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Hong Kong Green Valley Investment
Company v. Canada Green Valley (International) Investment &
Management Ltd., et al
(Dispute over Stock Rights)
Civil Ruling of the Supreme People’s Court
No. 14 (2002)
Appellant (Defendant in the first instance): Green Valley
(International) Investment & Management Ltd., domiciled at
#3 Willow Heights Court Willowdale, Ontario, Canada.
Legal Representative: Hao Xiaoying, board chairman of the
Company.
Authorized Agent: Liu Zhihong, lawyer of Beijing Shanggong
Law Firm.
Authorized Agent: Yu Yunhe, lawyer of Shanghai Guangting Law
Firm.
Appellee (Plaintiff in the first instance): Green Valley
Investment Limited Liability Company, domiciled at Flat
1703, Nan Dao Commercial Building, 359-361 Queen’s Road
Central, Hong Kong Special Administrative Region, PRC.
Legal Representative: Huang Guangming, board chairman of the
Company.
Authorized Agent: Chen Minghao, lawyer of Shanghai Mingli
Law Firm.
Authorized Agent: Shen Zhigeng, lawyer of Beijing Zongheng
Law Firm.
Defendant in the first instance: Shanghai Xinda Industry
Company, domiciled at No. 431, Hami Road, Shanghai, PRC.
Legal Representative: Wang Xiangyun, board chairman of the
Company.
Authorized Agent: Gao Ronghua, lawyer of Shanghai Xinhong
Law Firm.
Defendant in the first instance: Hao Xiaoying, male, born on
July 4, 1949, dwelling at #6, 1st Floor, No. 15 Hill Peak
Plantation Road, Hong Kong Special Administrative Region,
PRC.
Authorized Agent: Liu Zhihong, lawyer of Beijing Shanggong
Law Firm.
With regard to the case under the stock right dispute with
Green Valley Investment Limited Liability Company (the
appellee, hereinafter referred to as HK Green Valley),
Shanghai Xinda Industry Company (defendant in the first
instance, hereinafter referred to as Xinda Company) and Hao
Xiaoying, Green Valley (International) Investment &
Management Ltd. (the appellant, hereinafter referred to as
Canada Green Valley) was dissatisfied with the No. 10 (1998)
civil judgment of the Higher People’s Court of Shanghai
Municipality (shortened as Shanghai Higher Court hereafter),
and appealed to the present court. The present court formed
a collegial panel according to the provisions of law,
composed of Wang Yun as the presiding judge, Chen Jizhong
and Gao Xiaoli as acting judges, who participated in the
deliberation, and then heard the case. The case has now been
finalized.
The facts verified by Shanghai Higher Court are as follows:
on March 20, 1987, Shanghai Holiday Villa Limited Liability
Company (shortened as Holiday Villa Company hereafter), a
Chinese-foreign joint venture, was established, with a
registered capital of USD 10 million, including USD 2
million to be contributed by Shanghai Huashen Cultural
Entertainment Service Company (the Chinese party, shortened
as Huashen Company hereafter), and USD 8 million to be
contributed by Canada Yingming Development Company (the
foreign party, shortened as Canada YM Company hereafter). As
the funds of the foreign party were not fully contributed,
the investment proportions in Holiday Villa Company were
modified on September 5, 1990. As a result, USD 7.5 million
was to be contributed by the Chinese party, and USD 2.5
million by the foreign party. On the same day, Huashen
Company and Hong Kong Kaiyi Industry Co., Ltd. (shortened as
Kaiyi Company hereafter) concluded an “Agreement on
Assignment of Stock Rights”, setting forth that Kaiyi
Company should purchase 55% of Huashen Company’s shares in
Holiday Villa Company (USD 5.5 million). The assignment of
stock rights was approved by the resolution of the board
meeting of Holiday Villa Company. On September 15, the
parties to Holiday Villa Company and their investment
proportions were modified. Specifically, Huashen Company,
the Chinese party, should invest USD 2 million, Canada YM
Company, a foreign party, should invest USD 2.5 million, and
Kaiyi Company, another foreign party, should invest USD 5.5
million. On February 12, 1991, Holiday Villa Company’s name
was modified and registered at the administration for
industry and commerce as Shanghai Green Valley Villa Limited
Liability Company (shortened as Shanghai Green Valley
hereafter).
On February 16, 1991, Kaiyi Company sent a letter to the
board of directors of Shanghai Green Valley, saying: “Due to
the development of Kaiyi Company’s business and the reform
of its structural system, Kaiyi Company’s former name
registered and used under Shanghai Green Valley, has now
been changed into HK Green Valley. From now on, the former
Kaiyi Company’s all credits and debts in Shanghai Green
Valley shall be succeeded by HK Green Valley. Please confirm
the above contents by signing the agreement.” On July 18, HK
Green Valley was registered by the Head Office of Hong Kong
Company Registry and was so established. On January 5, 1992,
HK Green Valley and Kaiyi Company concluded an “Agreement on
Assignment of Stock Rights”, setting forth that Kaiyi
Company should assign all its shares in Shanghai Green
Valley (USD 5.5 million, accounting for 55%) to HK Green
Valley, while Lü Jiadong and Huang Yaolin should go through
the relevant legal procedures. On the same day, Kaiyi
Company sent a letter to Shanghai Green Valley, saying: “Due
to the overall adjustment of our Hong Kong business, we
decide after deliberation of the board of directors to
change the name of our company into HK Green Valley. Please
assist in going through the relevant legal procedures on
replacing the approval certificate, industrial and
commercial registration, etc.” The No. 158 (92) “Reply on
Modification of the Name of the Hong Kong Investor of
Shanghai Green Valley” issued by Shanghai Municipal Foreign
Investment Working Commission on March 4 says: “Due to the
fact that Kaiyi Company, the Hong Kong investor of Shanghai
Green Valley, has been renamed as HK Green Valley, we hereby
approve the corresponding amendments to the relevant clauses
of the contract and the articles of association of Shanghai
Green Valley.” On March 23, Shanghai Municipal People’s
Government issued the No. 005 [1987] “Certificate of the
People’s Republic of China on Approving the Chinese-foreign
Joint Venture” to Shanghai Green Valley, stating that the
parties to the joint venture were Huashen Company, Canada YM
Company and HK Green Valley.
On April 6, 1992, the meeting attended by all the directors
of HK Green Valley made a resolution, in which the shares of
HK Green Valley were redistributed into five parts.
Specifically, Huang Yaolin, Huang Guangming, Liu Jianguo,
Hao Xiaoying and Lü Jiadong held 20% of the shares
respectively.
On September 16, 1995, Canada Green Valley and Hao Xiaoying
issued the “Statement on Changing the Name of HK Green
Valley into Canada Green Valley”, which stated: “Investor C
of Shanghai Green Valley is HK Green Valley. The present
company has been moved to Canada, and the company is
registered in Canada, so the name of the former HK Green
Valley is changed into Canada Green Valley, but the board
chairman and the stock rights of Investor C of Shanghai
Green Valley remain unchanged”. On October 11, the People’s
Government of Changning District, Shanghai Municipality
(shortened as Changning Government hereafter) issued the No.
225 (1995) “Reply on Approving the Assignment of Stock
Rights of Shanghai Green Valley”, saying: “1. The assignment
of all the stock rights of Huashen Company, the former
Investor A, Shanghai Green Valley, to Xinda Company is
approved; 2. The registered address of HK Green Valley, the
former Investor C, is changed to be Canada, so its name is
approved to be modified into Canada Green Valley; 3. After
the abovementioned adjustments, the three investors of
Shanghai Green Valley are as follows: Party A is Xinda
Company (the Chinese party), Party B is Canada YM Company,
and Party C is Canada Green Valley. The investment
proportions and profit distribution proportions of each
party remain unchanged, and meanwhile corresponding
amendments have been made to the relevant sections of the
former company contract and articles of association.” On
October 24, Shanghai Green Valley applied to Shanghai
Municipal Administration for Industry and Commerce for
modification registration. On November 23, Shanghai
Municipal Administration for Industry and Commerce approved
the modification registration. On May 25, 1998, Shanghai
Municipal People’s Government issued the No. 0005 (1997)
“Certificate the People’s Republic of China on Approving the
Foreign-funded Enterprise” to Shanghai Green Valley, which
stated that the three investors of the joint venture
enterprise should be Xinda Company, Canada YM Company and
Canada Green Valley.
On May 2, 1998, HK Green Valley convened a special session
of the shareholders’ assembly in Hong Kong. Huang Guangming
and Huang Yaolin were present, and Huang Yaolin also
represented Liu Xinran at the meeting, while Hao Xiaoying
and Lü Jiadong were absent. The resolution of the assembly
authorized two lawyers from Shanghai Mingli Law Firm to
serve as agents in the case on the dispute arising out of
the Shanghai Green Valley project in which HK Green Valley
invested, and authorized Huang Guangming and Huang Yaolin to
represent HK Green Valley under full authorization to deal
with the relevant matters concerning the said litigation
case. On May 18, the board meeting at which Huang Guangming
and Huang Yaolin were present made a resolution, authorizing
Huang Guangming to sign the “Civil Bill of Complaint” on
behalf of HK Green Valley for the case on the dispute over
the Shanghai Green Valley project. On the same day, HK Green
Valley brought a lawsuit with Shanghai Higher Court against
Xinda Company, Canada YM Company, Canada Green Valley and
Hao Xiaoying, alleging that Canada Green Valley encroached
upon HK Green Valley’s 55% of stock rights in Shanghai Green
Valley; that Xinda Company and Canada YM Company failed, as
investors, to timely prevent the encroachment of Canada
Green Valley and Hao Xiaoying, thus infringed upon its
lawful rights and interests, and should bear corresponding
liabilities; and that Shanghai Green Valley’s after-tax
profits from 1994 to 1997 were RMB 2.45 million Yuan, 22.87
million Yuan and 54.13 million Yuan, respectively, but it
never shared the part of distributable profits upon the 55%
of shares. HK Green Valley pleaded the court to order the
defendants to: (1) stop the infringement of encroaching upon
the USD 5.5 million of its investment funds; (2) immediately
go through modification procedures in the administration for
industry and commerce for returning its 55% of stock rights
in Shanghai Green Valley, i.e., USD 5.5 million; (3) pay it
the distributable profits since Shanghai Green Valley was
put into business operations, i.e., for the years from 1994
through 1997; and (4) bear the litigation costs. During the
hearing of the case, HK Green Valley pleaded the court on
July 13, 1999 to revoke the third litigation claim, i.e.,
“to order the defendants to pay it the distributable profits
since Shanghai Green Valley was put into business
operations, i.e., for the years from 1994 through 1997.” On
October 20, HK Green Valley applied for withdrawing the
lawsuit against Canada YM Company under the pretexts that
Canada YM Company “does not know about the fact that HK
Green Valley, Party C of Shanghai Green Valley, was modified
into Canada Green Valley in 1995”, and that it had reached
an agreement of understanding with Canada YM Company.
Shanghai Higher Court orally ruled to permit HK Green Valley
to withdraw the foregoing two litigation claims.
On September 9, 1999, the declaration signed by Zhao
Jingjing on behalf of herself and Hao Xiaoying and Lü
Jiadong were certified by the consulate general of the
People’s Republic of China in Vancouver, both of which
stated: Hao Xiaoying, Lü Jiadong and Zhao Jingjing were
directors of HK Green Valley, and the company’s board of
directors never deliberated or made any resolution on
bringing a lawsuit with Shanghai Higher Court, nor were they
aware of the so-called bill of complaint. A lawsuit filed
when half of the directors do not know or approve the matter
shall illegal. On March 1, 2000, HK Green Valley’s board
meeting attended by Hao Xiaoying, Lü Jiadong and Zhao
Jingjing made a resolution: the lawsuit brought by Huang
Guangming and two other directors with Shanghai Higher Court
in the name of the company without permission against Xinda
Company, Canada YM Company, Canada Green Valley and Hao
Xiaoying before they discussed with all the directors to
reach a resolution, shall be ineffective, and the board
meeting decides to apply for withdrawing the lawsuit in the
name of HK Green Valley. On the same day, the board of
directors applied for withdrawing the lawsuit by sending
Shanghai Higher Court a “Letter of Application for
Withdrawing the Lawsuit” which was affixed with the seal of
HK Green Valley.
On April 3, 2000, HK Green Valley’s board meeting attended
by Huang Guangming, Huang Yaolin and Liu Xinran made a
resolution: (1) the resolution on bringing the lawsuit
against Canada Green Valley and Hao Xiaoying was made by
Huang Guangming, Liu Xinran, Huang Yaolin and other
directors according to the law, and Hao Xiaoying, et al have
no right to reverse it; (2) the said resolution was
confirmed and adopted on May 2, 1998 by the special
shareholders’ assembly attended by shareholders who hold 60%
of the issued shares, so as to maintain the basic interests
of shareholders, thus Hao Xiaoying and other directors have
no right to reverse or oppose it; and (3) Huang Guangming is
authorized to represent the company to make a declaration.
On November 8, 2001, Hao Xiaoying and Lü Jiadong brought a
lawsuit with the Court of First Instance of High Court of
Hong Kong SAR against Huang Guangming, Huang Yaolin, Liu
Xinran and HK Green Valley, pleading the court to confirm
whether the special shareholders’ assembly convened by HK
Green Valley on May 2, 1998 was effective. On August 21,
2002, the Court of First Instance of High Court of Hong Kong
SAR rendered the No. 5905 (2001) judgment, holding that the
plaintiffs were entitled to receive the notice on the
special session of shareholders’ assembly but the notice was
not effectively served to them. However, the resolution did
not constitute fraud to the minority shareholders and it was
for the interests of the company, so the shareholders’
meeting was finally determined to be effective. On September
30, the Court of Appeal of High Court of Hong Kong SAR
accepted in the No. 343 (2002) case the appeal of Hao
Xiaoying and Lü Jiadong regarding the foregoing judgment,
and the appeal has not been finalized yet.
In addition: Kaiyi Company was registered and established in
Hong Kong on September 25, 1987 according to the Companies
Ordinance, and presently has three directors, namely, Huang
Yaolin, Huang Guangming and Liu Jianguo.
HK Green Valley was registered and established in Hong Kong
according to the Companies Ordinance on July 18, 1991, and
the former shareholders and directors were Huang Yaolin and
Liu Jianguo. On April 6, 1992, the shareholders were
modified into Huang Yaolin, Huang Guangming, Liu Jianguo,
Hao Xiaoying and Lü Jiadong. In 1996, Liu Jianguo assigned
his shares to Liu Xinran, and consequently the shareholders
of the company were modified into Huang Yaolin, Huang
Guangming, Liu Xinran, Hao Xiaoying and Lü Jiadong, while
the directors were modified into Huang Yaolin, Huang
Guangming, Liu Xinran, Hao Xiaoying, Lü Jiadong and Zhao
Jingjing. The currently incumbent directors are Huang Yaolin,
Huang Guangming and Liu Xinran.
Green Valley Management Company was registered and
established in Hong Kong according to the Companies
Ordinance on March 24, 1992, and its former directors were
Huang Yaolin and Liu Jianguo; on April 22, Huang Yaolin and
Liu Jianguo separately assigned their shares to Hao Xiaoying
and Lü Jiadong, and the company’s directors were modified
into Hao Xiaoying and Lü Jiadong. Later the company was
nullified.
Canada Green Valley was registered and established in Canada
on June 1, 1994, and its directors were Hao Xiaoying and Lü
Jiadong.
Canada YM Company was established in Canada on September 29,
1980, and Shi Meixuan was its director.
Hao Xiaoying, Lü Jiadong, Liu Jianguo and Zhao Jingjing were
directors dispatched by HK Green Valley to Shanghai Green
Valley whose currently incumbent board chairman is Hao
Xiaoying, and whose general manager is Lü Jiadong.
Shanghai Higher Court held that: before September 16, 1995,
Shanghai Green Valley had three investors, namely, Xinda
Company, Canada YM Company and HK Green Valley. Xinda
Company (the Chinese party) invested USD 2 million of funds,
Canada YM Company invested USD 2.5 million, and HK Green
Valley invested USD 5.5 million. As for the fact whether HK
Green Valley was renamed as Canada Green Valley and moved to
Canada after September 16, the existing evidence could
sufficiently prove that HK Green Valley was never renamed as
Canada Green Valley, nor was it moved to Canada, or legally
speaking, there never existed the renaming fact between
companies of different nationalities or the move. HK Green
Valley was established on July 18, 1991, and has been
operating its business in Hong Kong since then. Canada Green
Valley also acknowledged this fact. Even if there existed
disputes over rights between HK Green Valley’s shareholders,
there was no factual basis for Canada Green Valley to obtain
the status as a shareholder of Shanghai Green Valley by the
abovementioned means. Meanwhile, it violated the legal
provisions, and its act injured HK Green Valley’s rights and
interests. The shareholders’ assembly is a company’s
authority, while the board of directors is a company’s
business management office. The existing evidence proves
that, the lawsuit brought by HK Green Valley was approved by
three shareholders who held 60% of the company’s stock
rights, which conformed to the company’s articles of
association, and thus should be effective. The application
for withdrawing the lawsuit in the name of HK Green Valley,
which was provided by Canada Green Valley, was not approved
by a majority of HK Green Valley’s shareholders, and thus it
should not be adopted. Canada Green Valley alleged that HK
Green Valley’s lawsuit had exceeded the limitation of
action, but did provide some evidence to prove that the time
when HK Green Valley knew the injury of its rights, while
the limitation of action must be counted as of the day when
the party concerned knew or ought to know its rights were
injured. Because HK Green Valley authorized Hao Xiaoying to
operate business in Shanghai Green Valley and the
modification of investors of a foreign-funded enterprise did
not have to be announced, HK Green Valley did not know the
possibility of injury of its rights. As a result, Canada
Green Valley’s demurral was difficult to be tenable. As for
the issue whether the present case shall be accepted by the
economic tribunal or civil tribunal, it is an issue of
division of work duties within the court, which does not
affect the parties’ exercise of their rights. As for the
issue whether the present case shall be settled through
administrative avenues, since the plaintiff’s litigation
claims were for confirming the rights and stopping the
infringement, and what the court examined was also the facts
on whether the plaintiffs were obligees and whether their
rights were injured, the court could of course confirm the
rights between equal civil subjects. Therefore, the court
could find out the facts and render the judgment according
to the provisions of law, and Canada Green Valley’s grounds
for demurral shall be untenable. Neither HK Green Valley nor
Canada Green Valley and Hao Xiaoying had any objection to
the fact that Kaiyi Company, the former shareholder of
Shanghai Green Valley, was changed into HK Green Valley,
hence HK Green Valley should be a shareholder of Shanghai
Green Valley, and was of course the owner of the
corresponding stock rights. As for whether it paid funds to
Kaiyi Company, it was its legal relationship with Kaiyi
Company, which was irrelevant to the present case. Canada
Green Valley asserted that it was the actual investor, but
did not have corresponding evidence to prove its assertion,
hence its assertion should not adopted. Hao Xiaoying was the
board chairman of Canada Green Valley, and his acts
represented the company’s acts, so the corresponding legal
liabilities should be borne by the company according to law.
Therefore, Hao Xiaoying’s argument that he himself should
not bear the legal liabilities, was made on legal basis and
should be supported. Since the law did not prescribe that
Xinda Company was obligated to supervise and manage the
matter, Xinda Company had no fault, and HK Green Valley’s
claim that Xinda Company should jointly bear the liabilities
had no legal basis, and should not be supported. According
to the verified facts, HK Green Valley’s lawsuit should be
effective, while the assertion of Canada Green Valley and
Hao Xiaoying that the present case should be settled after
Hong Kong court rendered the judgment, was based on
insufficient grounds, and should not be adopted. After
discussion by its judicial committee, Shanghai Higher Court
adjudicated as follows in accordance with Article 5,
Paragraph 2 of Article 106, and Items (1) and (4) of
Paragraph 1 of Article 134 of the “General Principles of the
Civil Law of the People’s Republic of China”: (1) HK Green
Valley shall be confirmed to be one of the shareholders of
Shanghai Green Valley, and to have totally invested USD 5.5
million; (2) Canada Green Valley shall stop its tort, and
shall, within 10 days as of effectiveness of the judgment,
go through the corresponding procedures for modification of
industrial and commercial registration, and HK Green Valley
shall be deemed to be an investor and to have contributed
the funds; and (3) HK Green Valley’s other litigation claims
shall not be supported. The RMB 237,701.75 Yuan of case
acceptance fee shall be borne by Canada Green Valley.
Canada Green Valley was dissatisfied with the abovementioned
judgment, and appealed by alleging that: (1) The judgment of
the first instance ignored the basic fact that the stock
rights in question were lawfully assigned, and denied Canada
Green Valley’s ownership over the stock rights in question
on the ground that there were flaws with the formal elements
of the modification of the stock rights. However, such a
ground was short of factual basis. In fact, on December 8,
1992, HK Green Valley borrowed money from Canada Green
Valley due to lack of funds, and both parties reached an
agreement setting forth the following: HK Green Valley
borrows USD 5.5 million from Canada Green Valley, and shall
use the loans for HK Green Valley’s investment project in
the Mainland; as of the date of borrowing the loans, HK
Green Valley shall settle USD 5.5 million of principal and
the interest thereof with Canada Green Valley; the interest
shall be calculated at the annual interest rate of 10.5%,
and be settled once every half year, while the principal
shall become due two years later and shall be repaid once
for all; if HK Green Valley fails to repay the loans on
time, it shall be deemed to assign all its shares in the
project to Canada Green Valley. The stock rights of the
investment project in the Mainland as referred to in the
agreement were Shanghai Green Valley’s 55% of stock rights
in question. After paying the funds (actually USD 5.7
million) pursuant to the agreement, Canada Green Valley
demanded repayment for many times, but HK Green Valley was
unable to repay them. When the term of loans expired, Canada
Green Valley received the stock rights in question pursuant
to the agreement with the assistance of HK Green Valley,
Shanghai Green Valley and other shareholders. The
modification of stock rights was approved by Changning
Government, and the industrial and commercial registration
of modification was also completed. Therefore, Canada Green
Valley’s receiving HK Green Valley’s 55% of stock rights in
Shanghai Green Valley was not a tort, but the result of the
assignment of stock rights between both parties pursuant to
the agreement. Of course, both parties violated the relevant
provisions on administration and registration of
foreign-funded enterprises once they, when handling the
assignment of stock rights, applied to the relevant
administrative department for modification of shareholder
under the pretext that HK Green Valley was moved and renamed
in order to simplify the procedures, and went through the
relevant procedures, but such formal defects did not
necessarily change the true will of both parties in respect
of assignment of the stock rights. In this regard, both
parties should be required to, according to the relevant
provisions, explain the matter to the relevant
administrative department, and correct the relevant
registered particulars on the basis of the true facts. (2)
The stock rights were modified and registered between
September and November 1995, while HK Green Valley brought
the lawsuit in May 1998. HK Green Valley’s lawsuit exceeded
the two years’ limitation of action as prescribed in the
General Principles of the Civil Law, and it had lost the
right of winning the lawsuit, so the people’s court should
adjudicate according to law to reject HK Green Valley’s
litigation claims. The assignment of stock rights should be
the product of the agreement between both parties, while
Shanghai Green Valley’s board of directors specially
convened a board meeting regarding the relevant matters on
modifying HK Green Valley (Party C of the company) into
Canada Green Valley, and the representatives of HK Green
Valley also attended the board meeting, so HK Green Valley
was obviously clear about the modification. Since 1994, HK
Green Valley had not been distributed profits from Shanghai
Green Valley, nor had it inquired about the matter or
proposed any objection. It was not until the lawsuit was
brought when HK Green Valley asserted distribution of
profits after 1994. It could also be seen that HK Green
Valley was not only clearly aware of the assignment of its
stock rights to Canada Green Valley, but also had no
objection to the assignment. Therefore, the limitation of
action in the present case shall be counted as of September
1995, or at the latest, as of November 1995. HK Green Valley
did not provide any evidence to prove when he knew the stock
rights were modified. It was obviously wrong for the
judgment of the first instance to, under the pretext that it
was impossible for HK Green Valley to know that its rights
were injured, conclude that HK Green Valley’s lawsuit did
not exceed the limitation of action and to adjudicate that
it won the lawsuit. (3) In the activities of modification
registration of the stock rights in question, Shanghai Green
Valley was not only a participant, but also of the one who
did the specific work. Moreover, whether the controlling
shareholder was HK Green Valley or Canada Green Valley would
greatly impact the company’s business development.
Therefore, if analyzing the present case from the angle of
whether joint tort was constituted, from the angle of
helping find out the facts, or in the respect of the effects
caused from the adjudication result, Shanghai Green Valley
should be a party in the present case that must attend the
litigation. Although HK Green Valley did not list Shanghai
Green Valley as a co-defendant when bringing the lawsuit,
Shanghai Higher Court should add Shanghai Green Valley as a
co-defendant in the present case according to law. The
omission of a party in the first instance both caused
trouble in finding out the facts of the present case and
violated the relevant provisions in the Civil Litigation
Law, and thus should be corrected. (4) Shanghai Higher Court
violated relevant provisions in the Civil Litigation Law by
indiscreetly putting the case on file without carefully
examining HK Green Valley’s lawsuit, and by failing to, in
the process of trial, wait for the adjudication result of
another case which might determine HK Green Valley’s lawsuit
to be ineffective. According to the Companies Ordinance of
Hong Kong, a company shall not bring a lawsuit until it is
supported by the shareholders who hold 95% of its shares. In
the Mainland, a people’s court shall, when examining a
lawsuit brought by a company, carefully check the resolution
of the company’s shareholders’ meeting, so as to guarantee
the lawsuit to be effective, otherwise it is quite likely
for the court to make mistakes in establishing cases. In the
present case, when HK Green Valley brought the lawsuit,
there was the board resolution made by only two directors
present at the board meeting, and there was no resolution of
the shareholders’ meeting. While Shanghai Higher Court not
only failed to, when putting the case on file, check whether
HK Green Valley’s lawsuit conformed to the relevant
provisions, but also stated the following without any basis:
“The existing evidence proves that the lawsuit brought by HK
Green Valley was approved by three shareholders who held 60%
of the company’s stock rights, and conformed to the
company’s articles of association, hence it shall be
effective.” During the trial of the present case, HK Green
Valley’s other shareholders believed that the lawsuit
violated the company’s articles of association and the
relevant provisions of the Companies Ordinance of Hong Kong,
and brought a lawsuit with the Hong Kong court, pleading the
court to rule that the lawsuit brought with Shanghai Higher
Court in the name of the company is ineffective. The case
was at that time under the trial of Hong Kong court. Canada
Green Valley informed Shanghai Higher Court of the relevant
information, and applied in the court hearing for suspending
the trial of the present case until the adjudication result
of Hong Kong court comes out, and then Shanghai Higher Court
may decide on whether to continue the trial or not. However,
Shanghai Higher Court did not rule according to law to
suspend the litigation, but continued the trial and rendered
a judgment, which was obviously wrong. (5) HK Green Valley
had applied in writing for withdrawing the lawsuit, but
Shanghai Higher Court continued trying the present case
without making any ruling, which was in violation of
relevant provisions in the Civil Litigation Law. On March 1,
2000, HK Green Valley’s other shareholders also submitted a
“Letter of Application for Withdrawing the Lawsuit” affixed
with the company seal to Shanghai Higher Court in the name
of the company, requesting withdrawal of the lawsuit.
Shanghai Higher Court did not make a ruling after receipt of
the application for withdrawing the lawsuit, but refused to
adopt Canada Green Valley’s ground for argument in the
judgment, and mistook the application for withdrawing the
lawsuit, which was filed by HK Green Valley’s other
shareholders in the name of Canada Green Valley, as that
filed by Canada Green Valley in the name of HK Green Valley.
To sum up, the judgment of the first instance was seriously
erroneous in respect of finding out facts, application of
laws, and trial procedures. Therefore Canada Green Valley
pleaded the present court to overrule the judgment of the
first instance, confirm Canada Green Valley as one of the
shareholders of Shanghai Green Valley, with its investments
at USD 5.5 million, accounting for 55% of the stock rights;
or to rule that the present case be remanded to Shanghai
Higher Court for retrial.
HK Green Valley argued that: (1) It was self-contradictory
for Canada Green Valley to, on one hand, allege that the
stock rights in question were lawfully assigned, but on the
other, acknowledge that there were flaws with the formal
elements of the stock rights in the process of modification.
Canada Green Valley alleged that it reached a loan agreement
with HK Green Valley on December 8, 1992, but actually
Canada Green Valley was established on June 1, 1994. That is
to say, when the agreement was reached, Canada Green Valley
was not yet a qualified party, nor did it show the formal
document of the said agreement to the court, hence the said
agreement did not exist. HK Green Valley never borrowed
money from Canada Green Valley, and the money on the
so-called remittance list which Canada Green Valley showed
was the funds of commercial transactions of Green Valley
Management Company (a party not involved in the present
case), Zhao Jingjing and Hao Xiaoying with others, not the
funds on a loan voucher or the funds from the assignment of
stock rights, and was not registered at all. Instead, it
merely indicated the whereabouts of Zhao Jingjing’s personal
funds. Zhao Jingjing is Hao Xiaoying’s wife, so her
testimony should not have probative force at all. Some of
the evidences she presented were documents without time or
legal effectiveness, and some were perjuries in the court,
and all the subjects were parties not involved in the
present case, and had nothing to do with tort involved in
the present case. Therefore, Canada Green Valley was not a
lawful investor of Shanghai Green Valley. (2) Canada Green
Valley falsely reported that “Investor C of Shanghai Green
Valley is HK Green Valley. The present company has been
moved to Canada, and the company is registered in Canada, so
the name of the former HK Green Valley is changed into
Canada Green Valley, but the board chairman and the stock
rights of Investor C of Shanghai Green Valley remain
unchanged.” At that time, Shanghai Green Valley had three
shareholders, and HK Green Valley was one of them. Another
shareholder was Canada YM Company, whose board chairman Shi
Meixuan declared on September 15, 1998, “Party B did not
know at all that HK Green Valley (Party C) was changed into
Canada Green Valley in 1995”, and made a notarized
declaration again on March 4, 2002, reiterating that it did
not know the modification of shareholders. Xinda Company,
another shareholder, also asserted that it did not have
knowledge of the facts in dispute, either. Canada Green
Valley defrauded Changning Government (the competent
administrative department at the higher level), and obtained
the approval document which “approves HK Green Valley, the
former Investor C, to be modified into Canada Green Valley
as it is registered in Canada”. Canada Green Valley also
defrauded Shanghai Municipal Administration for Industry and
Commerce, and modified its industrial and commercial
registration. In actual fact, Canada Green Valley intended
to show its legality upon the strength of the said
modification, and to conceal the means and essence of its
encroachment. Mr. Liu Jianguo, a director at the time of
modification registration, declared: “I am a director of
Shanghai Green Valley (registered under the modification
registration items of Shanghai Municipal Administration for
Industry and Commerce on November 23, 1995). In the
registration form, HK Green Valley, as an investor, has been
modified into Canada Green Valley. I declare that I have
never known about this modification. Meanwhile, during the
period from 1995 to 1998, I met with Huang Guangming and
Huang Yaolin for many times, and neither of them mentioned
the matter on modifying stock rights, because, just like me,
they did not know that HK Green Valley’s stock rights in
Shanghai Green Valley have been modified into those of
Canada Green Valley.” (3) HK Green Valley and Canada Green
Valley were the parties to the stock rights in dispute,
while Shanghai Green Valley was merely a consortium
established by three investors, and was not involved with
the dispute over the stock rights, nor was it in dispute
with any investor over stock rights. Canada Green Valley had
no legal basis to plead the court to add Shanghai Green
Valley as a party in the present case. Moreover, in
accordance with the Civil Litigation Law of China, a
plaintiff may waive or modify its litigation claims, and is
entitled to dispose of its own rights according to law. (4)
Canada Green Valley held that the present case should be
governed by Hong Kong law, and requested the court in the
Mainland to stop trying the case for the reason that it had
brought a lawsuit in Hong Kong court. Such a request is made
on no legal basis, and furthermore, Hong Kong court
adjudicated on August 21, 2002 to reject its lawsuit. It was
on the basis of the special shareholders’ assembly convened
before the lawsuit regarding the damage of interests by Hao
Xiaoying and Lü Jiadong, as well as after the resolution was
confirmed and adopted by shareholders holding 60% of stock
rights at the special session of the shareholders’ assembly,
that HK Green Valley brought the lawsuit. Canada Green
Valley also applied for withdrawing the lawsuit in the name
of HK Green Valley. On April 3, 2000, the shareholders
holding 60% of stock rights adopted a decision at another
special shareholders’ assembly, claiming that “Canada Green
Valley has no right to represent HK Green Valley to make any
resolution.” According to the Mainland law, the
shareholders’ assembly is a company’s authority, and the
board of directors is a company’s business management
office. HK Green Valley’s lawsuit was approved by the
shareholders holding 60% of stock rights, conformed to the
company’s articles of association, and thus should be lawful
and effective. It was correct for Shanghai Higher Court to
refuse to adopt Canada Green Valley’s application for
withdrawing the lawsuit. To sum up, the judgment of the
first instance found out the facts clearly and applied the
laws correctly, and the trial procedures were lawful.
Therefore, HK Green Valley pleaded the present court to
reject the appeal according to the law, and sustain the
judgment of the first instance.
The present court holds that: the essence of the dispute in
the present case is the dispute between HK Green Valley and
Canada Green Valley regarding the ownership of the 55% of
stock rights in Shanghai Green Valley. The focus of the
dispute between both parties lies in: HK Green Valley held
that Canada Green Valley falsely reported “Investor C of
Shanghai Green Valley is HK Green Valley. The present
company has been moved to Canada, and the company is
registered in Canada, so the name of the former HK Green
Valley has been changed into Canada Green Valley”, and
Changning Government recognized and approved “HK Green
Valley, the former Investor C, to be modified into Canada
Green Valley as it is registered in Canada”, and the
corresponding industrial and commercial registration
department also modified “HK Green Valley” into “Canada
Green Valley”, so Canada Green Valley became an investor of
Shanghai Green Valley, and held 55% of the stock rights.
However, it was impossible for HK Green Valley to move to
Canada, and was still the owner of the 55% of stock rights
in Shanghai Green Valley, that is why it pleaded the
people’s court to order Canada Green Valley to stop the
tort, and went through the modification registration in the
administrative department for industry and commerce to
return its 55% of stock rights in Shanghai Green Valley,
which amounts to USD 5.5 million. While Canada Green Valley
held that, Green Valley Management Company was the raiser of
the USD 5.5 million, and exercised the “right of mortgage”
pursuant to the “Agreement on Mortgage of Stock Rights” with
HK Green Valley under the circumstance that HK Green Valley
was unable to repay the USD 5.5 million. In this way, Green
Valley Management Company obtained the 55% of stock rights
in Shanghai Green Valley, and assigned the stock rights to
Canada Green Valley. Therefore, Canada Green Valley lawfully
obtained the 55% of stock rights in Shanghai Green Valley.
It was for the purpose of simplifying the procedures that
Canada Green Valley said the HK Green Valley “has been moved
to Canada” when going through the modification procedures.
Before that, when HK Green Valley received the 55% of stock
rights in Shanghai Green Valley from Kaiyi Company, it also
went through the procedures under the pretext that Kaiyi
Company “is renamed as HK Green Valley”. Therefore, whether
Canada Green Valley lawfully enjoys the 55% of stock rights
in Shanghai Green Valley is a specific issue to be settled
in the present case.
However, the appeal of both parties in the present case and
their grounds for argument reflect that they have
divergences on who may represent HK Green Valley to bring
the lawsuit in question, in other words, whether HK Green
Valley’s lawsuit in question is lawful. This shall be the
first question to be resolved in the present case.
HK Green Valley is a limited liability company established
in Hong Kong according to the Companies Ordinance. Hao
Xiaoying, Lü Jiadong, Huang Yaolin, Huang Guangming and Liu
Xinran are shareholders, each of whom holds 20% of the
shares of the company. Could Huang Yaolin, Huang Guangming
and Liu Xinran bring the lawsuit in question upon the
strength of the resolution of the so-called “special session
of the shareholders’ assembly”? This is a question involving
a legal person’s capacity of for civil conduct. With
reference to Article 184 of the “Opinions of the Supreme
People’s Court on Some Issues for the Implementation of the
General Principles of the Civil Law of the People’s Republic
of China (for Trial Implementation)”, “… the capacity for
civil conduct of a legal person shall be determined
according to its domestic law.” “For an foreign legal
person, the law of the country of its registration shall be
deemed as its domestic law.” Therefore, in the present case,
a conclusion shall be made according to Hong Kong law on
whether the three shareholders holding 60% of the company’s
shares, namely, Huang Yaolin, Huang Guangming and Liu
Xinran, were entitled to represent HK Green Valley to bring
the lawsuit by adopting a resolution of shareholders’
assembly at which Hao Xiaoying and Lü Jiadong were not
present. According to Hong Kong Company Law, the resolutions
on major events of a company, the convening of a session or
a special session of the shareholders’ assembly, etc. shall
all be governed by the company’s articles of association. In
the present case, the special session of the shareholders’
assembly attended by Huang Yaolin and Huang Guangming
adopted a resolution on bringing the lawsuit in question,
and Huang Yaolin also represented Liu Xinran, then the
shareholders holding 60% of the company’s shares were deemed
to have attended the special session of the shareholders’
assembly and they adopted the resolution on bringing the
lawsuit in question. According to HK Green Valley’s articles
of association, all the shareholders shall receive the
notices on such kind of meetings, but neither Hao Xiaoying
nor Lü Jiadong received any effective notice on this
meeting, hence the special shareholders’ assembly violated
the company’s articles of association. However, the
resolution of the special shareholders’ assembly on May 12,
1998, it was for the purpose of maintaining HK Green
Valley’s interests, and did not constitute a fraud to the
minority shareholders, namely, Hao Xiaoying and Lü Jiadong.
Although the special session of the shareholders’ assembly
violated the interests of Hao Xiaoying and Lü Jiadong, it
shall be considered as effective according to the principles
established in Hong Kong case law. Therefore, the lawsuit
brought according to the resolution of the special session
of the shareholders’ assembly of HK Green Valley convened on
May 12, 1998 shall be effective. Consequently, the
resolution of HK Green Valley’s board meeting in which Hao
Xiaoying, Lü Jiadong and Zhao Jingjing attended on March 1,
2000, which decided to apply for withdrawing the lawsuit in
the name of HK Green Valley, shall be ineffective.
Therefore, Canada Green Valley’s ground in respect of the
status as a litigant in the present case cannot be tenable,
and shall not be supported, either.
The present case is a case involving foreign interests or
interests of Hong Kong parties. According to the general
rules on the conflict of laws, the case shall be governed by
the laws of the country where the court is located. Hence
the present case shall be governed by the laws of the
Mainland. In terms of category, the present case is a
lawsuit on the recognition of right. Generally speaking, a
dispute over the recognition of right may be settled through
civil litigation. However, the “recognition of right” in the
present case is a peculiar one, because the present case
involves the modification of stock rights of a
Chinese-foreign joint venture. Shanghai Green Valley is a
Chinese-foreign joint venture, and according to the Law of
China on Chinese-foreign Joint Venture Enterprises, the
establishment, modification and termination of a
Chinese-foreign joint venture shall not become effective
until it has been approved by the relevant competent
department, and corresponding registration procedures have
been gone through in the administration for industry and
commerce. With respect to the modification of stock rights
of a Chinese-foreign joint venture, the approval of the
relevant administrative department constitutes an essential
element, instead of a procedural or formal requirement, and
unapproved modification shall of course be ineffective. In
the present case, Canada Green Valley’s 55% of stock rights
in Shanghai Green Valley were approved by the relevant
competent department, and Canada Green Valley completed the
corresponding registration procedures, hence it fulfilled
the element of effectiveness prescribed in law. HK Green
Valley asserted that the 55% of stock rights in Shanghai
Green Valley should belong to it, and believed it
inappropriate to modify the 55% of its stock rights in
Shanghai Green Valley into those of Canada Green Valley.
Although HK Green Valley brought the civil lawsuit with the
people’s court against Canada Green Valley regarding the
dispute over stock rights, in essence, it aimed to deny the
reply of Changning Government, the registration of Shanghai
Municipal Administration for Industry and Commerce, and the
certificate on approving the foreign-funded enterprise as
issued by Shanghai Municipal Government, that is, to deny
the relevant specific administrative acts made by the
administrative departments. Generally, a people’s court may
modify relevant administrative acts directly or indirectly
through the adjudication results from the civil litigation,
but these administrative acts shall be understood as
procedural or formal acts, such as archival filing,
registration, etc, while substantive administrative acts,
such as the approval involved in the present case, are
special powers authorized by the laws of China to the
relevant administrative departments, and may not be modified
through civil litigation procedures or civil judgments. Even
if an approval is not appropriate, it may only be corrected
through administrative reconsideration procedures or
administrative litigation procedures. Therefore, in the
present case, HK Green Valley’s pleading the court to
confirm its stock rights in the Chinese-foreign joint
venture may only be resolved through administrative
reconsideration or administrative litigation avenue, instead
of filing a civil litigation. Article 111 of the “Civil
Litigation Law of the People’s Republic of China”
prescribes: “With respect to the lawsuits described below,
the people’s court shall deal with them in the light of
their specific circumstances: (1) for a lawsuit within the
scope of administrative lawsuits in accordance with the
provisions of the Administrative Litigation Law, the
people’s court shall advise the plaintiff to bring an
administrative lawsuit …” In the present case, the court
shall advise HK Green Valley to bring an administrative
lawsuit. The civil judgment rendered by Shanghai Higher
Court on directly modifying the specific administrative act
through civil litigation procedures is inappropriate, and
shall be corrected. HK Green Valley’s civil lawsuit in the
present case is inappropriate, and shall be rejected.
To sum up, the present court ruled as follows in accordance
with Article 111 of the “Civil Litigation Law of the
People’s Republic of China”, Article 186 of the “Opinions of
the Supreme People’s Court on Some Issues for the
Application of the Civil Litigation Law of the People’s
Republic of China”:
1. The No. 10 (1998) civil judgment of Shanghai Higher Court
shall be overruled; and
2. Green Valley Investment Limited Liability Company’s
lawsuit shall be rejected.
The RMB 237,701.75 Yuan of case acceptance fee in the first
instance, and the same amount in the second, shall both be
borne by Green Valley Investment Limited Liability Company.
The present ruling shall be final.
Presiding Judge Wang Yun
Acting Judge Chen Jizhong
Acting Judge Gao Xiaoli
August 11, 2003
Court Clerk Yang Honglei |
