ACHIEVE GOAL HOLDINGS LTD v. ZHONG XIN ORE MATERIAL HOLDING COMPANY LTD

HCA 1987/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1987 OF 2005

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D E C I S I O N

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1. This is an application by D2 and D3 by counterclaim (“the Angola Applicants”) for the discharge of the interim receivers (“the IRs”) of the defendant by original action (“Zhong Xin”).

Background

2. D2 by counterclaim (“Angola”) and P1 by counterclaim (“Clarigain”) each holds 50% of the shares in Zhong Xin.  The persons behind Angola are D3 and D4 by counterclaim, and those behind Clarigain are Xie He Ping (“Xie”) and his wife Madam Gao Hai Yan (“Gao”).

3. Zhong Xin is a 70% joint venture partner in Changlebao Mining Corporation (“CLB”).  The other 30% partner is Yulin Changle Commerce and Industry Co. Ltd. (“Yulin”).  CLB owns a coal mine in Shaanxi.

4. Xie and Gao held the entire shareholdings in Zhong Xin on trust for P2 by counterclaim (“Bai Jun”), who appointed them to act as directors of Zhong Xin.

5. The agreement between Angola and Clarigain (“the JV Agreement”)was that in return for 50% interest in Zhong Xin, Angola agreed to provide the equivalent in USD of RMB 50 million to Zhong Xin. The dispute between Clarigain and Angola is whether that amount was capital (on Clarigain’s case) or that they were only obliged to provide finance to the extent of RMB 50 million (on Angola’s case).

6. The rights between Yulin and Zhong Xin were governed by a joint venture agreement dated 12 December 2004 (“the CLB JV contract”). Under the CLB JV contract, the parties agreed to invest a total of RMB 71 million into CLB, of which Yulin was to contribute RMB 21.3 million for 30% of the capital, and Zhong Xin RMB 49.7 million (by 3 instalments) for a 70% share.

7. Under clause 2.2 of the JV Agreement, Angola was to provide the equivalent of RMB 20 million to Zhong Xin for the 1^st instalment payment under the CLB JV contract. Angola did provide the 1^st instalment to Zhong Xin, but by way of a loan.

8. Angola was said to have failed to provide funds for Zhong Xin to inject as 2^nd and 3^rd instalments into CLB.  According to clause 4.3 of the JV agreement:

「若甲方（Angola）未能按期支付合资公司注册资本金余额，将由乙方（Bai Jun）出资补上，甲方在中信矿业公司（Zhong Xin）的股份则按比例相应降低。」

So Bai Jun stepped in and injected US$3.56 million (“Bai Jun’s capital injection”) into CLB.

9. In this action in Hong Kong, Bai Jun counterclaims that Angola was holding 59.49% of its 50% shareholding in Zhong Xin on behalf of Bai Jun.  Angola’s case is that under the JV Agreement, its obligation was to look for but not necessarily provide capital.

10. In July 2008, Yulin sued Zhong Xin and Bai Jun in the陝西省榆林巿中級人民法院 (“the Shaanxi Court”).  Angola and CLB were made third parties.  Yulin challenged Bai Jun’s capital injection as false and invalid, as Angola had never given up its right to provide capital nor authorized Bai Jun to provide capital on behalf of Zhong Xin.  Yulin and Angola claimed a right of pre-emption over 42% of the shares in CLB such that Zhong Xin’s stake would be reduced from 28% to 20%.

11. In July 2008, Xie and Gao purportedly transferred their shares in Zhong Xin to someone else.  The dispute as to ownership has been ongoing.

12. There was deadlock in Zhong Xin’s management. Clarigain, Zhong Xin and Bai Jun alleged that Angola had sided with Yulin in trying to obtain control of CLB.   The Court of Appeal of Hong Kong appointed the IRs of Zhong Xin on 7 November 2008.

13. On 28 November 2008, the Shaanxi Court upheld the validity of Bai Jun’s capital injection in CLB.  Yulin and Angola appealed.

14. About 3 months after the appeal was lodged, on 6 March 2009, the IRs ratified Bai Jun’s capital injection on behalf of Zhong Xin (“the Ratification Decision”).

15. Angola applied for an injunction in this action restraining the IRs from ratifying the capital injection.  The application was dismissed by Chung J on 26 June 2009.   Chung J expressly pointed out that the IRs had taken care to make the ratification without prejudice to the rights of the parties to this action (§10 of his Reasons for Decision).  At that hearing, Angola’s (1^st) application to discharge the IRs was not pursued.

16. What followed were keen efforts on the part of Angola to reach “settlement” and have the IRs removed.  Equally resolute were the IRs in refusing to comply with “settlement” terms.

17. On 20 May 2009, Angola and Bai Jun (under new ownership and management) purportedly reached a global settlement of all their disputes in both the Mainland and Hong Kong courts and to discharge the IRs and Zhong Xin (“the Global Settlement”).

18. After the Global Settlement, there had been purported change in ownership this time of Angola.

19. Unknown to the IRs, on 29 June 2009, Yulin, Angola, Bai Jun, Zhong Xin and CLB reached an alleged settlement sanctioned by the Shaanxi Court (“the PRC Settlement Order”), whereby Yulin and Angola’s appeals in the Mainland would be given up on the following terms:

(1) CLB should return the sum injected by Bai Jun through the account of Clarigain (“the 1^st limb”);

(2) after the negotiation between its shareholders, Zhong Xin should re-inject US$3.56 million into CLB (“the 2^nd limb”).

Clarigain was not a party to the PRC Settlement Order.

20. Four months later, on 29 October 2009, the Angola Applicants applied for dismissal of the counterclaim and (for a 2^nd time) the discharge of the IRs on the ground that this action and the appeals in the Mainland had been settled by agreement.  The application was initially supported by Bai Jun.

21. Clarigain opposed the dismissal application.  Amongst others, it questioned the validity and enforceability of the Global Settlement.  The IRs, whilst maintaining a neutral stance, took the view that the PRC Settlement Order was invalid (as being entered into without Zhong Xin’s knowledge and by its lawyers without instructions) and not in the best interests of Zhong Xin.

22. On 27 November 2009, the IRs applied to the Shaanxi Court to overturn the PRC Settlement Order, but was dismissed on 14 April 2010. On 19 April 2010, they appealed to the Supreme People’s Court in Beijing (“the SPC”), but was dismissed on 17 August 2010.

23. Pursuant to the 2^nd limb of the PRC Settlement Order, 2 shareholders (Angola and Bai Jun) had agreed on 5 November 2010 that Angola should inject US$3.56m in the name of Zhong Xin.  The IRs were informed on 2 February 2011 and their consent and cooperation were sought.

24. The IRs then filed the affidavit of Fok on 10 June 2011 (which was in relation to the 29 October 2009 application) setting out the reasons for the refusal.

25. On 13 July 2011, the SPC issued a Notice of Direction (“the SPC Notice”) reiterating the validity of the PRC Settlement Order and clarified the manner of capital re-injection, namely, that Zhong Xin was to first inject a sum of US$3.56m into CLB and thereafter CLB would return the same sum to Clarigain.  By then, it had been over 2 years since the PRC Settlement Order was made and 11 months since the SPC upheld its validity.

26. On 24 August 2011, Angola informed the IRs that the funds of US$3.56m were ready for re-injection.

27. Once again, the IRs refused to comply with the PRC Settlement Order, one reason being that they had not been informed of or invited to make representations to the application for the SPC Notice.

28. On 1 December 2011, upon the Angola Applicants’ application (by summons dated 6 October 2011), Chung J ordered the IRs to forthwith comply with the PRC Settlement Order and the SPC Notice unless the IRs applied within 21 days to the PRC Court for directions.

29. The IRs did apply on 15 December 2011 to the SPC for reconsideration of its decision of 17 August 2010 made some 16 months ago. 

30. On 12 January 2012, whilst the IRs’ application to the SPC was still pending, the Angola Applicants applied to compel the IRs to comply with the PRC Settlement Order.  It was opposed by the IRs.

31. The applications of 29 October 2009 and 12 January 2012 were heard by Chung J on 6 March 2012.  Chung J ordered the former application to be adjourned sine die.  The latter application was adjourned to a date to be fixed and is still pending disposal.

32. On 29 May 2012, the IRs/Zhong Xin, Yulin and CLB entered into a settlement (“the 2012 Settlement”) whereby Zhong Xin and Yulin recognized each other’s 70% and 30% interest in CLB and all agreed that they would not comply with the PRC Settlement Order.

33. On 28 March 2013, the SPC dismissed the IRs application and, once again, upheld the validity of the PRC Settlement Order and the SPC Notice.

The application to remove and replace the IRs

34. The Angola Applicants took out the present application on 9 July 2013 for removal and replacement of the IRs.  The grounds are that:

A. The IRs have failed to act in the best interest of Zhong Xin; and

B. The IRs have been conducting themselves in a way which is, or reasonably perceived to be, in close collaboration with another camp of shareholders, ie Xie and Gao, which compromised their neutral position.

35. Clarigain opposed the application.  Bai Jun took a neutral position.  The IRs, purportedly taking a neutral stance, took issue on the grounds related to their conduct.

The principles for discharge or removal of receivers

36. The principles, which I have set out in the case of Macau First Universal International Ltd v Ding Xiaohong (No.2) [2012] HKLRD 494, at §§ 47-56 are not in dispute:

“47. A receiver appointed by the court is an officer of the court who has to observe high standards of conduct:

‘A receiver appointed by the court is an officer of the court, and his powers and authority are derived from the court’s order. A receiver, as an officer of the court, is subject to the general supervisory jurisdiction of the court. He is not in any sense an agent or trustee of the party at whose instance the appointment is made. An exacting standard of fair conduct and high-mindedness is to be expected from a receiver as an officer of the court under the rule in IRs James. They are obliged not only to act lawfully but fairly and honourably. The court is sensitive about the conduct of its officers and requires of them strict standards of conduct. It requires any receiver appointed by the court to observe a high degree of equitable conduct.’

Kwan: Company Law in Hong Kong (Insolvency), 2007, para 11.008.

48. A receiver must act in accordance with principles of justice. …

49. A receiver has a fiduciary duty to protect and get in assets of the company. …

50. Where he is appointed to manage the business, he should enable the business of the companies to be carried on in a way that enabled both parties to the dispute to be reasonably confident that neither was benefiting at the other’s expense, and that payments and receipts were in order and properly monitored. …

52. The court may discharge a receiver if it is just to do so, e.g. if the original appointment should not have been made or if default, misconduct or other ground for unfitness is shown: Lightman and Moss on the Law of Administrators and Receivers of Companies, 4^th ed, para 29-016. For instance, a receiver may be discharged if his conduct has been such as to impede the impartial course of justice as to amount to a gross dereliction of duty. He may also be discharged for any default or misconduct of such a degree as will forfeit the confidence of the court or which is liable to prejudice the interests of the parties. …

53.Assessment of default has to be justified and reasonable … Where the receiver has honestly done his best but failed to discharge his duties by reason of their onerous and irksome nature, the court will be slow to condemn or discharge him.  …

…

55.The court does not lightly remove its own officer and will, amongst other considerations, pay due regard to the impact of a removal on his professional standing and reputation. ...

56. The onus of proof on an applicant will not be easy to discharge where the liquidator has become well acquainted with the business and affairs of the company. Even if grounds for removal are made out, it is also necessary to take into account the disadvantages that would arise from the removal of the liquidator in terms of costs and delay. ...”

(underlined words are the emphases of the Angola Applicants)

37. The Angola Applicants do not need to make out a case of actual bias.  Apparent bias or conduct that was reasonably perceived to be unfair and biased against one party would be sufficient.  Close collaboration with one camp of the dispute instead of maintaining a neutral position is capable of establishing such bias (§§60, 90 of the Macau First case).

38. Whenever the situation so demands, it is always open to a receiver to apply for directions from the court, especially where his action or inaction would have the appearance of placing one party in a more advantageous position than the other: Re Gold Pleasure Industrial Co. Ltd., HCCW 49-52/2006, 7 January 2009, Barma J (as he then was), §§64-65.

Ground (A): IRs failure to act in the best interest of Zhong Xin

A1.  Interest of different entities and the IRs’ role

39. Zhong Xin’s interest is to ensure that the capital injected into CLB remained there so as to secure 70% interest in CLB.  Yulin’s interest was to defeat that so as to claim a pre-emptive right (“the Yulin pre-emptive right”) and obtain more interest in CLB.  Clarigain’s interest was consistent with Zhong Xin’s.  Angola’s interest was to defeat Bai Jun’s capital injection so as to claim more interest in Zhong Xin (“the Angola pre-emptive right”). Angola’s interest was diametrically opposite to that of Zhong Xin.  There was ongoing, conflicting interest between Angola and Clarigain.

40. Under the Court of Appeal’s order, the IRs were to preserve and protect Zhong Xin’s interests under the CLB JV contract, and defend and conduct any appeal in the Shaanxi proceedings.  Mr Ho SC accepts that the only interest that the IRs should take into account was that of Zhong Xin and not the conflicting interests of the 2 camps of shareholders.

A2.  “Failure” to comply with the PRC Settlement Order

41. Instead of complying with letter of the PRC Settlement Order, the IRs tried 3 times to seek redress in the Mainland Courts but failed. Even after the IRs’ 3^rd application failed, they had not followed Chung J’s order dated 1 December 2011 to comply with the PRC Settlement Order. The protracted proceedings in the Mainland have caused the PRC Settlement Order to become unenforceable 2 years after its making.

42. One therefore needs to examine the reasons for the IRs’ non-compliance with the PRC Settlement Order.  I place little reliance on their assertion that their lawyer had acted without instructions, but I  take into account the following factors.

43. Firstly, there were circumstances showing that the Global Settlement was invalid.  According to Clarigain (who was not a party but disputed the validity of the Global Settlement), the Global Settlement was made in June 2009, but backdated to 20 May 2009 at Angola’s request to frustrate a stop notice preventing transfer of shares of Bai Jun filed with the Companies Registry by Xie/Gao the day before.  Clarigain was purportedly corroborated by Bai Jun.

44. Secondly and most importantly, the IRs considered that the PRC Settlement Order was not in the interests of Zhong Xin.  With the Shaanxi judgment in its favour and the Ratification Decision, Zhong Xin’s 70% interest in CLB was secure, subject, of course, to the appeal at that time.  The PRC Settlement Order, however, left Zhong Xin in a precarious position.  There was no provision as to the status of Zhong Xin’s interest in CLB in between performance of the 2 limbs.  The return of capital under the 1^st limb might be taken as an admission by Zhong Xin that the capital injection made by it was invalid.  If the shareholders could not come to any agreement as to re-injection of capital, Zhong Xin’s 70% interest in CLB would be jeopardized.

45. The IRs queried whether the shareholders could have agreed on capital reinjection and dispensed with the entirely circular and meaningless flow of funds under the PRC Settlement Order.

46. Thirdly, in the IRs’ views, the PRC Settlement Order gave rise to all sorts of difficulties.  For example, it might expose Zhong Xin to administrative penalties.  There might be violation of Article 36 of the Company Law of the Mainland which prohibited shareholders from withdrawing their capital contributions, foreign exchange difficulties in repatriating the capital.

47. Fourthly, even if the IRs had wanted to comply with the PRC Settlement Order, the 1^st limb was beyond the control of the IRs as CLB was to return the capital.  According to Angola (see 7^th affirmation of Zeng), CLB was to return the capital to Clarigain.  According to the SPC (judgment dated 28/3/2013) it was to be returned to Bai Jun.

48. Under the 2^nd limb, the shareholders (Angola and Bai Jun) purportedly reached an agreement only on 5 November 2010 for Angola to inject capital in the name of Zhong Xin.  However, the IRs regarded the shareholders to be Angola and Clarigain but not Bai Jun.  There was ongoing dispute as to who was acting for Bai Jun as Xie and Gao had purportedly sold the shares in Bai Jun to one New Purple and Keeneye but the sale and purchase agreement was subsequently set aside through arbitration.

49. Fifthy, notwithstanding the alleged agreement with Angola on 5 November 2010, Bai Jun had resiled from it.

(a) Bai Jun’s basis for its written consensus with Angola was that shares of Angola would be sold to the then shareholder of Bai Jun (one Zhang) such that Zhang would effectively own all the shares in Zhong Xin and avoid further litigation.  Zhang was then also the legal representative of Yulin.  The written consensus was in turn based on the continued validity of the Global Settlement.  However, the shareholders of Angola subsequently refused to transfer the Angola shares to Zhang.  Bai Jun thus considered the Global Settlement and written consensus to be no longer binding.  At the hearing on 1 December 2011 before Chung J, Bai Jun had expressly opposed the application for leave for Angola to re-inject US$3.56m into Zhong Xin or CLB. 

(b) Bai Jun points out that there is still dispute between Bai Jun (under its current owners) and Clarigain as to beneficial ownership over Bai Jun’s capital injection (then under the control of Xie/Gao).

50. Sixthly, the SPC Notice was strange.  It was not a judgment.  It was not addressed to anybody. It was not clear who had been heard (at least not Zhong Xin) before it was issued.  It was not clear why the SPC could have varied the parties’ agreement.  Importantly, even the SPC recognized the difficulty that might arise from performance of the 2 limbs to the PRC Settlement Order:

“本院認為，上述內容雖然不違反法律規定，但是在實際履行過程中，有可能存在原出資款項退回後，不能重新注資的情形，從而違反了《中華人民共和國公司法》第三十六條的規定。本院已經於2010年8月17日函告陝西高院, 在對上述調解書的執行過程中應要要求中信礦業集團有限公司先向榆林巿常樂堡礦業有限公司滙入356萬美元後, 再將原出資款項退回。”

51. Seventhly, further complications have arisen since the IRs’ 3^rd application to the Mainland Courts.  Nobody saw fit to enforce the PRC Settlement Order in the Mainland during the 2 years before limitation period for enforcement expired on 28/6/2011.  Yulin did not enforce it but entered into the 2012 Agreement.

52. With these circumstances, the IRs could not be blamed for failing to follow the letter of the PRC Settlement Order and having gone to the Mainland Courts 3 times.  The fact that the IRs’ concerns were all dismissed by the Mainland Courts could not, without more, throw in doubt good faith of the IRs.

A3.  Compliance with the spirit of the PRC Settlement Order

53. The IRs secured the agreement of Yulin not to exercise its pre-emptive rights, which meant firmly securing 70% of Zhong Xin’s interests in CLB. There is no dispute at the hearing before me that that was the best result that the IRs could ever achieve even if the PRC Settlement Order was complied with.

54. The 2012 Settlement Order had not given Zhong Xin anything further from what the Shaanxi Court had already declared it to have but the chance of reversing the Shaanxi judgment on appeal was eliminated.  On the other hand, the contentions between shareholders of the JV Agreement, or between Angola and Bai Jun as to whether the latter would be entitled to 42% interest in Zhong Xin, were preserved.  Angola’s right to litigate in Hong Kong was not affected either.

55. I have asked Mr Ho SC who was made worse off by the IRs’ non-compliance with the PRC Settlement Order.  He submits that: (a) there was risk of Yulin or Angola reopening their claims against Zhong Xin for its 42% shareholding in CLB; and (b) Angola’s position in the defence to counterclaim will be prejudiced.

56. With regard to (a), Yulin has expressly agreed that the PRC Settlement Order need not be complied with. It has even acknowledged the weakness of its appeal in correspondence before entering into the 2012 Settlement.  Without disrespect to Mr Ho SC, it is fanciful to suggest that Yulin would reopen its claim, or that it would succeed in the appeal if it is ever reopened.

57. As for Angola, despite being a party to the PRC Settlement Order, Angola has never tried to enforce it in the Mainland or restored the application dated 12 January 2012 for hearing.  Angola was found by the Shaanxi Court not to fulfill the legal criteria of being a third party under Mainland law.  There is no indication that Angola would reopen the appeal and if it does, what impact the re-opening will have on Zhong Xin’s interest.

58. With regard to (b), the truth is that under the PRC Settlement Order, if there was no agreement as to who should pay back the capital, the position would have favoured Yulin who could claim more interest in CLB.  On the other hand, if there was agreement between shareholders that Angola would provide the capital for the re-injection, Angola’s position as against Xie and Gao in the underlying dispute will be improved.  Therefore, the IRs’ non-compliance with the PRC Settlement Order prejudiced Angola’s defence in the counterclaim.  

59. With respect, how the subsequent PRC Settlement Order could have affected the prior accrued rights of Angola as pleaded is, of course, yet to be explained.  However, the IRs’ role was to act in the best interests of Zhong Xin, not any of the shareholders.   

A4.  Failure to seek directions from the court

60. Angola queried why the IRs, having learnt of Angola and Bai Jun’s agreement of 5 November 2010 on 2 February 2011, did not seek the court’s directions.  According to Angola, IRs obviously took irrelevant matters into account, namely, the conflicting interests between shareholders of Zhong Xin.  For example the IRs expressly stated in their affidavit that the capital re-injection would prejudice Clarigain/Xie/Gao’s interest in HCA 1987 of 2005 and “in the premises … the IRs would continue to take all reasonable steps to pre-empt anyone from seeking to disturb the Status Quo.”  Angola claims that in pursuing the status quo, the IRs put the interest of Zhong Xin at risk without justification.  Such being an act in total disregard of Chung J’s decision, it could readily be inferred that the IRs’ decision was motivated by the interest of Xie/Gao. It also had the appearance of placing one shareholder in a more advantageous position than the other after all avenues of judicial appeal have been exhausted.

61. With respect to Mr Ho SC, the issue of compliance with the PRC Settlement Order has been before the court since 2009 and is still pending.  It lies ill in the mouth of the Angola Applicants to complain against the IRs when the Angola Applicants have chosen not to restore the 12 January 2012 summons for argument.

62. Moreover, the circumstances have been evolving.  Whilst the Angola Applicants’ summonses to compel the IRs’ performance have been adjourned for arguments, the IRs achieved the best result for Zhong Xin.  It is questionable whether the IRs should still apply for directions for compliance with the PRC Settlement Order and unwind the 2012 Agreement.

63. It would have been best if the IRs have avoided references to Clarigain/ Xie/ Gao’s interests in their affidavits.  But viewing all circumstances, it has not been demonstrated that what the IRs did was against Zhong Xin’s interest. Ground A is not substantiated.

(B)  IRs’ conduct reasonably perceived to be in close collaboration with the Xie/Gao camp which compromised IRs’ neutral position

64. The Angola Applicants contend that the IRs have been acting in favour of the Clarigain and Bai Jun camps.

65. As a starting point, there were conflicting interests between shareholders. The fact the best result happened to coincide with the interests of one camp of shareholders but prejudiced another’s was not, in itself, evidence of the IRs’ bias, or compromise of their neutrality.

66. Angola complaints against the IRs and the IRs’ responses are dealt with as follows:

67. Firstly, the IRs have failed to take control over CLB and continued to allow Xie to hold himself out and rely on his status as legal representative of CLB.  Consequently Xie was able to (a) make a declaration which was used by the IRs in support of the IRs’ case before the Supreme People's Court; (b) call a board meeting of CLB; (c) sign the application for retrial at the Supreme People's Court; and (d) sign on behalf of CLB the agreement dated 29 May 2012 among the IRs, Yulin and CLB.

68. The IRs’ response was that Xie only remained as a director, chairman and legal representative of CLB on company record because Zhang Xin Tien of Yulin has withheld relevant corporate instruments.  In fact, Xie was removed and had no independent management powers.  The IRs would only authorize him to represent CLB in his formal capacity insofar as it was necessary to protect the interest of Zhong Xin, eg  to represent CLB in renewing mining exploration rights of CLB and this was known to Angola.  The same applied to the 2012 Settlement where Yulin insisted that Xie should sign the settlement agreement on behalf of CLB as legal representative on record to prevent Xie from reneging in future.

69. Angola pointed out that Zhang Xin Tien was arrested in September 2010.  The IRs did nothing towards demanding for return of the company chops and documents.  In fact, the company chop appeared in the application for retrial by Xie dated 12 February 2012.

70. I accept the IRs’ explanation’s as to Xie’s formal capacity and acts done.  The IRs could, of course, have done better towards retrieving the company instruments but their failure was not such as to show their collaboration with the Xie and Gao camp.

71. Secondly, the Angola Applicants complain that the IRs have acted upon the instructions of Xie, eg in being advised by Xie that the mining rights of CLB would expire in 2 months’ time and that immediate steps must be taken for renewal.  There was no similar reporting or communication between the IRs and Angola other than through litigation.  The IRs had never given any work report to the Angola Applicants.

72. The IRs were certainly at liberty to receive information from any person, including Xie.  However, there was nothing to suggest that Xie had influence in or dictated the IRs’ decisions.  Nor is there evidence to show that Xie and Gao’s camp received work reports of the IRs that the Angola Applicants did not have.

73. Thirdly, the Angola Applicants complains that there was consistent hostility towards Angola.  By way of example, the IRs alleged that Angola had misappropriated RMB 20 million from CLB despite Angola’s explanation to the contrary.  On the other hand, when Angola complained against Xie/Gao of misappropriation of assets, the IRs were indifferent.

74. The IRs have explained that Gao has filed a criminal complaint against Zhang Xin Tian for misappropriation of funds of CLB which Angola believed was a way to remove Zhang from being general manager of CLB. The IRs explained that their investigation of misappropriation of funds from CLB was in response to that issue raised by Angola itself. There was nothing to show that the complaint was made by the IRs out of hostility to Angola.  I accept the explanation.

75. Fourthly, it is said that the IRs have actively advanced the interest of Xie/Gao instead of maintaining a neutral position.  For example, the IRs were able to obtain the arbitral award in favour of Xie/Gao and made submission on it to the SPC only 2 days after the date of the award.  Likewise when they produced the various 民事訴訟證據登記表dated June 2010 and made submission through their Mainland lawyer dated 19 July 2010, the IRs submitted that Angola or the PRC Settlement Order was aimed at harming the interests of Xie/Gao.

76. The arbitral award affects the issue of who the real shareholders of Bai Jun were.  According to the IRs, as soon as the award was given, Xie and Gao informed them.  As stated before, the IRs were at liberty to obtain information.

77. Mr Chan SC explains that the submission of the IRs’ Mainland lawyer and evidence produced was to establish the point that any civil act which was a conspiracy to injure the interests of a third party would be void under《民法通則》第三條.  The argument was to advance Zhong Xin and not Xie/Gao’s case.

78. In my view, the Mainland lawyers instructed by the IRs must equally not act in a way that gives rise to apparent bias against a shareholder of Zhong Xin.  Their frequent references to Xie/Gao did give rise to concerns as to collaboration with the Xie/Gao camp.  However, having read the submission of the Mainland lawyers, the IRs also mentioned that Zhong Xin’s interest was harmed by the PRC Settlement Order.  Mr Chan SC’s explanation is a fair one.

The overall circumstances

79. This case involved hostile litigation with a chequered history dating back to early 2005.  The parties were in a deadlock.  After the IRs were appointed, the Mainland proceedings came to judgment.  Even after judgment, arguments arose as to whether or not a sanctioned settlement was valid and whether it could be performed.  Things developed further when a settlement which obtained the best results for Zhong Xin was achieved in 2012.  The IRs have had an irksome task.

80. The complexity in the matter can be seen from the various interlocutory applications to the court since 2009 concerning the Angola Applicants’ summonses for dismissal of the counterclaim and compelling the IRs to comply with the PRC Settlement Order, 2 of which are still pending.

81. This is not an occasion for the court to keep a score sheet and decide if the IRs have done well in each step.  It is for the Angola Applicants to show that the IRs have acted in such a way as to cause the court to lose confidence in them.  Although the IRs have steadfastly refused to comply with the PRC Settlement Order, and have in the submission of their Mainland Lawyers appeared to have advanced the interest of Xie/ Gao, overall, they have been acting in the interests of Zhong Xin.  Though their conduct was not perfect, the evidence falls short of showing that the IRs are not fit for appointment on either ground (A) or (B).  This is not a case where the court’s confidence in the IRs is forfeited.  Given the complex background, replacement of the interim receivers would not be in Zhong Xin’s interest, both in terms of understanding the nicety in issues and costs.  Its Mainland lawyers are, of course, well advised to refrain from using language that can give rise to concerns of compromising the IRs’ neutrality in future. 

Conclusion

82. I dismiss the application.

83. I make an order nisi that costs of this application be borne by the Angola Applicants, with certificates for 2 counsel.  The IRs have rightly appeared to explain their conduct and they should be given costs.

84. In respect of the costs of the IRs,

(i) The refreshers of counsel were grossly excessive having regard to their brief fees.  I only allow a total of $500,000 for counsel’s fees. 

(ii) There was no justification for several fee earners on the side of solicitors and the IRs.

(iii) There was no justification for 2 fee earners on the side of solicitors to attend the hearings.

(iv) There was no justification for IRs to attend hearings through a senior consultant.

(v) Costs of solicitors and the IRs assessed are at $460,000.

(vi) On a nisi basis, the total costs of IRs payable by the Angola Applicants are $960,000.

85. In respect of costs of Clarigain,

(i) There was no justification for more than 1 fee earner in conferences.

(ii) The reading refresher charged by counsel is not recoverable in principle.

(iii) The refreshers were grossly excessive where there was no updated written submissions.

(iv) Fees of the 3rd counsel are disallowed altogether.

(v) On a nisi basis, costs are summarily assessed and allowed at $1,000,000.

86. In respect of costs of Bai Jun,

(i) The quantum of refresher is the same as the brief fee and should be reduced as a matter of principle.

(ii) The fees for perusal and consideration of application and one conference are included in brief.

(iii) The quantum of costs should reflect Bai Jun’s neutral position and limited participation at the hearing.

(iv) On a nisi basis, costs are summarily assessed and allowed at $180,000.

87. I thank counsel for their assistance.