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First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd And Another

Judgment Cited authorities 21 Cited in Precedent Map Related
Vincent
Judgment Date06 July 2012
Year2012
Citation(2012) 15 HKCFAR 569
Judgement NumberFACV6/2011
Subject MatterFinal Appeal (Civil)
CourtCourt of Final Appeal (Hong Kong)
FACV6/2011 FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER FACV6/2011 FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER FACV6/2011 FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER FACV6/2011 FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER FACV6/2011 FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER FACV6/2011 FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER FACV6/2011 FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER

FACV No. 6 of 2011

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 6 OF 2011 (CIVIL)

(ON APPEAL FROM CACV NO. 126 OF 2008)

______________

Between:

First Laser Limited
(第一激光有限公司)		 Plaintiff
(Appellant)
and
Fujian Enterprises (Holdings) Company Limited
(華閩(集團)有限公司)
 1st Defendant
(1stRespondent)
Jian An Investment Limited 2nd Defendant
(2nd Respondent)

______________
Court : Mr Justice Bokhary PJ, Mr Justice Chan PJ,
Mr Justice Ribeiro PJ, Mr Justice Mortimer NPJ
and Lord Collins of Mapesbury NPJ
Dates of Hearing : 18 – 20 June 2012
Date of Judgment : 6 July 2012

______________

J U D G M E N T

______________

Mr Justice Bokhary PJ :

1. I agree with the judgment of Lord Collins of Mapesbury NPJ.

Mr Justice Chan PJ :

2. I agree with the judgment of Lord Collins of Mapesbury NPJ.

Mr Justice Ribeiro PJ :

3. I agree with the judgment of Lord Collins of Mapesbury NPJ.

Mr Justice Mortimer NPJ :

4. I agree with the judgment of Lord Collins of Mapesbury NPJ.

Lord Collins of Mapesbury NPJ :

I BACKGROUND: THE FACTS

5. This appeal concerns a joint venture between Macau and Fujian interests which went badly wrong. In 1996 the parties entered into a series of agreements concerning a project for the production of non-linear crystals. Later, following a change in management in the Fujian party, there was a deterioration in relations between the parties followed by litigation in Hong Kong and the Mainland concerning the validity of the agreements between the parties and the ownership of shares in one of the companies which was the subject of the joint venture. The Supreme People’s Court decided that the agreements were invalid because no approval had been obtained for the transfer of the shares. The principal issues on this appeal concern these questions: (1) whether Hong Kong law or Mainland law governs the principal agreement between the parties; (2) what is the effect of the judgment of the Supreme People’s Court on the validity of the agreement; (3) what remedies are available to an innocent party in the event of invalidity of the agreement; and (4) whether the Fujian party is precluded from denying that it holds an interest in shares for the other party (and whether Hong Kong law or Mainland law is to be applied to determine that question).

6. The plaintiff/appellant First Laser Ltd (“First Laser”) is a company incorporated in Macau and is under the control of Mr Ngan In Leng(“Mr Ngan”). He is a Fujianese who in 1980 migrated to Macau, where he is now resident. He has significant business interests in, inter alia, property and electronics. He is also a man of substance in the Mainland: he is a member of the National Committee of the Chinese People’s Political Consultative Conference and a member of the Standing Committee of the Fujian Provincial Committee of the Chinese People’s Political Consultative Conference.

7. He has had business relationships with the first defendant (and first respondent) Fujian Enterprises (Holdings) Co Ltd (“FEHC”) since 1990. FEHC (like the second defendant, which is its nominee and has no active role in the facts giving rise to these proceedings) is incorporated in Hong Kong, and is a “window company” of the Fujian Provincial People’s Government of China. The directors of FEHC are employees of the Fujian Government and its shares are held on trust for the Fujian Government.

8. In 1992, FEHC set up a company called Fuzhou Castech-Phoenix Inc (a Mainland company)as a joint venture with the Fujian Research Institute of Material Structures of the Academy of Science (“FRIMS”) for the production of non-linear crystals. The company was mainly engaged in the production of two kinds of non-linear crystals known as LBO crystals and BBO crystals. In 1996 disputes arose between FEHC and FRIMS, which led to litigation. FRIMS obtained a court order restraining Fuzhou Castech-Phoenix’s use within the Mainland of technologies in relation to the incubation furnaces for producing LBO crystal and BBO crystal which were subject to patents held by FRIMS. FEHC then bought out FRIMS’ interest in the joint venture and became the sole owner of Fuzhou Castech-Phoenix, which changed its name to Fujian Casix Laser Inc (“FCL”). Thepart of FCL’s business which involved intellectual property rights of the products was transferred to a company called Fuzhou Casix Optronics Inc(“FCO”),which is a Mainland company then also controlled by FEHC.

9. As a result of the litigation FCL was unable to use in Mainland China some of the processes necessary for its manufacturing operations. Consequently FEHC decided to approach Mr Ngan as a new partner outside the Mainland who would be willing to contribute capital to the project in order to relocate the incubation furnaces and related operations outside the Mainland to avoid further disputes with FRIMS. At that time the chairman of the board of FEHC, and its general manager, was Mr Kong Fanli (“Mr Kong”).

II THE AGREEMENTS

10. The Ngan/FEHC interests then entered into a series of agreements. The agreements bear no clear relationship to what actually happened in practice. There is also some confusion in the agreements of the distinction between sale of assets and sale of shares. Only Mr Ngan gave evidence at trial, and it is possible that as a result a somewhat one-sided picture of what happened emerged.

11. There were four agreements: (1) the Hang Wo Agreement; (2) the COM Agreement; (3) the First Laser Agreement; and (4) the COM/Casix/Kexin Agreement.

Hang Wo Agreement

12. The first agreement (the “Hang Wo Agreement”) was entered into on 12 December 1996 between FEHC and Hang Wo Properties Investment and Management Company Limited (“Hang Wo”), a company controlled by Mr Ngan. It was described as an agreement on the establishment of Casix Optronic Enterprises Ltd (later described as Casix Optronic Manufacturing Ltd or “COM”). Hang Wo and Jenwing Holdings Ltd (“Jenwing”) are the sole registered shareholders of COM. Jenwing is a BVI company. The shares in Jenwing were said to be held on trust by Mr Ngan’s camp on behalf of FEHC.

13. The preamble stated that the parties would make use of optronic technology set up by FEHC in Fujian province and other regions since 1992, and would jointly invest US$20 million to establish in Macau an enterprise with an annual output of 200,000 pieces of laser crystals, 50,000 small lasers and other laser optics.

14. The operative part of the agreement provided:

(1) FEHC would transfer its interest in FCL and FCO to COM, and FEHC and Hang Wo would hold respectively 49% and 51% of the equity in COM (clause 1);

(2) Hang Wo would buy the 51% of equity held by FEHC in the “investment projects” for cash at the agreed price (clause 2);

(3) Hang Wo would be responsible for raising the first-phase US$10 million of the investment project in Macau (clause 3); and

(4) the parties understood that certain legal procedures in the Mainland were required for the transfer of the shares in FCL and FCO to COM, and meanwhile Jenwing, a BVI company whose shares were held by Mr Ngan’s interests, would hold FEHC’s shares in COM on behalf of FEHC, and Hang Wo would transfer all the equity of COM held by Jenwing to FEHC after FEHC transferred the equity of the investment projects in China to COM (clause 4).

The COM Agreement

15. The second agreement was described as an agreement on equity transfer of optronic products in Fuzhou, and was between FEHC and COM (the “COM Agreement”). It stated that it was executed in Hong Kong on 12 December 1996. The preamble stated that COM was to acquire FEHC’s shareholding in FCL and FCO. The operative part provided:

(1) all assets and liabilities of FCL and FCO would be transferred by FEHC to COM at a price of US$6.25 million, and COM would have all rights and liabilities after the transfer (clauses 1 and 3);

(2) COM would reorganize the boards of FCL and FCO after the transfer, and FEHC would actively assist COM in going through relevant legal procedures (clause 2);

(3) COM would pay FEHC US$3.125 million within one month of signature of the agreement and the balance within three months (clause 5); and

(4) the parties would immediately organise a working group to deal with relevant matters and engage lawyers to handle “relevant procedures of share transfer of the companies in China” (clause 6).

The First Laser Agreement

16. The third agreement was called an agreement on equity transfer of high-tech optronic project in Fuzhou (which has been referred to in these proceedings as “the First Laser Agreement”). It was expressedto be made in Hong Kong on 28 December 1996. The parties were FEHC and First Laser.

17. The judge accepted that this agreement replaced the earlier agreements, in particular because he was satisfied that FEHC felt it inappropriate to enter into a joint venture arrangement in the optronic industry with Hang Wo, which is a property company.

18. The judge was no doubt justified by Mr Ngan’s evidence in deciding that the First Laser...

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