CHIYU BANKING CORPORATION LTD. v. CHAN TIN KWUN

1995, No. A11186

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H E A D N O T E

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Plaintiff commenced Hong Kong action based on a judgment obtained in the People's Republic of China ("PRC"). Defendant applied to stay the Hong Kong proceedings on the ground that he had requested the Procuratorate to issue a "protest" to the court in PRC.

Held :

(i) The judgment obtained in PRC is not final and conclusive for enforcement in Hong Kong in the light of the protest system available to the Procuratorate under the Civil Procedure Law of PRC

(ii) Proceedings stayed.

1995, No. A11186

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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The application

1. This is an application by the Defendant to stay the proceedings on the basis that -

(i) proceedings are pending in the People's Republic of China ("PRC"); and

(ii) the most appropriate forum for the trial of this action is the PRC.

The background

2. The Plaintiff is a bank. On 18th March 1994, it commenced an action in the Fujian Intermediate People's Court ("the Intermediate Court") in the PRC against the Defendant as the guarantor of the debt of one of its customers, Hua Da Decoration & Furniture Co. ("Hua Da") pursuant to a guarantee dated 15th January 1991.

3. The Plaintiff's case was that the Defendant executed the guarantee in favour of the Plaintiff in consideration of the Plaintiff granting banking facilities to Hua Da.

4. Judgment was obtained against the Defendant on 19th January 1995 in the Intermediate Court in the sums of US$40,764.78 and US$8,769.

5. The Defendant appealed to the Fujian Higher People's Court but the appeal was dismissed on 30th July 1995 and the decision of the original court was affirmed.

6. The Defendant is a Hong Kong resident. The present action was commenced against him. The cause of action is based on the judgment obtained from the Intermediate Court.

The Protest

7. The dismissal of the appeal in PRC, however, is not the end of the matter. On 18th October 1995, the Defendant presented a petition to the Fujian People's Procuratorate for a retrial of the action conducted by the Intermediate Court.

8. On 14th March 1996, the Fujian People's Procuratorate presented a report to the Supreme People's Procuratorate requesting it to lodge a protest.

9. Under the legal system in PRC, another state organ, the Procuratorate exercises a supervisory function over civil adjudication by the courts : Article 14 of the Civil Procedure Law of 1991 ("the Civil Procedure Law"). Under Article 185, the Procuratorate may lodge a protest to the court in respect of a judicial decision. The circumstances in which the protest may be lodged are set out in Article 185, namely,

(i) the main evidence to substantiate the original judgment or ruling was insufficient;

(ii) the law which was applied in the original judgment or ruling was incorrect;

(iii) the People's Court was in violation of the statutory procedure which have affected the correctness of the judgment or ruling;

(iv) the judicial members in trying the case committed embezzlement, accepted bribes, practised favouritism or make a judgment that perverted the law.

It is for the Supreme People's Procuratorate to lodge the protest but under Article 185, the Fujian People's Procuratorate is entitled to refer the matter to the Supreme People's Procuratorate for it to lodge a protest.

10. Under Article 187, the court, upon receipt of the protest, is required to conduct a retrial of the action.

11. This procedure is well recognised. Mr Li Ping, the Plaintiff's expert on Chinese law, stated at para.11 of his affidavit that "if such protest is made a retrial will be ordered." Legal literature on this topic can be found in -

"中國訴訟制度法律全書”：楊柄芝，李春霖，法律出版社

"A Comprehensive Law Book on PRC's Legal Procedure System" by Yang Bing Zhi and Li Chun Lin. Published by Falu Publishing House and

"抗訴 制度通論 ”：周士敏，中國政法大學出版社

"PRC's System on Protest against the People's Court - General Discussion" by Shou Shi Min. Published by University of Politics & Law Publishing House.

The Defendant's argument

12. The Defendant submitted that in view of the steps taken by the Procuratorate, the present action should not be allowed to proceed further : if a protest is in due course lodged, the Intermediate Court will have to order a retrial with the possibility of the court reaching a different result on the case. Staying the present proceedings would avoid multiplicity of the action.

Forum non conveniens

13. I will briefly deal with forum non conveniens first. The leading authority on stay of proceedings on this basis is Spiliada Maritime Corp. v. Consulex Ltd. [1987] 1 AC 460 in which Lord Goff at page 476 held that :

"The basic principle is that a stay would only be granted on the ground of forum non conveniens where the court is satisfied that there is some other available forum having competent jurisdiction which is the appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interest of all the parties and the ends of justice."

14. Bokhary JA in S. Megga Telecommunication Ltd. v. Etowaru Co. Ltd. [1995] 2 HKC 761 stated that,

"This was not stated as merely a factor to be taken into account when deciding whether or not to exercise a discretion to stay proceedings on the ground of forum non conveniens. It goes to whether the discretion exists."

Relevance of forum

15. Mr Kerr, Counsel for the Plaintiff, said that the Plaintiff had already accepted that the Fujian Court was the proper forum for the determination of the dispute. That was the reason why proceedings were commenced there in the first place. However, the dispute having been adjudicated, the question of forum is no longer of relevance. The Plaintiff is now relying on the judgment obtained from the Intermediate Court by suing on it.

Recognition of foreign judgment

16. The real issue in this application is whether the Chinese judgment is final or conclusive.

17. Dicey & Morris in The Conflict of Laws at page 461 had this to say :

"Subject to the exceptions hereinafter mentioned and to rule 55 (International Conventions), a foreign judgment in personam given by the court of a foreign country with jurisdiction to give that judgment in accordance with the principles set out in rules 36 to 39 which is not impeachable under any of rules 42 to 45 may be enforced by an action or counterclaim for the amount due under it if the judgment is

(a) for a debt or definite sum of money not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty; and

(b) final and conclusive but not otherwise,

provided that a foreign judgment may be final and conclusive though it is subject to an appeal and though an appeal against it is actually pending in the foreign country where it was given."

What is a final and conclusive judgment

18. One must apply Hong Kong law to determine whether a judgment is final and conclusive. In Gustave Nouvion v. Freeman & Another [1889] 15 AC 1, the Privy Council considered what is a final and conclusive judgment. Lord Herschell at page 9 had this to say :

"... it must be shown that in the court by which it was pronounced conclusively, finally, and for ever established the existence of the debt of which it is sought to be made conclusive evidence in this country, so as to make it res judicata between the parties. If it is not conclusive in the same court which pronounced it, so that notwithstanding such a judgment the existence of the debt made between the same parties be afterwards contested in that court, and upon proper proceedings being taken and such context being adjudicated upon, it may be declared that there exists no obligation to pay the debt at all, then I do not think that a judgment which is of that character can be regarded as finally and conclusively evidencing the debt, and so entitling the person who has obtained the judgment to obtain a decree from a court for the payment of that debt."

And at page 10, the law lord continued :

"... Although an appeal may be pending, a court of competent jurisdiction has finally and conclusively determined the existence of a debt, and it has nonetheless done so because the right of appeal has been given whereby a superior court may overrule that decision. There exists at the time of the suit a judgment which must be assumed to be valid until interfered with by a higher tribunal, and which conclusively establishes the existence of the debt which is sought to be recovered in this country. That appears to be in altogether a different position from a 'remate' judgment where the very court which pronounced the 'remate' judgment (not the Court of Appeal) may determine, if proper proceedings are taken, that the debt for which this 'remate' judgment is sought to be used as conclusive evidence has no existence at all."

Lord Watson, at page 13, said this :

"... but no decision has been cited to the effect that an English Court is bound to give effect to a foreign decree which is liable to be abrogated or varied by the same court which issued it. All the authorities cited appeared to me, when fairly read, to assume that the decree which was given effect to had been pronounced causa cognita and that it was unnecessary to enquire into the merits of the controversy between the litigants, either because this had already been investigated and decided by the foreign tribunal, or because the Defendant had due opportunity of submitting for decision all the pleas which he desire to state in defence. In order to its receiving the fact here, a foreign decree need not be final in the sense that it cannot be made the subject of appeal to a higher court; but it must be final and unalterable in the court which pronounced it; and if appealable, the English Court will only enforce it, subject to conditions which may save the interest of those who have the right to appeal."

The Plaintiff's submission

19. Mr Kerr submitted that the Chinese law experts of both parties agreed that the judgment is final and conclusive, although I note that the Defendant's expert said that the judgment is final and conclusive "for the time being". Mr Kerr further submitted that the Intermediate Court is now functus. It does not retain any power for retrial until the protest is lodged. This procedure is akin to an appeal procedure which does not affect the conclusive nature of the judgment.

Not final and conclusive

20. Based on the material before me, the supervisory function of the Supreme People's Procuratorate and the protest system are not simply an appeal process. The Intermediate Court judgment is final in the sense that it is not appealable and it is enforceable in China, but it is not final and conclusive for the purpose of recognition and enforcement by the Hong Kong Courts because in the words of Lord Watson, it "is not final and unalterable in the court which pronounced it". It is liable to be altered by the Intermediate Court on a retrial if the Supreme People's Procuratorate lodge a protest in accordance with the Civil Procedure Law. If upon protest being made, rare the circumstances may be, a Chinese Court has to retry the case, then, clearly it retains the power to alter its own decision. As Lord Watson said at page 13 of Nouvion :

"There is no real difference in principle between the case of a court retaining power to alter a decree by an order in the same suit and the case of its retaining power to defeat the operation of that decree by an order pronounced in another suit relating to the same debt."

21. Mr Kerr referred to Colt Industries Inc v. Sarlie (No.2) [1966] 1 WLR 1287 in which Lord Denning M.R. at page 1291 held that :

"The appeal itself does not render it not final and conclusive, nor should the possibility of leave to appeal. It seems to me that the proper test is this : is the judgment a final and conclusive judgment of a court of competent jurisdiction in the territory in which it was pronounced. The relevant territory here is the State of New York. Applying this test, there was here a final and conclusive judgment."

In my view, Lord Denning's decision does not in any way contradict the principle in Nouvion.

22. Although no protest has been lodged yet, the procedure had actually been invoked. This demonstrated that the judgment is not final and conclusive. To allow the present action to continue would not be satisfactory because the Plaintiff is not suing on the guarantee but on the judgment itself which is not final and conclusive. There is a possibility that the judgment may be varied if the application to the Supreme People's Procuratorate is successful, and the debt for which the present judgment is sought to be used as conclusive evidence may have no existence at all.

Proceedings stayed

23. In the circumstances, the only course available to me is to stay the present proceedings pending the outcome of the decision of the Supreme People's Procuratorate. I give leave to the Plaintiff to, firstly, apply to remove the stay if the application is rejected by the Supreme People's Procuratorate and secondly, to seek further directions if the decision of the Supreme People's Procuratorate is still not reached within the next six months.

Variation of the consent orders

24. The Defendant further seeks to vary the consent order in which monies realised in the disposal of the Defendant's property and currently held by his solicitor as stakeholder be released to him. The consent order was reached on the Plaintiff's application for a Mareva injunction against the Defendant.

25. I am not prepared to accede to this request in view of the fact that the Supreme People's Procuratorate is still considering its decision and there is, at the moment, a valid judgment obtained against the Defendant. The status quo should be maintained. Mr Wong seeks reliance on Mercedes Benz AG v. Leiduck [1995] 3 HKC 1. I cannot see how the case can assist him. The factual circumstances of the cases are completely different.