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張才奎所託管中國山水投資有限公司股份及另一人 v 張才奎及另一人

Judgment Cited authorities 22 Cited in Precedent Map Related
Vincent
Judgment Date13 May 2015
Subject MatterCivil Action
Judgement NumberHCA1766/2014
CourtHigh Court (Hong Kong)
HCA1661/2014 張才奎所託管中國山水投資有限公司股份及另一人 v. 張才奎及另一人

HCA 1661/2014,
HCA 1766/2014 and
HCA 2191/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 1661, 1766 AND 2191 OF 2014

____________

BETWEEN
張才奎所託管中國山水投資有限公司股份相關員工 1st Plaintiffs
李延民所託管中國山水投資有限公司股份相關員工 2nd Plaintiffs
and
張才奎 1st Defendant
李延民 2nd Defendant

____________

Before: Hon G Lam J in Chambers
Date of Hearing: 31 March and 1 April 2015
Date of Decision: 13 May 2015

______________

D E C I S I O N

______________

I. INTRODUCTION

1. This is my decision on a number of interlocutory applications taken out by the 1st defendant in three actions. The three actions contain materially identical claims and complaints by different plaintiffs against the same two defendants.

2. Both the plaintiffs and defendants are individuals habitually resident in Mainland China. The actions principally concern the shares of a Hong Kong company called China Shanshui Investment Company Limited (“CSI”) which in turn holds shares representing approximately 25.09% of the issued share capital of China Shanshui Cement Group Limited (“Shanshui Cement”), a public company incorporated in the Cayman Islands whose shares are listed on the Main Board of the Hong Kong Stock Exchange (stock code 00691).

3. In very broad terms, the plaintiffs contend that they are absolute equitable owners of certain shares in CSI, now registered in the 1st defendant’s name, representing approximately 38.51% of the issued share capital of CSI. The 1st defendant’s case is that the plaintiffs are not beneficial owners but merely members of the class of beneficiaries under two discretionary trusts governed by the law of the British Virgin Islands (“BVI”), on which the shares were settled.

4. In all three actions, Master Hui granted leave to effect substituted service of the writs on the 1st defendant. In HCA 1661 of 2014, Master Chow granted leave to issue and serve the writ out of the jurisdiction on the 1st defendant. The 1st defendant has applied to set aside the orders for substituted service and the order for leave to serve out. He has in addition issued further summonses for stay of all three actions on the ground of forum non conveniens, though these are now conceded to be redundant.

5. For their part, the plaintiffs have applied by summonses dated 24 November 2014 for an injunctive relief relating to the voting rights attached to the shares and also, by further summonses dated 24 March 2015, for the appointment of receivers in respect of certain shares in CSI. The receivership application has been adjourned to 18 May 2015 for argument. Although the injunction application had already been argued before me, I consider it more appropriate to decide it after hearing also the receivership application. Accordingly this is my decision on the 1st defendant’s summonses only.

II. FACTUAL BACKGROUND

Employees stock ownership plan

6. In 1997, Jinan Shanshui Group Limited (“Jinan Shanshui”) was set up as a state-owned enterprise under the laws of the People’s Republic of China with the approval of the municipal government of Jinan, Shandong Province. It carried on business in the making of cement and related products. In 2000, Jinan Shanshui promoted an employees stock ownership scheme by which its employees were given the opportunity to invest in the enterprise in which they were working. A promotion booklet was produced to inform the employees of the purposes and details of the scheme, which suggested that under the scheme a shareholders’ committee would exercise shareholder’s rights on behalf of the individual shareholders.

7. Pursuant to this scheme, in around February 2001, each of the employees who chose to participate (to whom I shall refer collectively as the “participating employees”) signed an “entrustment letter”, whereby the employee in question entrusted a member of the shareholders council to exercise the shareholder’s rights on his behalf, acknowledging that the investment returns and risks were the employee’s. The letter was a short one and read as follows:

“兹委託個人股東理事會 xxx 同志,代理行使股東權力,但投資收益和風險歸委託人所有。”

(In English translation as follows:)

“I hereby appoint Comrade xxx of the shareholders’ committee to exercise the powers of a shareholder on [my] behalf, but investment proceeds and risks shall be received and borne by the person who made the appointment.”

8. For the purpose of taking over part of the business and assets of Jinan Shanshui, a new company was set up in the Mainland in August 2001 with the name of Jinan Innovation.[1] Its initial capital was funded in part by the participating employees of Jinan Shanshui pursuant to the stock ownership scheme and in part by Jinan Shanshui.

9. As the Company Law in force in Mainland China at the time confined the number of shareholders of a limited liability company to 50, however, the shares for which the employees subscribed were held by several “employee share representatives”. Up to December 2004, the majority equity interest in Jinan Innovation was held by these employee share representatives with a minority interest being held by Jinan Shanshui.

Domestic restructuring

10. In August and October 2004 respectively, the plan to restructure the business of Jinan Shanshui into a private enterprise was approved by the employee representatives unanimously and by the municipal government of Jinan.

11. For the purpose of the restructuring, two additional companies, called Shanshui Lixin[2] and Shanshui Jianxin[3] respectively were set up to which the participating employees had also contributed capital. These two companies were used to acquire the state’s interest in Jinan Shanshui. For simplicity I shall leave out references to these two companies below since nothing turns on them.

12. By the end of 2004, a total of 3,947 employees[4] had participated in the stock ownership scheme and paid subscription monies. All together the employees had injected into the various companies a total of approximately Rmb 105.28 million (including dividends re-invested in the business) pursuant to the scheme.

13. On 15 December 2004, in anticipation of the further corporate restructuring for a public listing in Hong Kong, the employee share representatives and Jinan Shanshui transferred the 94.3% and 5.6% equity interests they by then respectively held in Jinan Innovation to 9 individuals respectively known as the “Management Shareholders”. They had been senior employees involved in the management of Jinan Shanshui and included Mr Zhang Caikui (the 1st defendant) and Mr Li Yanmin (the 2nd defendant) (to whom I shall as “Mr Zhang” and “Mr Li” respectively), as well as 7 other senior employees specified in the table in the next paragraph. The interests transferred to Mr Zhang and Mr Li were to be held by them respectively on behalf of 3,940 employees including themselves. The interests transferred to the other 7 Management Shareholders were to be held by them for themselves beneficially. I shall refer to these individuals as the “minority shareholders” six of whom, as will be seen below, have recently been commenced separate litigation in Hong Kong against Mr Zhang.

14. As a result, the 9 Management Shareholders held the entire equity interest in Jinan Innovation as follows:

Name Proportion of equity held Remarks
1 Mr Zhang 65.55% 52.37% held for other employees
13.18% held for Mr Zhang himself
2 Mr Li 16.19% 9.4% held for other employees
6.79% held for Mr Li himself
3 Mr Yu Yuchuan 4.35%
4 Mr Dong Chengtian 4.18%
5 Mr Zhao Liping 3.05%
6 Mr Zhao Yongkui 2.77%
7 Mr Mi Jingtian 1.56%
8 Mr Li Maohuan 1.53%
9 Mr Wang Yongping 0.82%
Total 100%

15. In other words, 3,938 participating employees (ie 3,947 less Mr Zhang, Mr Li and the 7 minority shareholders) owned approximately 61.77% of the equity interest in Jinan Innovation.

16. Jinan Innovation changed its name to Shandong Shanshui Cement Group Company Limited (“Shandong Shanshui”). In around the end of January or early February 2005, each of the participating employees signed a document called “Equity Interest Entrustment Declaration” entrusting either Mr Zhang or Mr Li to manage that employee’s equity or shareholding interest in the three companies. The document (using the version that concerns Mr Zhang) provided as follows:

“股权委托声明

本人xxx，性别x，身份证号：xxx

在山东山水水泥集团有限公司实际出资xxx元，增值xxx元，增值后，持有股权xxx元；

在济南山水立新投资发展有限公司持有股权； xxx元；

在济南山水建新投资发展有限公司持有股权；xxx元；

以上股权的所有权归本人所有，对以上股权的管理，本人自愿委托张才奎代为办理。”

(In English translation as follows:)

“I, XXX, [gender], I.D. card numbered xxx

Actual contribution of capital was made to [Shandong Shanshui] in the sum of xxx yuan. After the value has been increased by xxx yuan, the equity interest held is in the sum of xxx;

The equity interests held at [Shanshui Lixin] is in the sum of xxx yuan;

The equity interests held at [Shanshui Jianxin] is in the sum of xxx yuan.

The ownership of the aforesaid equity interests belongs to me; I am hereby willing to entrust the management of the aforesaid equity interests to Zhang Caikui who will handle it on my behalf.”

Overseas restructuring

17. An overseas restructuring of the enterprise began in 2005. As part of that exercise, CSI, the shares of which are the subject matter of these actions, was incorporated as a private company in Hong Kong on 25 January 2005. On the same date, two other companies, namely, China Shanshui Cement Group (Hong Kong) Company Limited (“CSHK”) and China Pioneer Cement (Hong Kong) Company Limited (“Pioneer Cement”), were also...

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