GUO SHUN KAI v. WING SHING CHEMICAL CO LTD

HCCT 35/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 35 OF 2012

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D E C I S I O N

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1.  This is an application by Wing Shing Chemical Company Limited (“Wing Shing”) pursuant to RHC Order 73 rule 10(6), to set aside or vary a prior order made by Au J on 20 September 2012 giving leave for an arbitral award to be enforced as a judgment of this court.

2.  The award in question is an award made by the South China Sub-Commission of China International Economic and Trade Arbitration Commission dated 1 June 2012 against Wing Shing in favour of Guo Shun Kai.

3.  The underlying dispute arose out of an investment co‑operation agreement between Wing Shing and Guo.  The award requires Wing Shing to pay Guo:

(1) compensation for economic loss in the amount of RMB 29,195,470.58 and interest thereon in the amount of RMB 12,293,716.33;

(2) legal costs in the amount of RMB 500,000; and

(3) costs of the arbitration proceedings in the amount of RMB 675,473 and costs of the arbitrators in the amount of RMB 134,574.

4.  The ground relied upon by Wing Shing for setting aside or varying the order giving leave for enforcement is contained in section 95(2) of the Arbitration Ordinance (Cap 609), which provides:

“(2) Enforcement of a Mainland award may be refused if the person against whom it is invoked proves―

…

(f) that the award―

(i) has not yet become binding on the parties; or

(ii)   has been set aside or suspended by a competent authority of the Mainland or under the law of the Mainland.”

5.  Wing Shing says that the award “has not yet become binding on the parties” or “has been … suspended … under the law of the Mainland” within the meaning of section 95(2)(f).  The basis on which it says so is that Wing Shing had on 27 August 2012 commenced legal proceedings in Shenzhen to dismiss the award.  On 30 August 2012, the Shenzhen Intermediate People’s Court (“the Shenzhen Court”) accepted jurisdiction over the case.  On 18 September 2012, the Shenzhen Court heard both parties in relation to Wing Shing’s application to set aside or dismiss the award.  Judgment was reserved and is being awaited.

6.  On 4 October 2012, Wing Shing took out the summons to set aside or vary the order for leave to enforce the award in Hong Kong.

7.  The resolution of the summons turns upon whether the award “has not yet become binding on the parties” or “has been … suspended … under the law of the Mainland” by virtue of the application made by Wing Shing to the Shenzhen Court.  This in turn depends on the examination and interpretation of the Mainland written laws relied upon by Wing Shing.

8.  The application made by Wing Shing to the Shenzhen Court was made on the ground that the award exceeded the scope of the arbitration and the procedures of the arbitration were contrary to law.  It does not appear to be an appeal on the merits of the underlying dispute.

9.  There are three principal provisions of Mainland law on which Wing Shing relies.  It is, however, unnecessary to set them out here since I am not satisfied that the expert evidence filed by Wing Shing conclusively proves that the award has been suspended by operation of the provisions of Mainland law.

10.  As a matter of practicalities, however, Wing Shing’s application having already been heard by the Shenzhen Court in September 2012, it is I think an appropriate case in which I should adjourn Wing Shing’s application in Hong Kong pending the determination of the Shenzhen proceedings in order to see what the outcome may be.  If Wing Shing fails there, then there will perhaps be little more that it can say to oppose enforcement of the award in Hong Kong.  If on the other hand, the award is indeed set aside or discharged or dismissed by the Shenzhen Court, then likewise, as Mr Yuen, who appears for Guo, accepts, enforcement of the award should be refused under section 95 of the Ordinance.

11.  I am satisfied there is jurisdiction to grant an adjournment.  The fact that specific provision is made for adjournment in section 86(4) and section 89(5) of the Arbitration Ordinance in relation to the enforcement of an ordinary award and a convention award respectively, but not in relation to the enforcement of a Mainland award does not mean there is no jurisdiction to adjourn proceedings relating to the enforcement of a Mainland award.  The court has general and inherent power to regulate the proceedings before it.  This is indeed presupposed in RHC Order 73 rule 10A, which provides:

“Where a debtor has applied under rule 10(6) to set aside an order made under rule 10(4), the Court may, either of its own motion or on an application made by the creditor, and if, having regard to all the circumstances of the case it thinks it just to do so, impose such terms, as to giving security or otherwise, as a condition of the further conduct of the application, as it thinks fit.”

12.  By virtue of the proviso in the order giving leave to enforce the award, an adjournment of Wing Shing’s summons would mean that Guo could not enforce the award until the resolution of the summons.  Mr Yuen submits that if I am minded to adjourn the summons, I should do so on terms requiring Wing Shing to give security for satisfying the award at least in part.  In support of that contention, he relies upon Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 LLR 208.  In that case, an award was made after arbitration in Sweden against the Government of Uganda as the employers in favour of certain building contractors in the sum of US$9.5 million.  The contractors issued an originating summons in England seeking leave to enforce the award as a judgment.  Meanwhile, the employers had applied to the Swedish court for a decision that the award was not binding on them.  The deputy judge, on hearing the originating summons, declined to grant leave to enforce the award forthwith and adjourned the application for three months, but he also ordered the employers to give security in the entire amount of the award.  On appeal, Staughton LJ said at p 212:

“In my judgment, two important factors must be considered on such an application, although I do not mean to say there may not be others. The first is the strength of the argument that the award is invalid as perceived on a brief consideration by the court which is asked to enforce the award while proceedings to set it aside are pending elsewhere. If the award is manifestly invalid, there should be an adjournment and no order for security. If it is manifestly valid, there should either be an order for immediate enforcement, or else an order for substantial security. In between there will be various degrees of plausibility in the argument for invalidity, and the judge must be guided by his preliminary conclusion on the point.

The second point is that the court must consider the ease or difficulty of enforcement of the award and whether it will be rendered more difficult, for example, by movement of assets or by improvident trading, if enforcement is delayed.  If that is likely to occur, the case for security is stronger; if on the other hand, there are and always will be insufficient assets within the jurisdiction, the case for security must necessarily be weakened.”

In the result, the Court of Appeal reduced the amount of the security required to US$5 million.

13.  It seems to me that in all the circumstances, this is a proper case in which to grant an adjournment and to require security to be given by Wing Shing, having regard in particular to the following matters:

(1) Wing Shing has not produced any documents in relation to the grounds or merits of its application to the Shenzhen Court to dismiss the award so as to try to show that the award was “manifestly invalid”;

(2) Wing Shing has changed its registered office from Harbour City in Tsim Sha Tsui to the address of a service company;

(3) Wing Shing has sold its industrial property on 25 April 2012;

(4) Wing Shing’s financial performance was deteriorating and its former parent company sold all its indirect shareholding in Wing Shing, which was described as an obsolete asset, shortly after the award was made;

(5) as at 31 March 2012, according to the public announcements relating to the sale of the shareholding referred to above, the total assets of Wing Shing were approximately HK$45.04 million, and its unaudited net liabilities were approximately HK$143.50 million.

14.  Mr Kong, who appears on behalf of Wing Shing, has no instructions to make submissions on the specific amount of security that would be beyond the capacity of Wing Shing.  In my view, an appropriate amount of security would be HK$20 million which is somewhat less than the sum of HK$32.1 million that Mr Yuen asks for but which I consider to be a sum that would give Guo some protection against any deterioration of his prospects of successfully enforcing the award in Hong Kong as a result of the adjournment.

(Submissions on the terms of the order and costs)

15.  I would direct that the security be provided in the form of payment into court or by such other security as is acceptable to the court.  I will order costs to be in the cause of Wing Shing’s summons, and I will give liberty to apply.  What I have in mind is if, after an inordinate period of time, no judgment is still forthcoming from the Shenzhen Court, then the parties may feel appropriate to apply to this court again.

16.  The summons of Wing Shing is adjourned pending resolution of its application to the Shenzhen Court.