HKCFI 2411
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 1574 OF 2017
||IN THE MATTER of section 21M of the High Court Ordinance, Cap. 4
||IN THE MATTER of Order 29 of the Rules of the High Court, Cap. 4A
||IN THE MATTER of Order 11 of the Rules of the High Court, Cap. 4A
||JIANG XI AN FA DA WINE CO. LTD
||Hon Lisa Wong J in Chambers
|Date of Hearing:
||13 March 2018
|Date of Judgment:
||27 September 2019
J U D G M E N T
1. According to Jiang Xi An Fa Da Wine Co Ltd (江西安發達酒業有限公司), the abovenamed plaintiff, the matters that gave rise to its claims against Zhan King (also known as Zhan Shao Min (詹少敏)), the abovenamed defendant, in Mainland China and Hong Kong are as follows.
The parties and other relevant individuals and entities
2. The plaintiff is a PRC company carrying on business in the food and beverages, land development and investment sectors in Mainland China. The office of legal representative of the plaintiff was at the material times successively held by Ye Neng Xiang (葉能湘) (“Ye”) until about the end of January 2016, Chan Wai from late January 2016 to 1 March 2017 and Chai A Mei from 2 March 2017.
3. At the material times, the plaintiff had 2 associated companies called Fujian Lude Biological Co Ltd (福建綠得生物股份有限公司) and Shanghai Shenlong Investment Management Co Ltd (上海勝龍投資管理有限公司) (“Fujian Lude” and “Shanghai Shenlong” respectively and “Associated Companies” collectively).
4. The Associated Companies owned certain lands in Fuzhou City, Jiangxi Province (江西省撫州市) (“Lands”), including what was referred to by the parties, as a matter of shorthand, as the “Old Brewery Lot” (老酒廠地塊) at Industrial Road, Liming Village, Hongshan Town, Gulou District, Fuzhou City. Shanghai Shenlong owned the Old Brewery Lot itself while Fujian Lude owned the buildings on it (included in “Old Brewery Lot”).
5. The defendant is a PRC citizen and businessman ordinarily resident in Xiamen City, Fujian Province (福建省廈門市). He holds and at all material times held shares in Natural Dairy (NZ Holdings) Limited (“Natural Dairy”), a registered non-Hong Kong company listed on the Stock Exchange of Hong Kong Limited (“Stock Exchange”) with stock code number 00462. Natural Dairy’s shares have since September 2010 been suspended from trading. The shares in Natural Dairy controlled by the defendant are held partly in his own name and partly through Sky Upright Enterprises Limited, a corporate entity of which the defendant is a director and the controlling shareholder. The subject matter of these proceedings is 68,000,000 shares of the defendant’s shares in Natural Dairy.
6. Insofar as it is material, another substantial shareholder in Natural Dairy is a PRC businessman called Ke Xi Ping (柯希平) (“Ke”). Like the defendant, Ke owns and controls shares in Natural Dairy partly in his own name and partly through a corporate entity namely, Xiamen Heng Xing Group Co Ltd (廈門恆興集團有限公司) (“Heng Xing”), a PRC corporation of which Ke was the legal representative and controlling shareholder.
7. On 14 April 2010, the defendant borrowed RMB 152 million from Ke with monthly interest at 2.5%. By late 2012, the defendant’s liability to Ke for principal and interest rose to RMB 267 million (“Debt”).
8. The defendant was unable to repay any part of the Debt when it fell due. He sought assistance from the plaintiff. The plaintiff, represented by Ye, commenced discussion with both the defendant and Ke with a view to finding a solution that would settle the account between the defendant and Ke while benefiting the plaintiff. In this regard, the plaintiff knew about the defendant and Ke’s shareholdings in Natural Dairy. Notwithstanding the suspension of trading and in anticipation of the resumption of trading, the plaintiff was interested in acquiring Natural Dairy shares.
9. The result of such discussion was the conclusion of
(1) firstly, an oral agreement between the plaintiff and the defendant that in return for the plaintiff settling the Debt for the defendant, the defendant shall transfer part of his shareholding in Natural Dairy to the plaintiff (“Oral Share Transfer Agreement”); and
(2) secondly, a《合作合同書》dated 15 November 2012 (“Written Co-operation Agreement”) signed by/on behalf of Heng Xing, the plaintiff, Ke and the defendant (“4 Parties” collectively).
10. The recitals of the Written Co-operation Agreement recorded, inter alia, that (1) the defendant owed Ke the Debt which the defendant had so far failed to repay; (2) the 4 Parties agreed to jointly develop the Lands via a specially formed project company (“Project Company”), through which developments the dispute between the defendant and Ke over the Debt could be settled and all the 4 Parties could jointly derive financial benefits; and (3) Heng Xing and Ke shall acquire a 53% share in the Project Company by injecting into it the right over the Debt and cash while the plaintiff shall take over a 47% interest in the Project Company by injecting into it the Lands and cash.
11. Broadly speaking, it was agreed under the Written Co-operation Agreement, inter alia, that:
(1) Heng Xing shall as the holding company incorporate a company (i.e. the Project Company) with a registered capital of RMB 10 million.
(2) Heng Xing shall, at a price of RMB 4.7 million, transfer 47% of the shares in the Project Company to the plaintiff or its nominee(s).
(3) The plaintiff shall cause the Lands (including the Old Brewery Lot) to be transferred by the Associated Companies into the plaintiff’s ownership.
(4) The plaintiff shall then transfer the Lands into the name of the Project Company as full and final settlement of the Debt on behalf the defendant.
(5) The Lands shall then be developed by the Project Company, with the proceeds of sale of the development(s) to be shared between Heng Xing and the plaintiff in accordance with the ratio of their respective shareholdings in the Project Company.
12. However, before the plaintiff could acquire the Old Brewery Lot from the Associated Companies, it had come to the attention of the 4 Parties that the Fuzhou City Government intended to resume such land.
13. In consequence of such change of circumstance, on 3 July 2013, Heng Xing and the plaintiff signed a《合作合同書》之補充協議 (一) (“1st Supplemental Agreement”), under which it was agreed, inter alia, that
(1) The plaintiff shall remain obligated to acquire the ownership of the Old Brewery Lot, as agreed under the Written Co-operation Agreement.
(2) Upon the plaintiff’s acquisition of the ownership of the Old Brewery Lot, Heng Xing shall transfer to the plaintiff or its nominee(s) 47% of the shares in the Project Company (which had by then been formed by Heng Xing in the name of 福州恆興濱海置業有限責任公司 with all the registered capital already paid up by Heng Xing) and the plaintiff shall at the same time pay Heng Xing RMB 4.7 million being equivalent to 47% of the registered capital of the Project Company.
(3) Within 3 days of being transferred 47% of the shares in the Project Company, the plaintiff shall enter into a written agreement with the Project Company to transfer to it the Old Brewery Lot so that such land would be resumed from the Project Company which would then become entitled to receive the compensation therefor from the Fuzhou City Government.
14. The plaintiff acquired the ownership of the Old Brewery Lot on 6 August 2013. It did so by virtue of certain mediated settlement agreements (“Settlement Agreements”) with the Associated Companies, which were reached after litigations between the plaintiff and the Associated Companies before the Intermediate People’s Court of Fuzhou City, Jiangxi Province (江西省撫州市中級人民法院) (“Fuzhou Intermediate Court”) and which were concluded with the sanction of such court.
15. Pursuant to the 1st Supplemental Agreement, Heng Xing became obliged to transfer 47% of the shares in the Project Company to the plaintiff or its nominee(s) upon the plaintiff’s payment of RMB 4.7 million.
16. On 24 October 2013, Ke (being the person behind Heng Xing) signed a《合作合同書》之承諾函 (“Ke’s Undertaking”), whereby he promised to cause Heng Xing to transfer to the plaintiff 32.9% of the shares in the Project Company at the price of RMB 3.29 million and to the plaintiff’s nominee named 福州恆興財富投資發展有限公司 14.1% of the shares in the Project Company at the price of RMB 1.41 million within 30 days, i.e. before 24 November 2013.
17. On the same date, the 4 Parties also entered into a《合作合同書》之補充協議(二)(“2nd Supplemental Agreement”), under which it was agreed, inter alia, that
(1) The plaintiff shall enter into a written agreement with the Project Company to transfer the interest of the Old Brewery Lot to the Project Company.
(2) Within 30 days of the signing of such agreement, the defendant shall transfer 68,000,000 shares in Natural Dairy under his name (“Subject Shares”) to the plaintiff or its nominee(s), failing which the defendant shall remain liable to Ke for the Debt.
18. It can be seen that, as between the plaintiff and the defendant, the 2nd Supplemental Agreement reduced the Oral Share Transfer Agreement into writing and further spelt out the exact number of Natural Dairy shares that were to be transferred from the defendant to the plaintiff.
19. However, the defendant was not himself a shareholder or officer of the Project Company. He would not know if the written agreement for the transfer of the Old Brewery Lot had been signed between the plaintiff and...