SHENZHEN KAI LONG INVESTMENT AND DEVELOPMENT CO LTD v. CEC ELECTRICAL MANUFACTURING (INTERNATIONAL) CO LTD

[English Translation – 英譯本]
HCMP 1885/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1885 OF 2000

-------------------------------------

-------------------------------------

-------------------------------------

------------------------

JUDGMENT

------------------------

Background

1. On 19 December 1991, the Plaintiff herein, the Defendant herein and Shanghai Gang Yi Second Factory (transliteration) (上海鋼椅二廠) (hereinafter “SHGY”) signed a contract for the operation of a joint venture company known as Shenzhen Chang Xing Furniture Manufacturing Co Ltd (transliteration) (深圳長興家俱製造有限公司) (hereinafter “JV Company”), which was set up for the purpose of manufacturing and trading in office furniture such as high-end steel chairs.  A total amount of HK$13,000,000 was invested in the JV Company.  The registered capital of the JV Company was HK$10,000,000, of which HK$3,500,000 (35%) came from the Plaintiff, HK$1,000,000 (10%) came from SHGY, and HK$5,500,000 (55%) came from the Defendant.  All the investments were made in cash.

2. On 9 April 1992, the Plaintiff and SHGY, in accordance with the said contract, remitted to the JV Company cash in the sums of HK$1,000,000 and USD452,635 (totalling HK$4,500,000).

3. According to the relevant Arbitral Award (see below), the Defendant failed to perform its obligation to invest; furthermore, taking advantage of the fact that its wholly-owned enterprise in Shenzhen manufactured the same types of products, the Defendant, by making bank payments and purchasing manufacturing information etc, converted the amounts invested by the Plaintiff and SHGY to the said wholly-owned enterprise for its use, thereby acting in serious breach of the joint venture contract.

4. Accordingly, pursuant to the arbitration clause in the contract, the Plaintiff and SHGY applied for arbitration in respect of the Defendant’s breach of contract.  On 20 April 1993, pursuant to the arbitration clause and the said application, the Shenzhen Branch of the China International Economic and Trade Arbitration Commission set up an arbitral tribunal to deal with the arbitration case over the said contractual dispute among the parties.  Having conducted a number of hearings, the arbitral tribunal announced on 20 April 1994 that the case was concluded and handed down an Award in writing.  By the Award, the tribunal ruled that the Defendant’s wholly-owned enterprise had embezzled the money which the Plaintiff and SHGY had invested in the JV Company.  The tribunal also ruled that, by failing to discharge its obligation to invest and by converting the amounts invested by the Plaintiff and SHGY to its wholly-owned enterprise for its use, the Defendant had acted in fundamental breach of the contract.  Therefore, under the applicable law of Mainland China and clause 41 of the joint venture contract, the Plaintiff was entitled to have the contract discharged and to claim compensation.  On the other hand, in respect of SHGY’s claims, the tribunal ruled that the statutory representative and relevant officers of SHGY had taken part in and assumed actual responsibility for the manufacture and trading of steel chairs by the Defendant’s wholly-owned enterprise.  Furthermore, upon the establishment of the JV Company, the said statutory representative, being the first general manager thereof, was directly responsible for the direct takeover by the JV Company from the said wholly-owned enterprise of the manufacture and trading of steel chairs.  On the evidence, the tribunal ruled that the said statutory representative and relevant officers had taken part in the manufacture and trading of steel chairs by the said wholly-owned enterprise and had, acting in concert with the Defendant, mixed up the manufacturing and trading business of the said enterprise with that of the JV Company, and these should all be regarded as the corporate acts of SHGY.  The tribunal ruled that SHGY should be liable for those acts and should therefore be jointly liable with the Defendant for the debts incurred by the JV Company since its establishment.

5. Accordingly, the arbitral tribunal made the following awards:

1.         The joint venture contract over ‘Shenzhen Chang Xing Furniture Manufacturing Co Ltd’ is discharged and the joint venture enterprise is to be liquidated in accordance with the law.

2.         The Respondent shall return to the 1^st Claimant [the Plaintiff herein] HK$3,500,000 and interest at HK$709,722.

The Respondent should pay the above sums to the 1^st Claimant within 30 days from the date of this award, failing which the Respondent shall also pay interest at 10% per annum.

3.         The arbitration claims of the 2^nd Claimant [SHGY] are dismissed, and the third item of the 1^st Claimant’s arbitration claims is dismissed.

4.         In the present case, the arbitration fees amount to RMB142,490 and the handling fees amount to RMB5,000.  Of these fees, RMB132,741 shall be borne by the Respondent, and RMB14,749 shall be borne by the 2^nd Claimant.  The sum of RMB147,490 paid in advance by the Claimants shall be applied to the arbitration fees and handling fees payable by the Respondent and the 2^nd Claimant.  The Respondent should pay RMB132,741 to the 1^st Claimant within 30 days from the date of this award, failing which the Respondent shall also pay interest at 10% per annum.

6. The Defendant did not comply with the above Award by returning to the Plaintiff the investment money of HK$3,500,000 or paying interest and arbitration fees.

7. The Plaintiff therefore applied to the Intermediate People’s Court of Shenzhen Municipality, Guangdong Province (hereinafter “SIPC”) for execution of the said Arbitral Award.  The SIPC issued a Notice of Execution, but the Defendant failed to comply with the Notice and perform its obligations under the Arbitral Award.  Accordingly, the SIPC handed down the following Civil Ruling on 4 July 1994:

Intermediate People’s Court of Shenzhen Municipality,
Guangdong Province
Civil Ruling

(1994) SIPC No. 12-148

Applicant for execution: Shenzhen-Shanghai Light Industries Trading Co

Respondent: CEC Electrical Manufacturing (International) Co Ltd

Pursuant to Award (1994) SCIETAC No.11, which takes legal effect, this Court has issued a Notice of Execution against the Respondent, ordering the Respondent to perform, within the specified time limit, the repayment obligations set out in the legal instrument.  However, the Respondent has to date failed to perform the obligations set out in the legal instrument in accordance with the Notice of Execution.  Pursuant to the provisions in Articles 221 and 223 of the Civil Procedure Law of the People’s Republic of China, it is hereby adjudged that:

1.      the Respondent’s deposits at the banks be frozen and transferred;

2.      the Respondent’s properties be sealed up, distrained, sold off and sold by public auction.

The subject matter of execution of the above two orders shall not exceed RMB4,800,000.

8. In October 1994, the SIPC issued a notice to the Defendant, purporting to seal up a factory property on the Mainland that the SIPC thought was owned by the Defendant, as a means of executing the Arbitral Award.  However, later in the same month, the SIPC realized upon investigation that the ownership of the said property did not rest with the Defendant, and after consideration, the SIPC decided to make an order setting aside the seal-up order.

9. In 1996, the SIPC issued another notice to the Defendant, purporting to seal up a factory property that the SIPC thought was owned by the Defendant’s wholly-owned company on the Mainland (i.e. the same factory property), as a means of executing the Arbitral Award.  During the seal-up period, the so-called wholly-owned company of the Defendant was not allowed to mortgage, assign or sell the said property.

10. However, the SIPC examined the matter once and again and, in the end, took the view that the name of the party who invested in the so-called wholly-owned company that owned the sealed-up property was different from the name of the Defendant, and hence that company could not be confirmed beyond doubt to be the Defendant’s wholly-owned company on the Mainland.  As a result, the SIPC made an order on 8 May 2000 discharging the seal-up order over the factory property of the said company.

11. In short, the Plaintiff’s efforts in seeking execution of the repayment obligations under the Arbitral Award, namely by applying to the SIPC to have the Defendant’s properties sealed up, distrained, sold off and sold by public auction and have the Defendant’s deposits in the banks frozen and transferred, all came to nothing.

12. The above, however, merely describes one aspect of the parties’ attempts to execute and challenge the Arbitral Award in the Mainland.  Immediately following the Plaintiff’s application to the People’s Court to execute the Award, the Defendant applied to the SIPC and the Higher People’s Court of Guangdong Province (hereinafter “GHPC”) for an order that the Award was not to be executed.  One of the grounds of the application was that Paragraphs 1 and 2 of the Award were contradictory to each other.  Put simply, the Defendant, through its lawyer, alleged that the parties were investors of the JV Company, and given that Paragraph 1 of the Award provided that the joint venture contract was to be discharged and the JV Company was to be liquidated in accordance with the law, there did not exist, before the liability of the investors for the debts of the JV Company was determined, the question of the Defendant having to “return” to the Plaintiff the “investment sum” of HK$3,500,000 or any interest thereon.  According to the evidence given by the Defendant’s lawyer at that time (i.e. Mr Cong Song Ping, the Defendant’s expert witness on PRC law in the present proceedings) under cross-examination, the Defendant also made an alternative application for “suspension of execution” of the Arbitral Award pending the determination by the Courts on the Defendant’s application for an order not executing the Award.

13. On 19 June 1996, the GHPC issued a written Reply to the SIPC about the Defendant’s application for an order not executing the Award.  The Reply contained the following passage:

5. With the discharge of the joint venture contract, the joint venture will inevitably dissolve, rendering it necessary to liquidate the joint venture.  This is also expressly stipulated under Article 103 of the Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures.  In determining the case, the Court was entitled under the law to have the joint venture liquidated (and the relevant department could be instructed to carry out the liquidation), for the reason that liquidation was also a procedure and means of execution which will serve to ascertain the profits and liabilities to be shared among the parties.  Item 2 of the Award, namely ‘CEC Electrical Co is to return to Shanghai Light Industries Co the investment principal and interest’ falls under this category, and therefore it is not necessary to suspend the execution of the Award.

In summary, the five grounds for re-trial as advanced by CEC Electrical Co are not made out, and the Arbitral Award is to be executed in accordance with the law.

14. As a natural consequence of the said Reply, the SIPC on 25 July 1996 issued to the Defendant a “Notice of Dismissal of Application for Re-trial”.  Paragraph 5 of that Notice read exactly the same as Paragraph 5 of the GHPC’s Reply quoted above.  In other words, the SIPC refused the Defendant’s application for re-trial and ruled that the Arbitral Award was to be executed in accordance with the law.

15. On the basis of the above Notice of Dismissal of Application for Re-trial, the SIPC liquidated the JV Company and instructed Shenzhen Dagong Certified Public Accountants to carry out the relevant audit.  On 15 September 1996, the accountants submitted to the SIPC an audit report, which stated that the JV Company was insolvent.  However, the balance sheet annexed to the audit report showed that the major creditors of the JV Company were in fact the Defendant and its so-called wholly-owned enterprise on the Mainland; if this particular indebtedness was not taken into account, the JV Company would be solvent.

16. In any event, matters took yet another turn.  On 15 January 1998, the Supreme People’s Court of the PRC (hereinafter “SPC”) issued a notice responding to the question of how joint ventures were to be liquidated in the context of disputes over Sino-foreign joint venture contracts.  In the SPC’s interpretation of the relevant PRC laws, the question of liquidating joint ventures was to be dealt with in accordance with the relevant provisions in the Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures and the Procedure for Liquidation of Foreign-Funded Enterprises.  The SPC considered that “there was no legal basis for liquidation to be conducted by the People’s Courts”.  The experts on PRC law engaged by the parties hereto have agreed that the SPC’s interpretation was inconsistent with the earlier interpretation of the SIPC.  And as described above, the SIPC had, based on its own understanding at the time, of its own accord conducted liquidation of the JV Company.  The experts have also agreed that, in light of the authoritative reply issued by the SPC, the SIPC handed down a Civil Ruling on 28 June 2000.  The contents of the Ruling are reproduced in full below:

Intermediate People’s Court of Shenzhen Municipality,
Guangdong Province
Civil Ruling

(1994) SIPC No. 7-148-1

In respect of the arbitration case taken out by Shenzhen-Shanghai Light Industries Trading Co (whose name has now become Shenzhen Kai Long Investment and Development Co Ltd) and Shanghai Gang Yi Second Factory against CEC Electrical Manufacturing (International) Co Ltd over a contractual dispute, the Shenzhen Branch of the China International Economic and Trade Arbitration Commission issued an Award (1994) SCIETAC No.11 on 20 April 1994, and the Award has taken legal effect.  The creditor Shenzhen-Shanghai Light Industries Trading Co applied to this Court on 27 May 1994 for execution of the Award.

As far as execution by this Court is concerned, according to the ‘Official Reply to the Question on How to Liquidate a Joint Venture in a Trial of a Dispute Arising From the Chinese-Foreign Joint Venture Contract’ (Fa Shi [1998] No.1) issued by the Supreme People’s Court: the question of liquidating joint ventures is to be dealt with in accordance with the relevant provisions in the Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures and the Procedure for Liquidation of Foreign-Funded Enterprises; the People’s Courts have no legal basis for conducting liquidation; and the Regulations of Shenzhen Special Economic Zone on Liquidation of Enterprises and the implementing measures provide that liquidation of Sino-foreign joint ventures should be conducted by the liquidation section of the liquidation authorities.  Pursuant to Article 234, paragraph 1, item (5) and Article 140, paragraph 1, item (11) of the Civil Procedure Law of the People’s Republic of China, it is hereby adjudged that:

1.      the joint venture enterprise be liquidated by Shenzhen-Shanghai Light Industries Trading Co, Shanghai Gang Yi Second Factory and CEC Electrical Manufacturing (International) Co Ltd in accordance with the law.

2.      during the period of liquidation, the execution of Award (1994) SCIETAC No.11 issued by the Shenzhen Branch of the China International Economic and Trade Arbitration Commission be suspended.

This Ruling shall take immediate effect upon service.

17. The above Civil Ruling of 28 June 2000 has directly given rise to the legal issues over which the parties hereto have vigorously disputed.  Those issues will be dealt with in turn later on in this judgment.

18. It is, however, not in dispute that the JV Company had not been liquidated by the liquidation authorities (i.e. the State Administration for Industry and Commerce or Foreign Investments Commission).  And to date, the Plaintiff has not received any sum of money from the JV Company or its liquidation (or attempted liquidation) in satisfaction of any of the debts owed by the Defendant to the Plaintiff by reason of the Arbitral Award.

19. On 12 April 2000, the Plaintiff commenced proceedings in Hong Kong, seeking enforcement of the Arbitral Award in Hong Kong pursuant to Part IIIA of the Arbitration Ordinance (Cap. 341 of the Laws of Hong Kong) (hereinafter “Ordinance”).  It should be noted that the proceedings were commenced on 12 April 2000, and at that time the seal-up order over the factory property owned by the so-called wholly-owned company of the Defendant on the Mainland was still in force and the SIPC had not issued the said Civil Ruling.

20. After the litigation commenced, both parties filed affidavits respectively in support of and opposing the relief that the Plaintiff applied for.

21. On 6 November 2001, the Plaintiff obtained an ex parte order from Burrell J for the enforcement of the payment obligations under the Arbitral Award.

Application

22. Upon being notified of the above ex parte order, the Defendant took out a summons on 27 November 2001, applying to have the order set aside and the present action struck out.

The issues in dispute

23. In short, the arguments put forward by the Defendant are:

(1)   The application to enforce the Award does not meet the requirements under section 40C of the Ordinance;

(2)   The application to enforce the Award does not meet the requirements under section 40E(2)(f) of the Ordinance;

(3)   In its ex parte application for an order for enforcement, the Plaintiff was guilty of material non-disclosure; and

(4)   (This argument was put forward at a late stage of the hearing) The Arbitral Award is not a “Mainland award” to which Part IIIA of the Ordinance applies.

The said disputes will be dealt with one by one below, in descending order of importance.

Opinions of the experts on PRC law

24. As indicated above, apart from filing affidavits and adducing factual evidence, the parties hereto have filed the opinions of their respective experts on PRC law and have, in compliance with previous court directions, called their respective experts to testify in court and to be cross-examined.  As far as these experts’ opinions and the discrepancies between their opinions are concerned, where they are relevant to and necessary for the determination of the issues in dispute, I will discuss them and make findings as appropriate in the proper context (it is not in dispute that, in proceedings before Hong Kong courts, PRC law is a matter of factual evidence, and where there are disagreements thereon, the court has to make findings of fact).  This, however, does not mean that, in dealing with the relevant application, I have neglected any expert evidence or written legal opinion or any discrepancy between the opinions which has not been specifically mentioned, discussed or addressed in this judgment.  In delivering judgment, I have considered such evidence in its entirety, and such evidence will be referred to or discussed in this judgment as and when necessary or appropriate.

The meaning of “Mainland award”

25. Prior to the resumption by the PRC of her sovereignty over Hong Kong on 1 July 1997, the PRC and the UK (including Hong Kong) were both parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (i.e. the New York Convention) adopted by the United Nations Conference on International Commercial Arbitration on 10 June 1958, and therefore, by virtue of the New York Convention and Part IV of the Ordinance, Mainland awards could, as “Convention awards”, be enforced by Hong Kong courts.  By the same token, arbitral awards made in Hong Kong could be enforced by Mainland courts pursuant to the New York Convention and PRC law.

26. On the other hand, after 1997, as Hong Kong had formally become part of the PRC again, it would become a problem at law for Hong Kong to continue to regard Mainland awards as Convention awards, and there were considerable doubts as to whether Mainland awards could continue to be enforced in Hong Kong pursuant to the New York Convention and Part IV of the Ordinance.  However, following extensive negotiations for over two years, the Mainland and Hong Kong entered into an Arrangement on the Reciprocal Enforcement of Arbitral Awards Between Mainland China and the Hong Kong Special Administrative Region (hereinafter “Arrangement”).  The text of the Arrangement is reproduced in full below:

Arrangement on the Reciprocal Enforcement of Arbitral Awards Between Mainland China and the Hong Kong Special Administrative Region

Pursuant to the provision of Article 95 of the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, and on the basis of consultations between the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region (hereinafter referred to as “Hong Kong SAR”), the courts of the Hong Kong SAR agree to enforce awards made by Mainland arbitration authorities (a list of these authorities is to be provided by the Legislative Affairs Office of the State Council through the Hong Kong and Macao Affairs Office of the State Council) pursuant to the Arbitration Law of the People’s Republic of China, and the People’s Courts in Mainland China agree to enforce awards made in the Hong Kong SAR in accordance with the Arbitration Ordinance.  The following arrangements are hereby made on matters relating to the reciprocal enforcement of arbitral awards between Mainland China and the Hong Kong SAR:

1.         Where an arbitral award is made in Mainland China or the Hong Kong SAR, and a party to the award fails to satisfy the award, the other party to the award may apply to the relevant court of the place where the respondent resides or where the respondent’s property is located for enforcement of the award.

2.         The relevant court in the above provision means, in Mainland China, the Intermediate People’s Court of the place where the respondent resides or where the respondent’s property is located, and means, in the Hong Kong SAR, the High Court of the Hong Kong SAR.

Where the respondent resides in, or where the respondent’s property is located in, places within the jurisdictions of different Intermediate People’s Courts, the applicant may apply to one of these Courts as the applicant may select for enforcement of the award, and no application shall be made to two or more People’s Courts.

Where the respondent resides in, or where the respondent’s property is located in, both Mainland China and the Hong Kong SAR, the applicant shall not make applications to the courts in the two places simultaneously.  Only where enforcement of an arbitral award by the court of one place does not fully satisfy the award may an application be made to the court of another place for enforcement of the unsatisfied portion of the award.  The total amount recovered through the respective enforcement of an arbitral award by the courts in the two places shall not exceed the amount specified in the award.

3.         An applicant who applies to the relevant court for enforcement of an arbitral award made in Mainland China or the Hong Kong SAR should submit the following documents:

(1)     an application for enforcement;

(2)     the relevant arbitral award;

(3)     the relevant arbitration agreement.

4.         The application for enforcement should contain the following particulars:

(1)     Where the applicant is a natural person, the applicant’s name and address; where the applicant is a legal person or other organization, the name and address of that legal person or other organization and the name of the statutory representative;

(2)     Where the respondent is a natural person, the respondent’s name and address; where the respondent is a legal person or other organization, the name and address of that legal person or other organization and the name of the statutory representative;

(3)     Where the applicant is a legal person or other organization, a copy of the registration of the enterprise should be submitted.  Where the applicant is a foreign legal person or other organization, the corresponding notarization and certification materials should be submitted;

(4)     The reasons for applying for enforcement and details of the relief sought, and the location and status of the respondent’s properties.

Where an application for enforcement is made in Mainland China, the application should be submitted in the Chinese language; and where the relevant award or arbitration agreement does not have a Chinese version, the applicant should submit a formally authenticated Chinese translation.

5.         The time limit for applying to the relevant court for enforcement of an arbitral award made in Mainland China or the Hong Kong SAR shall be governed by the provisions as to time limit under the law of the place where the enforcement is sought.

6.         Upon receiving an application for enforcement, the relevant court should deal with and give effect to the application in accordance with the law of the place where the enforcement is sought.

7.         Upon being notified of an application for enforcement of an arbitral award made in Mainland China or the Hong Kong SAR, the respondent may adduce evidence to show any one of the following circumstances, and if such circumstance is proved to exist, the relevant court may rule against enforcement of the award:

(1)     A party to the relevant arbitration agreement was under some incapacity according to the law applicable to that party; or the arbitration agreement was not valid under the law agreed to be applicable to it; or where the law applicable to the agreement had not been specified, the agreement was not valid under the law of the place where the arbitral award was made;

(2)     The respondent had not received proper notice of the appointment of the arbitrator or had otherwise not been able to present the respondent’s case;

(3)     The issue dealt with in the award is not the subject-matter of the arbitration or is not covered by the provisions of the arbitration agreement, or the award contains rulings on matters beyond the scope of the arbitration; but where it is possible to separate the rulings on matters being the subject of the arbitration from the matters not being the subject of the arbitration, then such parts of the award that relate to the rulings on matters being the subject of the arbitration should be enforced;

(4)     The composition of the arbitration tribunal or the procedure of the arbitration tribunal was at variance with the agreement between the parties or, in the absence of such agreement, with the law of the place where the arbitration was held;

(5)     The award has not yet become binding on the parties, or has been set aside or the execution of which has been stopped by the court of the place where the arbitration was held or under the law of that place.

Where the relevant court considers that, under the law of the place where enforcement of an award is sought, the matters in dispute cannot be resolved by arbitration, the court may refuse to enforce the award.

Where the court in Mainland China considers that the enforcement of an arbitral award in Mainland China would be contrary to the social and public interests of Mainland China, or where the court in the Hong Kong SAR decides that the enforcement of an arbitral award in the Hong Kong SAR would be contrary to the public policy of the Hong Kong SAR, the court concerned may refuse to enforce the award.

8.         An applicant who applies to the relevant court for enforcement of an arbitral award made in Mainland China or the Hong Kong SAR shall pay enforcement fees in accordance with the scales of litigation charges of the court of the place where enforcement is sought.

9.         All applications made after 1 July 1997 for enforcement of arbitral awards made in Mainland China or the Hong Kong SAR shall be dealt with in accordance with this Arrangement.

10.       Regarding applications made between 1 July 1997 and the date on which this Arrangement takes effect, both parties hereto agree that:

Where, between 1 July 1997 and the date on which this Arrangement takes effect, an application cannot be made to the court in Mainland China or the Hong Kong SAR for enforcement, an applicant who is a legal person or other organization may make an application within 6 months from the date on which this Arrangement takes effect; and an applicant who is a natural person may make an application within one year from the date on which this Arrangement takes effect.

Regarding cases between 1 July 1997 and the date on which this Arrangement takes effect in which the court in Mainland China or the Hong Kong SAR refuses to deal with an application or refuses to enforce an arbitral award, the parties should be allowed to renew their applications.

11.       Any problem or amendment that may arise in the course of implementing this Arrangement should be resolved by consultation between the Supreme People’s Court and the Government of the Hong Kong SAR.

27. As a result of the Arrangement, the Ordinance was amended by adding Part IIIA which provides for the enforcement of Mainland awards in Hong Kong: see the Arbitration (Amendment) Ordinance 2000 (Ord No. 2 of 2000).  In the Mainland, the Arrangement was promulgated in the form of a judicial interpretation by the Supreme People’s Court and took effect from 1 February 2000.  It is the legal opinion of the experts for the parties hereto that the relevant notice of promulgation did have legal effect in the Mainland.

28. For an account of the evolution of the law regarding the reciprocal enforcement of awards between the Mainland and Hong Kong before and after 1997, please refer to Shandong Textiles Import and Export Corp. v. Da Hua Non-ferrous Metals Co. Ltd. [2002] 2 HKLRD 844; Morgan, “Enforcement of Chinese Arbitral Awards Complete Once More – But with a Difference” (2000) 30 HKLJ 375; Morgan, The Arbitration Ordinance of Hong Kong (1997 Edition) pages 385-391; Cheng, Moser and Wang, International Arbitration in the People’s Republic of China (2^nd Edition) pages 138-142.

29. Section 2(1) of the amended Arbitration Ordinance defines “Mainland award” as “an arbitral award made on the Mainland by a recognized Mainland arbitral authority in accordance with the Arbitration Law of the People’s Republic of China”.

30. Section 2GG of the Ordinance provides as follows:

2GG.    Enforcement of decisions of arbitral tribunal

(1)        An award, order or direction made or given in or in relation to arbitration proceedings by an arbitral tribunal is enforceable in the same way as a judgment, order or direction of the Court that has the same effect, but only with the leave of the Court or a judge of the Court.  If that leave is given, the Court or judge may enter judgment in terms of the award, order or direction. (Amended 25 of 1998 s. 2; amended 38 of 2000 s. 2)

(2)        Notwithstanding anything in this Ordinance, this section applies to an award, order or direction made or given whether in or outside Hong Kong. (Added 38 of 2000 s. 2)

(Added 75 of 1996 s. 7)

31. Sections 40A, 40B, 40C, 40D and 40E in Part IIIA of the Ordinance provide as follows:

PART IIIA
ENFORCEMENT OF MAINLAND AWARDS

40A.    Awards to which Part IIIA applies

(1)        Subject to subsection (2), this Part shall have effect with respect to the enforcement of Mainland awards.

(2)        Where ―

(a)     a Mainland award was at any time before 1 July 1997 a Convention award within the meaning of Part IV as then in force; and

(b)     the enforcement of that award had been refused at any time before the commencement of section 5 of the Arbitration (Amendment) Ordinance 2000 (2 of 2000) under section 44 as then in force,

then sections 40B to 40E shall have no effect with respect to the enforcement of that award.

40B.     Effect of Mainland awards

(1) A Mainland award shall, subject to this Part, be enforceable in Hong Kong either by action in the Court or in the same manner as the award of an arbitrator is enforceable by virtue of section 2GG.

(2) Any Mainland award which is enforceable under this Part shall be treated as binding for all purposes on the persons between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in Hong Kong, and any references in this Part to enforcing a Mainland award shall be construed as including references to relying on a Mainland award.

40C.    Restrictions on enforcement of Mainland awards

(1) A Mainland award shall not, subject to subsection (2), be enforceable under this Part if an application has been made on the Mainland for enforcement of the award.

(2) Where ―

(a) an application has been made on the Mainland for enforcement of a Mainland award; and

(b) the award has not been fully satisfied by way of that enforcement,

then, to the extent that the award has not been so satisfied, the award may be enforceable under this Part.

40D.    Evidence

The party seeking to enforce a Mainland award must produce ―

(a)     the duly authenticated original award or a duly certified copy of it;

(b)     the original arbitration agreement or a duly certified copy of it; and

(c)     where the award or agreement is in a language or languages other than either or both of the official languages, a translation of it in either of the official languages certified by an official or sworn translator or by a diplomatic or consular agent.

40E.     Refusal of enforcement

(1)        Enforcement of a Mainland award shall not be refused except in the cases mentioned in this section.

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

(a)     that a party to the arbitration agreement was (under the law applicable to him) under some incapacity; or

(b)     that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the Mainland; or

(c)     that he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(d)     subject to subsection (4), that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration; or

(e)     that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the Mainland; or

(f)      that the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the Mainland or under the law of the Mainland.

(3)        Enforcement of a Mainland award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration under the law of Hong Kong, or if it would be contrary to public policy to enforce the award.

(4)        A Mainland award which contains decisions on matters not submitted to arbitration may be enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those on matters not so submitted.

32. At the hearing, the Defendant submitted that the Arbitral Award in question does not fall within the definition of “Mainland award” under the amended Ordinance, and therefore the provisions in the Ordinance regarding enforcement of Mainland awards are wholly inapplicable.  The reason advanced by the Defendant is extremely simple: the definition under section 2(1) of the Ordinance shows that “Mainland award” is confined to an arbitral award made on the Mainland by a recognized Mainland arbitral authority “in accordance with the Arbitration Law of the People’s Republic of China”.  However, the undisputed expert evidence shows that the Arbitration Law of the People’s Republic of China (hereinafter “Arbitration Law”) was adopted at the 9^th Session of the Standing Committee of the 8^th National People’s Congress on 30 August 1994, promulgated by Order No. 31 of the Chairman of the People’s Republic of China on 31 August 1994, and became effective as of 1 September 1995 (see Chapter 8, Article 80 of the Arbitration Law).  As the Arbitral Award in question was made on 20 April 1994 and at that time the Arbitration Law had neither been adopted nor become effective, the Award was not made “in accordance with” the Arbitration Law and hence falls outside the definition of “Mainland award”, with the result that the enforcement provisions in the Ordinance do not apply to the Award.

33. In my view, in light of the legislative background of the provisions in the Ordinance regarding enforcement of Mainland awards, reference should, in interpreting those provisions, be made to the contents of the Arrangement, although obviously the Arrangement has no legal effect in Hong Kong (see High Hope International Group Jiangsu Native Produce Import & Export Corporation Ltd v Keung Shui Ying (transliteration), CACV 412/2001 (7 September 2001), at paragraphs 3(3) and 8(3) of the Judgment).  See the discussion in Bennion, Statutory Interpretation (3^rd Edition) page 523 et. seq.

34. In respect of the Defendant’s said submission, I notice that the Arrangement also expressly stated that the awards made by Mainland arbitration authorities that Hong Kong courts had agreed to enforce were those that were made “pursuant to the Arbitration Law of the People’s Republic of China”, and the awards made in Hong Kong that the People’s Courts of the Mainland had agreed to enforce were those that were made “in accordance with” the Ordinance.

35. First of all, I do not accept the submission by Mr Kenneth Chow, Counsel for the Plaintiff, that the term “the Arbitration Law of the People’s Republic of China” means the arbitration law of the PRC in general as opposed to any particular piece of legislation.  In my view, whether in the context of the definition of “Mainland award” under section 2(1) of the Ordinance or in the context of the provisions in the Arrangement regarding the Mainland arbitral awards that can be enforced in Hong Kong, “the Arbitration Law of the People’s Republic of China” obviously means the aforesaid Arbitration Law which became effective in the PRC as of 1 September 1995.  My view in this respect finds direct support both in the Chinese versions of the Ordinance and the Arrangement, which punctuate the term with quotation marks, and in the English version of the Ordinance, which capitalizes the relevant letters of the term (“the Arbitration Law of the People’s Republic of China”).  And indirect support for my view can be found in the Arrangement, which stated that the People’s Courts had agreed to enforce awards made in the Hong Kong SAR pursuant to “the Arbitration Ordinance”; by analogy, “the Arbitration Law of the People’s Republic of China” must mean the Arbitration Law which became effective in the PRC as of 1 September 1995 rather than PRC arbitration law in general.  Furthermore, in Morgan, “Enforcement of Chinese Arbitral Awards Complete Once More – But with a Difference” (cited above), the learned writer took the same view: see page 377, note 13.

36. The thrust of the Defendant’s argument is that, given that the Arbitration Law neither existed nor was effective at the time of the making of the Arbitral Award in question, that Award cannot be said to have been made “in accordance with” the Arbitration Law (as per section 2(1) of the Ordinance) or “pursuant to” the Arbitration Law (see the Chinese version of the Arrangement and the English version thereof which has not been gazetted ― Hong Kong Civil Procedure 2002, Volume 1, paragraph 73/10/4 and Volume 2, paragraph H2/1).

37. In reply, Mr Chow submitted that the dictionary meaning of “in accordance with” (as used in section 2(1) of the Ordinance) is “agreement; conformity; harmony” (The New Shorter Oxford Dictionary, Volume 1, page 15).  In other words, as long as the making of the Arbitral Award did not contravene any of the substantive provisions or principles of the Arbitration Law, the Award can be regarded as having been made “in accordance with” or “pursuant to” the Arbitration Law.

38. Mr Chow also submitted that, were this not the case, the Ordinance and the Arrangement would have unreasonably excluded Mainland awards made before the Arbitration Law became effective but were nevertheless made pursuant to the laws then applicable, and hence deprived those awards of the right to be enforced in Hong Kong prior to the reunification in 1997.  Furthermore, on such a narrow interpretation, were the Arbitration Law to be amended on the Mainland and an award were then made pursuant to the amended Arbitration Law, that award would not have been made in accordance with the original Arbitration Law and might therefore encounter problems were it to be enforced in Hong Kong.

39. I can well appreciate the above argument.  Assuming that the sole objective of the Arrangement (and the consequential amendments to the Ordinance) was to restore the position regarding enforcement of Mainland awards in Hong Kong to that prior to the reunification on 1 July 1997, then there seemed to be no overt reason for compulsorily confining the Mainland awards that could be enforced in Hong Kong to those which were made after 1 September 1995 (such a temporal restriction on the enforceable awards is the inevitable consequence of the Defendant’s submission).  The reason is very simple: before 1 July 1997, as far as the enforcement of Mainland awards in Hong Kong as Convention awards was concerned, the relevant provisions did not rigidly require that the Mainland awards were made pursuant to any particular law in the PRC, and it sufficed that those awards were in accordance with the PRC law that was applicable at that time.  The argument that the Arrangement aimed to restore the position to that before 1 July 1997 received a passing mention by the learned writer in Morgan, “Enforcement of Chinese Arbitral Awards Complete Once More – But with a Difference” (cited above) (“these amendments have restored the status quo ante”: see page 375).  Similarly, in Cheng, Moser and Wang (also cited above), the learned authors made a general statement (at page 141) that the Arrangement aimed to establish a mechanism for reciprocal enforcement that was, as far as possible, in line with the pre-1997 practice.  These learned authors, however, neither elaborated on this point nor examined the issue which I now have to deal with.

40. In my judgment, the Arrangement (and the amendments to the Ordinance made pursuant to the Arrangement) cannot simply be regarded as a restoration of the position regarding enforcement of Mainland awards in Hong Kong to the pre-1997 position in respect of enforcement of Mainland awards in Hong Kong under the New York Convention.  As stated above, the Arrangement was the result of extensive bilateral discussions and negotiations over a long period of time.  The officials from the Central People’s Government and the Hong Kong Government who conducted the negotiations had to take into account a myriad of factors, with the result that the negotiations went on for a considerable length of time.  This was beyond criticism and, indeed, readily understandable.  In the past, the reciprocal enforcement of Hong Kong awards and Mainland awards had been effected in accordance with the provisions of the New York Convention, and no provision had been enacted which catered for the unique features of those awards and for special circumstances which arose in the course of enforcing those awards.  Enforcement had purely been based upon the general provisions in the New York Convention.  However, once the New York Convention no longer applied, the Mainland and Hong Kong entered into negotiations regarding reciprocal enforcement, and consideration would naturally be given to the unique position and background of the Mainland and of Hong Kong as well as the issues and problems pertaining to reciprocal enforcement, followed by discussions and ultimate agreement.  Therefore, the Arrangement cannot simply be thought of as merely restoring the pre-1997 position; had the case been that simple, it would not have been necessary to take so much time and so many rounds of negotiations to formulate the provisions in the Arrangement.

41. Apart from this, the contents of the Arrangement and the amended provisions of the Ordinance do not simply serve to restore the past position regarding reciprocal enforcement of arbitral awards and to equate Mainland awards and Hong Kong awards with Convention awards for the purpose of enforcement.  A most obvious example, which relates to another argument heavily relied on by the Defendant in the present application, is the provisions in the Arrangement and section 40C of the Ordinance in respect of the restrictions on simultaneously applying to the Mainland court and the Hong Kong court for enforcement (see below).  These restrictions did not exist in relation to the enforcement of Convention awards.  In other words, there was nothing in the New York Convention that restrained a party in whose favour an arbitral award was made from simultaneously applying to the courts in two or more signatories to the Convention for enforcement of the award.  And prior to the reunification in 1997, that restriction did not exist in respect of applications to the Hong Kong court for enforcement of Mainland awards.

42. I further take the view that, both the Arrangement and the Ordinance make specific reference to the Arbitration Law and stipulate that only those Mainland awards that have been made “in accordance with” or “pursuant to” the Arbitration Law can be enforced in Hong Kong.  From this, the importance of the Arbitration Law is apparent.  Furthermore, had the legislative intent (or the true intent behind the Arrangement) been that a Mainland award, whether made before or after the Arbitration Law came into effect, was made “in accordance with” or “pursuant to” the Arbitration Law as long as the making of the award did not contravene substantive arbitration law or procedure stipulated in the Arbitration Law, the Arrangement or the amended provisions of the Ordinance would, in my view, have provided for that in greater detail; the reason being that this was, after all, an important question, the answer to which would determine whether Mainland awards made before the Arbitration Law took effect could be enforced in Hong Kong.

43. Moreover, the legal experts for the parties have agreed that, prior to the implementation of the Arbitration Law, there did not exist in the Mainland a single set of arbitration law of nationwide application, and the arbitration law that had hitherto been applied in the Mainland might not be wholly consistent with the provisions of the Arbitration Law which then took effect.  A rough idea about this can be found in Article 78 of the Arbitration Law, which deals with inconsistencies between the arbitration rules enacted before the Arbitration Law came into effect and the provisions of the Arbitration Law.

44. Taking the matter one step further: given the possibility of the arbitration law applicable in Mainland China before 1 September 1995 being inconsistent with the Arbitration Law, if the Arrangement or the amended provisions of the Ordinance were meant to apply also to any Mainland award made prior to the implementation of the Arbitration Law provided that the award did not contravene provisions of the Arbitration Law, then a difficult question or real doubt would arise as to whether that award complied with the provisions of the Arbitration Law which did not yet exist or come into effect when the award was made.  It is true that if this was indeed what the legislator or parties to the Arrangement intended, legislation could be enacted to give effect to that intention.  However, in considering whether they did have that intention, I have to take into account the difficulties, doubts and uncertainties that might arise therefrom.

45. And, with respect, Mr Chow’s submissions brought about a substantial grey area.  The Arbitration Law contains extensive and detailed provisions on matters such as arbitration procedure.  Where an award was made before the Arbitration Law came into effect, what sort of award should it be so that it was “in accordance with” or “pursuant to” the Arbitration Law?  And does this refer to the express provisions of the Arbitration Law or the legal principles that underlie those provisions?  Does this refer to substantive provisions or procedural provisions?  These questions are by no means easy to answer and unnecessarily create dubiety or perplexity over the Arrangement and the amended provisions of the Ordinance.

46. Furthermore, the Arrangement was entered into in early 2000 and the consequential amendments to the Ordinance were made in the same year.  By that time, the Arbitration Law, which came into effect on 1 September 1995, had been in force for quite some time.  As a matter of common sense, the number of arbitral awards at that time which, like the one in the present case, were made before the implementation of the Arbitration Law and were intended to be enforced in Hong Kong should not be significant.  Therefore, it was by no means surprising ― and indeed it was perfectly explicable and understandable ― that the parties to the Arrangement and those who legislated the amendments to the Ordinance should have chosen the implementation of the Arbitration Law as a dividing line so that the general legislative objective could be achieved with certainty and without dispute.

47. Indeed, the first paragraph under Point No. 10 of the Arrangement laid down the time limit for applying to enforce Mainland awards over which applications to the Hong Kong courts for enforcement had for some reason not been made between 1997 and 2000.  The Arrangement clearly intended to fix a time limit for resolving outstanding problems.  Although the contents of the Arrangement in this respect had not made their way to the amended provisions of the Ordinance and hence did not have legal effect in Hong Kong (see the case of Keung Shui Ying cited above), such contents do serve to support my view that the Arrangement was not simply intended to restore the pre-1997 position.

48. Leaving aside these broad considerations for now, the relevant wording shows that the amended provisions of the Ordinance are plainly based on the Arrangement, and the Arrangement was obviously formulated in Chinese.  Therefore, in considering the argument over the term “in accordance with”, where there is a difference in meaning between the Chinese term (i.e.「按照」) and the corresponding English term “in accordance with”, more weight should in my view be given to the Chinese version (see section 10B of the Interpretation and General Clauses Ordinance (Cap. 1, Laws of Hong Kong)).  This, of course, does not mean that “in accordance with” cannot fit in with the Defendant’s submission on the true meaning of “Mainland award”.

49. In my view, although in common parlance the term “in accordance with” covers the meaning that Mr Chow submitted, it cannot be denied that the term can also carry the meaning that the Defendant submitted.  Turning to the Chinese term, I take the view that「按照」is more suited to the meaning put forward by the Defendant, namely that for an award to be made “in accordance with” the Arbitration Law, it must be assumed that the Arbitration Law has come into effect.  Similarly, the Arrangement used the term “pursuant to” (「依據」): the award must be made “pursuant to” the Arbitration Law.  As a matter of ordinary Chinese syntax and usage, if the Arbitration Law had not existed or taken effect, it would be difficult to say that an award was made “pursuant to” (「依據」, or「依照」and「根據」) the Arbitration Law.

50. In light of all the above considerations, I concur with the Defendant’s submission.  As the Arbitral Award in question was made before the Arbitration Law came into effect, it was not made “in accordance with” the Arbitration Law and hence does not fall within the definition of “Mainland award” under the Ordinance.  As a result, the provisions in the Ordinance regarding the enforcement of Mainland awards do not apply here.  For this reason alone, the Defendant’s application herein must be allowed.

51. Mr Leong SC, Counsel for the Defendant, also made the alternative submission that, even if Mr Chow’s submission and interpretation were to be accepted, the Plaintiff, being the party applying for enforcement of the Arbitral Award in question, must adduce evidence to show that the Award did not contravene the provisions of the Arbitration Law, but the Plaintiff failed to adduce the relevant expert evidence and no relevant evidence was placed before the court at the hearing.  With respect, I do not accept this alternative submission.  In my view, no matter with which party the legal burden of proof rests, the evidential burden of proof on this matter must be borne by the Defendant.  In other words, the Defendant must, as a minimum, discharge the evidential burden of proof by adducing the barest of evidence or basis in order to point out in what way the Award might have contravened the provisions of the Arbitration Law; only then would the Plaintiff have to adduce substantial evidence (assuming it bore the legal burden of proof) to show that the Award did not contravene the Arbitration Law.  However, the Defendant has not at any stage adduced any evidence that the Award might have contravened the Arbitration Law in any way.

52. Nevertheless, my observations on this matter are not of great significance because, as pointed out above, I have accepted Mr Leong SC’s submissions on the definition of “Mainland award”.

The provisions of section 40C

53. The Defendant’s second ground for opposing enforcement by this court of the Arbitral Award in question is that, as the Plaintiff has applied to the Mainland court for enforcement of the Award, the Award cannot, by reason of section 40C(1) of the Ordinance, be enforced pursuant to Part IIIA of the Ordinance.  As stated above, section 40C(2) provides that, where an application has been made on the Mainland for enforcement of a Mainland award, and the award has not been fully satisfied by way of that enforcement, then, to the extent that the award has not been so satisfied, the award may be enforceable under Part IIIA.

54. There has been a heated debate between the parties as to whether section 40C(2) is applicable.  As stated above, in order to correctly interpret section 40C (particularly section 40C(2)), reference has to be made to the contents of the Arrangement although, it has to be stressed again, the Arrangement itself does not have any legal effect in Hong Kong.  In this respect, I am prepared to repeat the provisions of Point No. 2 of the Arrangement, which run as follows:

2.         The relevant court in the above provision means, in Mainland China, the Intermediate People’s Court of the place where the respondent resides or where the respondent’s property is located, and means, in the Hong Kong SAR, the High Court of the Hong Kong SAR.

Where the respondent resides in, or where the respondent’s property is located in, places within the jurisdictions of different Intermediate People’s Courts, the applicant may apply to one of these Courts as the applicant may select for enforcement of the award, and no application shall be made to two or more People’s Courts.

Where the respondent resides in, or where the respondent’s property is located in, both Mainland China and the Hong Kong SAR, the applicant shall not make applications to the courts in the two places simultaneously.  Only where enforcement of an arbitral award by the court of one place does not fully satisfy the award may an application be made to the court of another place for enforcement of the unsatisfied portion of the award.  The total amount recovered through the respective enforcement of an arbitral award by the courts in the two places shall not exceed the amount specified in the award.

55. As was briefly mentioned above, neither Point No. 2 of the Arrangement nor section 40C of the amended Ordinance could be found in the provisions regarding the enforcement of Convention awards in Hong Kong.  In other words, those were newly added provisions, and prior to the reunification in 1997, the enforcement of Mainland awards as Convention awards in Hong Kong had not been subject to restrictions similar to those set out in Point No. 2 of the Arrangement or the current section 40C of the Ordinance.  This also explains what I stated above, namely that the Arrangement cannot simply be regarded as nothing more than a technical legal document which sought to restore the pre-1997 practice regarding enforcement of Mainland awards.

56. I now return to the argument over section 40C.  At first sight, the relevant provisions in the Arrangement or the provisions under section 40C were enacted to prevent a party in whose favour an award is made from receiving payment which exceeds the amount awarded by applying to both the Mainland and Hong Kong for enforcement.  Upon further thoughts, however, it is not difficult to notice that, although it is not expressly prohibited, the receipt of an amount which exceeds the sum awarded is plainly something which any fair and sensible legal system will not allow.  It would not appear necessary to specifically enact section 40C solely for the purpose of addressing this mischief, because it had not been considered necessary to make provisions under the Convention awards enforcement regime to address the above concern.  Put another way, even though there were no express provisions, the receipt by a party of more than what had been awarded would not have been allowed by our laws.

57. What then is the true objective of section 40C?  The few paragraphs that make up Point No. 2 of the Arrangement seem to have provided an explanation.  In other words, the rationale behind the third paragraph under Point No. 2 of the Arrangement would be to prevent a party in whose favour an award was made from applying simultaneously to more than one court for enforcement of the award.  As a matter of principle, simultaneous applications to a People’s Court of the Mainland and a Hong Kong court for enforcement of an award should not be allowed.  Furthermore, the second paragraph under Point No. 2 of the Arrangement provided that, where the respondent’s property was located in places within the jurisdictions of different Intermediate People’s Courts, the applicant could only apply to one of those Courts as the applicant might select for enforcement of the award, and no application could be made to two or more People’s Courts.

58. The third paragraph under Point No. 2 of the Arrangement went on to deal with the question of simultaneously applying to the Mainland and Hong Kong for enforcement of awards.  The paragraph expressly provided that “the applicant shall not make applications to the courts in the two places simultaneously” and that “[t]he total amount recovered through the respective enforcement of an arbitral award by the courts in the two places shall not exceed the amount specified in the award”.  In my view, the first half of the third paragraph under Point No. 2 obviously aimed, using the same reasoning, to prohibit a party in whose favour an award was made from “simultaneously” applying to the People’s Court and the Hong Kong court for enforcement; whereas the second half of the third paragraph under Point No. 2 sought to prohibit a party in whose favour an award was made from recovering, by means of the “respective” enforcement of the award by the courts in the two places, an amount which exceeded the sum specified in the award.  In other words, the former was directed at “double enforcement” and the latter at the so-called “double recovery”.

59. In light of the above background and explanation, I take the view that, on a proper construction of section 40C, the mischief that it aims to address includes both double recovery and double enforcement.  This plainly goes further than the restrictions under the bygone mechanism in respect of the enforcement of Convention awards in Hong Kong.  It is not difficult to imagine the annoyance or even oppression that double enforcement may cause the respondent (although this will of course depend on the circumstances of each case).  In the context of reciprocal enforcement of awards, there is nothing unreasonable in designating double enforcement as a potential mischief and enacting provisions to stop that mischief.

60. On the basis of the said legislative intent, I now proceed to examine whether the Plaintiff’s application to enforce the Arbitral Award falls within the exception under section 40C(2) or whether it is prohibited under section 40C(1).

61. Counsel for both parties have put forward detailed arguments and submissions on this issue, and the expert witnesses for the parties have explained and argued on the enforcement procedures taken by the Mainland courts over the Arbitral Award.  I have thoroughly considered all the submissions, arguments and evidence.  It is in my view clear that, after the Arbitral Award was made, the Plaintiff applied to the SIPC for execution of paragraphs 2 and 4 of the Award (i.e. the award regarding payment of money) and the People’s Court did entertain the application and make a series of executionary orders including seal-up orders.  I also accept the relevant evidence and analysis provided by Mr Fu Xuan Jie, a lawyer engaged by the Plaintiff as an expert witness: in the course of execution, the People’s Court also attempted to execute the Award against the Defendant’s shareholding and assets in the JV Company.  The approach was to liquidate the JV Company and ascertain the Defendant’s assets and liabilities in the JV Company.  If, following liquidation, the Defendant was found to have money or assets in the JV Company, execution would be carried out against the money or assets to secure performance of the payment obligation.  Against that background, and on the basis of its understanding of the applicable PRC law at that time, the SIPC organized liquidation of the JV Company, and the accountants instructed by the Court submitted a liquidation report to the Court in 1996.

62. In that respect, I am unable to accept the evidence and analysis given by the expert witness for the Defendant.  His evidence and analysis, based as they are on his expert knowledge and his past experience in handling litigation, are that the SIPC conducted the liquidation to effect enforcement of paragraph 1 of the Award which provided for liquidation of the JV Company; only after the liquidation was completed would the Court decide whether to enforce paragraph 2 of the Award which required the Defendant to return to the Plaintiff the sums that the Plaintiff had invested in the JV Company.  I do not accept this analysis because, in light of the notice issued by the Mainland Court, the analysis misinterprets the procedure of enforcement of awards by the People’s Court.

63. Nevertheless, as described above, events took sharp turns from 1996 onwards.  First, on the face of it, the accountants’ report did not reveal that the Defendant had any asset or money in the JV Company against which execution could be effected in order to secure the Defendant’s performance of its payment obligation under the Award.  More importantly, the SPC issued a judicial interpretation in 1998, declaring that the People’s Courts had no legal basis for conducting liquidation and that liquidation should be conducted by the relevant authorities.  In other words, the People’s Court could not conduct “judicial liquidation”.  The liquidation of the JV Company was “administrative liquidation” which should be organized by the relevant authorities.  This caused the SPIC to issue a Civil Ruling in 2000.

64. As for the correct interpretation of the Civil Ruling of 2000, having considered the evidence of the expert witnesses for the parties as well as all relevant documents including PRC laws, regulations and notices, I make the following findings: first, the Civil Ruling pointed out the context in which the JV Company was liquidated; in other words, the liquidation was “a step taken [by the SIPC] in the execution process”.  This lends support to my view on the basis of liquidation, which, as stated above, is that the liquidation was a step taken by the SIPC in an attempt to execute paragraph 2 (and paragraph 4) of the Arbitral Award regarding the Defendant’s payment obligation.  Second, the Civil Ruling went on to clarify and explain that the past practice of the Court, namely of conducting liquidation of the JV Company in the course of execution, was inconsistent with the subsequent judicial interpretation issued by the SPC as well as the Regulations of Shenzhen Special Economic Zone on Liquidation of Enterprises and the implementing measures.  The Civil Ruling then stated that liquidation of Sino-foreign joint ventures should be “conducted by the liquidation section” of the liquidation authorities.

65. Third, having provided these explanations by way of background, the Civil Ruling proceeded to make certain adjudications.  The first ruling was that “the [JV Company] be liquidated by” the Plaintiff, SHGY and the Defendant “in accordance with the law”.  In my view, the SIPC was not merely saying that, if the JV Company was to be liquidated, the said parties should make a lawful request to the liquidation authorities to conduct the liquidation.  That first ruling in fact ordered the Plaintiff, the Defendant and SHGY to make a lawful request to the liquidation authorities (i.e. the State Administration for Industry and Commerce or Foreign Investments Commission) to set up a liquidation section in order to conduct administrative liquidation on the JV Company.  And in my judgment, the objective of such liquidation was completely the same as that of the liquidation previously carried out by the SIPC: the People’s Court expected to locate, after the liquidation process, the Defendant’s assets and money in the JV Company, so that enforcement could then be made against those assets in discharge of the Defendant’s payment obligation under paragraph 2 (and paragraph 4) of the Arbitral Award.  This view of mine finds support in Ruling No. 2 of the Civil Ruling, which provided that “execution of the [Arbitral Award] be suspended” during the period of liquidation.

66. The legal experts for both parties have agreed that “suspension of execution” means a temporary suspension of execution of the Award under circumstances specified by the Court, and when such circumstances ceased to exist, execution of the Award might resume and continue upon the Court’s direction or upon application by the party concerned.  The experts have also agreed that “suspension of execution” is different from “conclusion of execution” which means a permanent cessation and stoppage of execution.  Once an order of conclusion of execution is issued by the Court, no application can ever be made to a Mainland People’s Court for execution of the award concerned.  See A New Interpretation of the Arbitration Law of the People’s Republic of China and Complementary Regulations (《仲裁法》及配套規定新釋新解) (The People’s Court Press) pages 664 to 667 and pages 704 to 707.

67. In Ruling No. 2 of the Civil Ruling, the intention of the Court in ordering that execution of the Award be suspended “during the period of liquidation” could not have been more obvious: liquidation of the JV Company was to be conducted by the relevant authorities, and once it was completed, execution would then resume and be carried out against any asset or property of the JV Company that might be found to be owned by the Defendant, in discharge of the Defendant’s payment obligation under paragraph 2 (and paragraph 4) of the Arbitral Award.

68. In other words, on the correct interpretation of the Civil Ruling, I prefer the opinion given by the Defendant’s PRC legal expert.

69. On the basis of the aforesaid understanding of the process and procedure taken by the PRC Court in executing arbitral awards, I rule as follows: first, it is clear that the Plaintiff had applied to the PRC Court for execution of the Arbitral Award.  Second, that execution process is still being dealt with by the People’s Court.  Although it has been suspended, it can resume upon completion of the liquidation of the JV Company.  In other words, the Plaintiff’s application in Mainland China for execution of the Arbitral Award has not yet concluded and the execution procedure has not come to an end.  As is readily understandable, to date the Plaintiff has not applied to the PRC Court for an order concluding the execution of the Award in order to conclude the application for execution that the Plaintiff made back in 1994.

70. On these facts, does the Plaintiff’s case fall within the provisions of section 40C(2) of the Ordinance?  In light of the aforesaid interpretation of the section and of the mischief that it aims to address (namely double enforcement and double recovery), I take the view that the correct interpretation of section 40C(2) is: where a party in whose favour an award was made has applied to the People’s Court in the PRC for enforcement of the award, and the application has been accepted by the People’s Court, then, during the subsistence of the enforcement procedure in respect of that award, that party cannot apply to the Hong Kong court for enforcement of the same award until the enforcement procedure commenced by the People’s Court upon that party’s application is completed or concluded; and after the amount that the party recovers via the entire enforcement procedure in Mainland China is ascertained, that party may then apply in Hong Kong for enforcement of any amount that is still outstanding under the award.

71. It follows that, where the enforcement procedure of the Mainland Court has not completed or concluded, and the amount recoverable via that procedure in satisfaction of the payment obligation under an award has not been ascertained, the party in whose favour an award was made cannot at the same time apply for enforcement of the award in Hong Kong.  In my judgment, this interpretation accords with the provisions of and rationale behind section 40C of the Ordinance and Third paragraph of Point No. 2 of the Arrangement as well as the mischief that they seek to address.

72. The above interpretation is also consistent with the wording of section 40C of the Ordinance: section 40C(2) expressly provides that the amount in respect of which enforcement is sought in Hong Kong shall not exceed the amount which remains unrecovered following previous enforcement of the same award in the PRC.  It is only when the enforcement procedure in the PRC is completed or concluded that the amount which is recoverable under the award but which remains unrecovered can be clearly and meaningfully ascertained.  Were this not the case, the figure representing the amount recoverable but unrecovered might constantly change as the enforcement procedure in the PRC progressed, and it would not be possible for the Hong Kong court to decide whether to accept an application for enforcement or determine the extent to which enforcement in Hong Kong was to be carried out.

73. In giving the said interpretation, I stated that the enforcement procedure in the PRC must have “completed” or “concluded”.  I am using these words purposefully so as to allow for a measure of flexibility.  This is simply because, given the complexity of the relevant PRC laws and the unique factual matrix of each case, I am not prepared to ― and also should not ― draw on absolute or rigid words and phrases in resolving the dispute over the interpretation of section 40C.

74. On the basis of the Mainland legal expert opinion that I received at the hearing, I am of the view that the Mainland execution procedure would be “completed” in the following circumstances: where execution is carried out by People’s Court upon application of the party in whose favour an award was made, and such execution, being one against such property which the applicant submits that the respondent may possibly own within the jurisdiction of the People’s Court, has completely come to an end, with all relevant results disclosed and without the need for any further investigation, adjudication or liquidation, then the execution procedure can be regarded as completed, irrespective of whether it is fruitful or not.  On the facts of the present case, the Plaintiff had requested the SIPC to seal up certain properties which were suspected to be owned by the Defendant’s wholly-owned enterprise in Mainland China.  However, upon investigations, the Court took the view that there was insufficient evidence on, and there were considerable doubts about, ownership of those properties, and as a result the seal-up orders were set aside.  Therefore, as far as the execution procedure over the relevant factory properties was concerned, although the execution yielded no results, it can in my view be said to have completed.  On the other hand, in respect of whether the Defendant, as a joint venture partner of the JV Company, owned any asset or property in the JV Company against which execution can be carried out, the relevant execution procedure has in my view not yet come to an end.  The procedure has only been suspended pending the outcome of the administrative liquidation of the JV Company, which will enable a decision to be made as to whether the execution procedure can meaningfully continue.  In these circumstances, the execution procedure in this respect cannot in my view be said to have completed.

75. As regards the “conclusion” of the execution procedure that I referred to, it can also be used for determining whether a second application for enforcement may be made in Hong Kong.  An example will serve to illustrate what I mean: where, in the course of execution being conducted by a People’s Court or execution not having been completed by the Court, a party in whose favour the relevant award was made successfully applies to the Court to terminate the execution procedure, the execution may be said to have concluded, and if any part of the award remains unsatisfied at the time of the conclusion of the execution procedure, the party in whose favour the award was made may apply in Hong Kong for enforcement of that part.

76. However, I am reluctant to confine the conclusion of execution to the situation where execution is terminated.  Having carefully considered the expert opinions from both parties, and in light of the provisions of the relevant PRC laws and their application, I do not discard the possibility that, under certain circumstances, although the court has not made an order terminating execution of an award, such execution in the PRC may still be regarded as having concluded.  I am also prepared to accept that, in certain cases in which execution is suspended, even though such suspension is temporary, the execution procedure in the PRC may still be regarded as having concluded.  Notwithstanding my willingness to accept these, there is no doubt that, in light of the legal expert opinions from both parties and in view of the relevant documents and evidence, the execution procedure in the PRC in the present case has in the circumstances not yet concluded.  The execution was suspended pending the outcome of the liquidation.  As a matter of common sense and having regard to the relevant legal provisions in the PRC, the liquidation should proceed in accordance with the law unless there is sufficient evidence that the liquidation cannot possibly be carried out.  And as stated above, in my understanding, Ruling No. 1 of the Civil Ruling ordered the Plaintiff, the Defendant and SHGY to liquidate the JV Company according to the law.  This is a court order which none of the parties can neglect or refuse to obey.  (It is true that, as the liquidation is a means by which the Court assists the Plaintiff in executing the Award, the Plaintiff may well be unwilling to proceed with the liquidation and, if it applies to the Court accordingly, it may well be unnecessary to proceed with the liquidation.  If this is the case, another question will arise as to whether the Court will also require the Plaintiff to apply for termination of execution of the Award.  In any event, these are hypothetical questions which have not arisen from the facts of the present case and which, therefore, I do not have to deal with.)  Accordingly, on the facts of the case, execution of the Award has been suspended by reason of the liquidation of the JV Company, and in my view, as a matter of both law and logic, such liquidation should be proceeded with until it is completed.  In these circumstances, I do not consider that the execution procedure in the PRC has concluded.

77. On this basis, I further rule that the Plaintiff’s case does not meet the requirements of section 40C(2) of the Ordinance.  For this reason, section 40C(1) is applicable.  In other words, as the Plaintiff’s execution procedure in the PRC has not yet completed or concluded and the final result of the execution still waits to be seen, and until such final result is known it is impossible to ascertain whether any part of the Arbitral Award remains unsatisfied, the Plaintiff cannot seek to enforce the Award in Hong Kong.

The provisions of section 40E(2)(f)

78. Turning to the third argument advanced by the Defendant in respect of the “suspension” of an award under section 40E(2)(f) of the Ordinance, I am unable to accept such argument.  In my view, Ruling No. 2 of the Civil Ruling of the SIPC referred to the suspension of the execution of the Award during the period of liquidation as opposed to the suspension of the Award itself.

79. Section 40E(2)(f) of the Ordinance is worded in exactly the same way as the provisions regarding enforcement of Convention awards (i.e. section 44(2)(f) of the Ordinance).  In his submissions, Mr Leong SC for the Defendant conceded that the wording of the latter means in essence that it is the validity of an award itself, and not the enforcement of the award, which is suspended.

80. It cannot, however, be denied that under paragraph 7(5) of the Arrangement, in dealing with an application for enforcement of an award, where “execution [of the award] has been stopped”, the Mainland court or Hong Kong court (as the case may be) may refuse to enforce the award.  This provision lends support to the Defendant’s argument.

81. Nevertheless, I take the view that, in amending the Ordinance, the legislature had a clear objective in mind when it enacted section 40E(2)(f) in the same terms as those of the provisions governing enforcement of Convention awards.  This objective was to equate the legal provisions on enforcement of Mainland awards with the legal provisions on enforcement of Convention awards.  As a result, the interpretation of the provisions regarding the latter (i.e. section 44(2)(f)) is also applicable to the provisions regarding the former.

82. In any event, the Arrangement referred to awards “the execution of which has been stopped”.  As stated above, according to the legal expert opinions from both parties, an order issued by a Mainland court suspending execution of an award only serves to “temporarily” suspending execution as opposed to permanently doing so (see A New Interpretation of the Arbitration Law of the People’s Republic of China and Complementary Regulations (cited above) at page 705: “Suspension of execution refers to the system under which, due to the occurrence of certain special circumstances in the course of execution, the execution process is temporarily stopped.  Once the special circumstances cease to exist, the enforcement process will resume.”)  Therefore, the suspension of execution under Ruling No. 2 of the SIPC’s Civil Ruling is not equal to the “stoppage of execution” under the Arrangement.

83. In my judgment, the “suspension of execution” under Ruling No. 2 of the SIPC’s Civil Ruling is different from the “suspension” of an award within the meaning of section 40E(2)(f) of the Ordinance.  The argument put forward by Mr Leong SC in this respect is accordingly rejected.

Material non-disclosure

84. In light of the above conclusions, I do not wish to embark on a detailed consideration of the argument put forward by Mr Leong SC that the Plaintiff failed to fully disclose the facts of the present case (in particular the rather complex factual background regarding execution of the Arbitral Award in the PRC) when it made the ex parte application to the court for enforcement of the Award.  I will simply say that I do not accept that argument.  An ex parte application made pursuant to the Ordinance and Order 73 Rule 10 of the Rules of the High Court (Cap.4A, Sub.Leg.) is not completely the same as an ordinary ex parte application made by a litigant to the court.  Both the Ordinance and the said Rules make very detailed provisions on the documents that an applicant has to provide.  It is obviously for the respondent to oppose enforcement; once opposition is raised, the award in question will not be enforced pending determination by the court of the respondent’s opposition.  Furthermore, the ex parte application for leave to enforce the Award was made in November 2001, by which time the Plaintiff and the Defendant had filed a number of affidavits in respect of the present dispute including the background to the execution of the Award in the PRC.  The Plaintiff could not be faulted, nor could it be said to have withheld material facts that it had to disclose, in not reiterating the matters referred to in those affidavits when it made the ex parte application for leave to enforce the Award.  For these reasons, I do not accept the Defendant’s said argument.  However, given my conclusions and judgments on the other issues in the present case, this ruling of mine regarding the alleged material non-disclosure does not affect the outcome of the present case.

Orders

85. For all the above reasons, I allow the Defendant’s application and order as follows:

(1)   That the order made by this Court on 6 November 2001 upon the Plaintiff’s ex parte application for the enforcement of the Arbitral Award in question be set aside;

(2)   That this action which was commenced by originating summons be dismissed.

86. On the dismissal of the present action, I do not accept Mr Chow’s submission that the action should not be dismissed because, even if the Plaintiff cannot apply in Hong Kong for enforcement of the Award, it is entitled under the common law to commence proceedings against the Defendant on the basis of the Award.  The originating summons taken out by the Plaintiff is solely concerned with the Plaintiff’s application for enforcement of a Mainland award and makes no mention of any alternative cause of action against the Defendant, namely making a common law claim and seeking the related relief.  The Plaintiff has never applied for amendment of the originating summons.  For this reason, as I am of the view that the Award cannot at this stage be enforced in Hong Kong, the originating summons discloses no cause of action and stands to be dismissed.

87. I make a costs order nisi that, subject to previous orders by the court, the Plaintiff shall pay to the Defendant costs of the present action (including costs of the present application by the Defendant), to be taxed if not agreed.  Unless either party hereto applies, within 14 days from the date of this judgment, for variation of the costs order, the said costs order nisi shall become absolute after 14 days.

88. Last but not least, I would like to express my gratitude to Counsel for both parties for their assistance to the court at the hearing.