant; the court has no jurisdiction to grant leave because Xie is not a party;

(3)  Leave should be refused because the intended proceedings are not for the benefit of Zhong Xin;

(4)  One day’s hearing is not sufficient because of dispute of facts and legal experts’ opinion.

14.  I shall deal with each ground in turn.

Ground 1 – that no leave is required

15.  The application is taken out under Order 30 of the Rules of the High Court (presumably under rule 8) and the inherent jurisdiction of the court.  Order 30, rule 8 enables a receiver to request the court to give him directions.  It is not clear how the inherent jurisdiction is to be applied.

16.  I am unable to understand why leave of the kind sought is required.  If the IRs consider that anyone has committed a breach of the order, they can simply seek leave to commit for contempt.  There is no need to precede that leave application with another leave application like the present one.  If it is intended to be the application for leave to commit for contempt, the procedure in Order 52 has not been complied with.

17.  This is sufficient to dispose of the application.

Ground 2 – that the court has no jurisdiction to grant leave because Xie is not a party

18.  The court does not have jurisdiction under Order 30 to give directions affecting non-parties to the proceedings: Bank of China (Hong Kong) Ltd v New Nongkai Global Investments Ltd, HCA 2062/2003, 31 July 2003, §28, Deputy Judge Poon (as he then was); Hong Kong Civil Procedure 2017, Vol 1, §30/8/2.

19.  Xie is not a party and the court has no jurisdiction to make an order against him.

20.  There are no allegations against Gao, Clarigain or Bai Jun.  Ms Cheung, counsel for the IRs, submits that the joinder of them is to bind all relevant parties. 

21.  With respect, the reason for joinder has not been stated in the IRs’ supporting affirmation.  In any case, a shareholder (legal or beneficial) cannot be liable for Xie’s breach unless the court order said to be breached was directed against her/it.

22.  Ms Cheung submits that the court has jurisdiction because Clarigain/Bai Jun have submitted to jurisdiction.  With respect, I disagree for 2 reasons:

(a) If the court has no jurisdiction, the fact that one party submits to jurisdiction does not create jurisdiction;

(b) An argument similar to that of Ms Cheung’s was doubted by the court in Bank of China v New Nongkai, at §26.  I share the view of Deputy Judge Poon.

In any case, Xie and Gao have not “submitted to jurisdiction” under Order 30.

23.  The lack of jurisdiction is sufficient to dispose of the application.

Ground 3 – that leave should be refused because the intended proceedings are not for the benefit of Zhong Xin

24.  I say little on the merits except to make one observation.  I am concerned about whether this application is satellite litigation and what real benefits it can bring to Zhong Xin when the supporting affirmation did not rely on any misconduct of Xie.

25.  Ms Cheung gives evidence at the bar table that Xie has caused CLB to lose RMB 600 million whilst he was a legal representative.  The IRs want to file yet another affirmation to include such misconduct. 

26.  I doubt if the IRs can put in new evidence in what should be an affirmation in reply.  That aside, this means another round of affirmations which would take about 2½ months. 

27.  The hearing for arguments may just be 5-6 months before the trial commences on 1 March 2018.  The benefit of any order under this application (which is not even leave to commence committal proceedings) will be limited to those 5-6 months plus, say, another few months after trial for final judgment.  In my view, the parties should be concentrating on preparation for the trial rather than on satellite litigation. 

Ground 4 – that one day’s hearing is not sufficient because of dispute of facts and legal experts’ opinion

28.  Xie disputes the need to hand over power.  The IRs and Xie have respective legal opinions to support or deny the position that Xie would not be in breach of the relevant PRC laws if he handed over power.  Mr Ng submits that the court may have to listen to the evidence of Xie and the legal experts.

29.  I am not troubled by the hearing time.  The court needs only be concerned about whether it is a suitable case for giving directions to the IRs, instead of the merits of the substantive application or defence to it.  The hearing should not take long and there should not be oral evidence.

Conclusion

30.  I dismiss this application on the jurisdiction ground, ie grounds 1 and 2 only. 

31.  I make an order nisi that Zhong Xin should bear the costs of Clarigain and Bai Jun; and no order as to costs as regards Angola/Achieve Gold who supports the application. 

32.  There shall be summary assessment of costs on the papers on 25 May 2017.  Clarigain and Bai Jun do file and serve their statement of costs by 19 May 2017, and the IRs do file and serve their grounds of objection by 24 May 2017.

33.  I thank counsel for their assistance.