信达澳亚基金管理有限公司 (formerly known as 信达澳银基金管理有限公司) v. 宜华生活科技股份有限公司 (formerly known as 广东省宜华木业股份有限公司) AND OTHERS

HCMP 442/2023

[2024] HKCFI 1957

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 442 OF 2023

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BETWEEN

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DECISION

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1.   Introduction

1.1  This is my decision on the 1^st Defendant’s application by its summons dated 23 November 2023 (“Summons”) to set aside (1) registration of the Judgment (2021) 粵 05 民初 1421 号 dated 17 January 2021 of the Intermediate People’s Court of Shantou City (“Shantou Court”), Guangdong Province (as amended by the correction judgment (2021) 粵 05 民初 1421 号之三dated 30 January 2023) (“Mainland Judgment”) as a judgment in the High Court of Hong Kong pursuant to the order of Master Hui dated 30 May 2023 (“Registration Order”) and (2) the Notice of Registration dated 28 September 2023.

1.2  At the hearing, I was helpfully assisted by Mr Charlie Liu appearing for the 1^st Defendant (“D1”)[1] and Mr Ambrose Ho SC (leading Mr Bryan Lee) for the Plaintiff (“P”).

1.3  Although various grounds are pursued in D1’s evidence, Mr Liu has astutely confined his arguments within a narrow compass. The core issue which requires my determination is whether there is a “relevant choice of Mainland court agreement” between P and D1 as required under section 5(2)(b) of the Mainland Judgments (Reciprocal Enforcement) Ordinance Cap 597 (“Ordinance”).

2.   Factual background

2.1  The following background matters are largely uncontroversial.

2.2  D1 was a company listed on the Shanghai Stock Exchange (“SSE”) and carries on the principal business of designing and selling household products. Since March 2021, D1 was delisted from SSE and is now listed on the National Equities Exchange (全國中小企業股份轉讓系統). It is common ground that D1’s registered address is situated in Shantou City, Guangdong province.

2.3  On 16 June 2015, D1 obtained approval from the regulators to issue corporate bonds not exceeding RMB 1.8 billion for subscription by qualified investors. Thereafter, D1 issued two tranches of corporate bonds, respectively on 14 July (“First Tranche Bonds”)[2] and 21 July 2015 (“Second Tranche Bonds”)[3] (collectively “Bonds”). The lead underwriter (主承銷商) of the Bonds was GF Securities Co Ltd (“GF”).

2.4  For each of the First Tranche Bonds and the Second Tranche Bonds, D1 had issued a bond document to the investing public (募集說明書) (collectively “Bond Documents”). It is common ground that the Bond Documents constituted a contract between D1 and holders of the Bonds. In so far as relevant to the arguments presented, the Bond Documents contain substantially similar terms.

2.5  D3 is the holding company of D1. Under the Bond Documents, D3 provided an unconditional and irrevocable guarantee of D1’s repayment obligations.

2.6  It is pertinent to note that, prior to the issuance of the Bond Documents, on 26 April 2015, D1 (as the issuer of the Bonds[4]) and GF (as the trustee[5]) entered into a 受托管理協議 (“Bond Trustee Agreement”). GF will hereinafter be referred to as the “Trustee”.

2.7  Shortly before the execution of the Bond Trustee Agreement, D1 had issued a set of 廣東省宜華木業股份有限公司2015年公司債券債券持有人會議規則 (“Rules for Bondholders’ Meetings”).

2.8  The above-mentioned 3 documents, ie the Bond Documents, the Bond Trustee Agreement and the Rules for Bondholders’ Meetings provide the contractual background against which the rival arguments are ventilated. I shall return to their terms below. For present purpose, it is sufficient to point out that the Bond Documents make express references to the latter two, and the bondholders are deemed to have agreed to them.

2.9  The Bonds were listed on SSE on 18 August 2015 and P had purchased and sold the Bonds a number of times. As stated in the Mainland Judgment (at page 7), P at the material time was the holder of RMB 214,585,000 of the First Tranche Bonds and RMB 65,765,000 of the Second Tranche Bonds.

2.10  By resolutions passed at 2 bondholders’ meetings held on 7 July and 21 December 2020, the bondholders, including P, agreed, inter alia, to extensions of time for D1’s redemption of the Bonds, in consideration of which, D2, D4 and D5 agreed to provide guarantees for D1’s repayment obligations. D2 is the chairman of the board of directors of D3. D4 and D5 are wholly-owned subsidiaries of D1. The bondholders’ meetings were convened by the Trustee pursuant to the Bond Trustee Agreement and the Rules for Bondholders’ Meetings.

2.11  D1 defaulted and D2 to D5 also failed to honour their guarantees.

2.12  On 20 July 2021, P’s claims against D1 to D5 were accepted by the Shantou Court (立案) and the Mainland Judgment was granted on 17 January 2022. By the Mainland Judgment, D1 was held liable for its repayment obligations under the Bonds and D2 to D5 for their guarantees in respect of D1’s repayment obligations.

3.   Procedural history

3.1  By its ex parte application made on 20 March 2023, P had initially sought to register the Mainland Judgment against D1 to D5. The ex parte application was supported by the 1^st Affirmation of Ngai Wing Ying (“Ngai”) and the 1^st report of Ms Li Xing Xing (“Li”). Ngai is an associate at the firm representing P and Li is the expert on Mainland law engaged by P.

3.2  A number of requisitions were raised by Master Hui on 6 April 2023, including whether there was a choice of Mainland court agreement between P on the one hand and D1 to D5 on the other (“Requisitions”).

3.3  Ngai 3^rd and Li 2^nd were filed to address the Requisitions. At Ngai 3^rd §11, P confirmed its withdrawal of its application to register the Mainland Judgment against D2 to D5.

3.4  As stated above, the Registration Order was granted on 30 May 2023 and the Notice of Registration was served on D1 (pursuant to an order for substituted service granted by Master Rita So) in September 2023.

3.5  After obtaining a number of extensions of time, D1 eventually issued the Summons on 23 November 2023, supported by the 1^st Affirmation of Xu Ke (“Xu”) and the 1^st report of Mr Chen Tong (“Chen”). Xu is the personal assistant to Mr Du Xucheng, the legal representative of D1. Chen is the Mainland law expert engaged by D1.

3.6  The evidence filed by P in opposition consisted of Ngai 8^th and Li 2^nd. The evidence in reply comprised Xu 2^nd and Chen 2^nd.

3.7  At the hearing, the parties agreed that leave should be granted to each other to adduce further evidence. Ngai 9^th and Li 4^th and the 1^st affirmation of Tsang Siu Fung Walter (“Tsang”) were as a result admitted into evidence. Tsang is a trainee solicitor of D1’s solicitors.

4.   The rival contentions and the applicable principles

4.1  Section 5 of the Ordinance provides:

“ [(1)] A judgment creditor under a Mainland judgment may apply to the Court of First Instance within the time limit specified in section 7 to have the judgment registered in the Court of First Instance.

[(2)] On an application made under subsection (1), the Court of First Instance shall order the Mainland judgment to be registered in accordance with this Ordinance if the judgment creditor has proved to the satisfaction of the Court of First Instance that the following requirements are satisfied –

[(a)] the judgment is given on or after the date of the commencement of this Ordinance by –

[(i)] a chosen court which is a designated court:

…

[(b)] the relevant choice of Mainland court agreement is made on or after the commencement date of this Ordinance but before the commencement date # of the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645);

…” (emphasis added)

4.2  “Chosen Court” is defined at section 2 of the Ordinance as meaning “the court or any of the courts specified in a choice of Mainland court agreement or choice of Hong Kong court agreement, as the case may be, as the court to determine a dispute to which the agreement applies”.

4.3  Section 3(2) of the Ordinance defines “choice of Mainland court agreement” as “an agreement concluded by the parties to a specified contract and specifying the courts in the Mainland or any of them as the court to determine a dispute which has arisen or may arise in connection with the specified contract to the exclusion of courts of other jurisdictions”.

4.4  Section 18 of the Ordinance provides:

“ [(1)] On an application in that behalf made by any party against whom a registered judgment may be enforced, the registration of the judgment shall be set aside if the Court of First Instance is satisfied that -

[(a)] the judgment is not a Mainland judgment which satisfies the requirements specified in section 5(2)(a) to (e);

…”

4.5  The core issue between the parties is whether the Mainland Judgment satisfies the requirement specified in section 5(2)(b), namely whether a relevant choice of Mainland court agreement was made between P and D1. Whilst section 3(2) of the Ordinance defines “choice of Mainland court agreement”, Mr Liu points out that section 5(2)(b) requires something additional, namely that the choice of Mainland court agreement must be a relevant choice of Mainland court agreement.

4.6  In the present case, the contractual clause relied on by P as the choice of Mainland court agreement is Clause 9 of the Bond Trustee Agreement (“BTA Clause 9”). The Bond Trustee Agreement is on its face an agreement only between D1 and the Trustee. BTA Clause 9 reads:

“ 因履行本協議而產生的或與本協議有關的任何爭議、分歧或索賠，甲 [ie D1]、乙 [ie the Trustee] 雙方應本著平等互利原則，通過友好協調解決; 協商不能達成一致意見的，則可直接向甲方所在地[6]的人民法院提起訴訟解決。在訴訟過程中 ，除協議雙方有爭議的、正在進行訴訟的事項外，雙方仍應繼續履行本協議中的其他條款。” (emphasis added)

4.7  The Mainland Judgment was obtained by P against, inter alia, D1. As ventilated during the hearing, in the event of D1’s default, there may be two types of legal proceedings which may be made by the bondholders against D1. First, a claim may be commenced by the Trustee as authorized at a bondholders’ meeting. Secondly, a claim may be pursued by an individual investor such as P in the present case.

4.8  It is D1’s case that BTA Clause 9 does not satisfy the statutory requirements. Broadly speaking, D1 says that P is not a party to the Bond Trustee Agreement. Further and in any event, as a matter of interpretation, BTA Clause 9 has no application to an action commenced by P against D1[7]. In gist, it is Mr Liu’s argument that BTA Clause 9 only applies to the former scenario set out in the preceding paragraph, namely a legal claim commenced by the Trustee.

4.9  Conversely, P contends that BTA Clause 9, although in name an agreement between D1 and the Trustee, applies to the contractual relationship between P and D1, and in particular the disputes between P and D1 for the following broad reasons:

(1) First, it is contended that P should be regarded as a party to the Bond Trustee Agreement (“Extension Argument”); and

(2) Further or alternatively, it is contended that BTA Clause 9 was incorporated into the Bond Documents (which, as noted above, constitute an agreement between P and bondholders including P) (“Incorporation Argument”).

4.10  There is no dispute between counsel on the proper approach:

(1) The burden of proving the ground(s) for setting aside under section 18(1) of the Ordinance rests with the party seeking to set aside the registration. The standard of proof is on the balance of probabilities: 中国民生信托有限公司 v Fu Kwan [2024] HKCFI 590 at §20;

(2) The Extension Argument and the Incorporation Argument ventilated in the present case are governed by Mainland law: Beijing Renji Real Estate Development Group Co Ltd v Zhu Min [2022] 4 HKC 116 at §§33-35; and

(3) Were P to prevail on the Extension Argument and/or the Incorporation Argument, whether BTA Clause 9 qualifies as the “relevant choice of Mainland court agreement” is a matter of interpreting the Ordinance applying Hong Kong law (“MJREO Question”): Beijing Renji §40.

5.   The contractual framework

5.1  Before I deal with the Extension Argument and the Incorporation Argument, it is necessary to set out the contractual framework laid down by the Bond Trustee Agreement, the Rules for Bondholders’ Meetings and the Bond Documents. I deal with them in that order.

5.2  In my view, the contractual framework set out below prescribes a very specific manner in which legal proceedings against D1 upon D1’s default under the Bond Documents are to be authorized and commenced.

(i) The Bond Trustee Agreement

5.3  The Bond Trustee Agreement contains a Recital section and 10 main clauses.

5.4  Recital (2) provides that D1 agrees to engage the Trustee, and the Trustee agrees to be engaged, to act for all the bondholders collectively in handling matters relating to the Bonds and to protect the bondholders’ interests.

5.5  Clause 2 sets out the matters to be managed by the Trustee. It is an all-encompassing provision. The Trustee has to act for all the bondholders collectively in handling matters relating to the Bonds and to protect their interests according to the law, administrative regulations, the Bond Documents, the Bond Trustee Agreement, and resolutions passed at bondholders’ meetings.

5.6  Clause 3 sets out the rights and obligations of D1. For example, clause 3.1 spells out D1’s repayment obligations and clause 3.7 sets out D1’s obligations to give notification to the Trustee upon the occurrence of prescribed events (including defaults in its repayment obligations (clause 3.7.3)).

5.7  Clause 4 sets out the rights and obligations of the Trustee which include (1) the duty to monitor D1’s use of the funds and compliance with its disclosure obligations and to diligently handle negotiations and legal proceedings between the bondholders (clause 4.4), (2) issuing notices of default to D1 (clause 4.5), (3) demanding further security in the event of D1’s non-compliance with its repayment obligations in the event of D1’s inability to repay under the Bonds (clause 4.6), (4) accepting authorization by all of some of the bondholders to issue legal proceedings or take part in restructuring or insolvency proceedings in the Trustee’s own name (clause 4.7), and (5) convening and chairing bondholders’ meetings (clause 4.9).

5.8  Clause 7 makes provisions for breaches by the parties. Under clauses 7.3 and 7.4, were D1 to remain in default of its repayment obligations in excess of the prescribed period, the Trustee, if so authorized at a bondholders’ meeting, could serve written notice to D1 to declare that the Bonds would become immediately repayable, and the Trustee should follow instructions given at a bondholders’ meeting to take any viable legal action to recover any outstanding sums.

5.9  As stated at §4.6 above, BTA Clause 9 is a dispute resolution clause between D1 and the Trustee.

(ii) The Rules for Bondholders’ Meetings

5.10  The Rules for Bondholders’ Meetings contains 8 chapters (章) and 14 clauses.

5.11  Chapter 2 sets out the “authority” (職權) of a bondholders’ meeting. Clause 5 (under Chapter 2) expressly provides that the bondholders have agreed to exercise their rights stated therein at a bondholders’ meeting. Clause 5(2) specifically provides that the authority of a bondholders’ meeting includes the authorization of the Trustee, in the event of default by D1 under the Bonds, to issue proceedings or to take part in restructuring or insolvency proceedings.

5.12  Chapter 3 sets out the circumstances under which a bondholders’ meeting should be convened. Clause 6(4) (under Chapter 3) provides that a bondholders’ meeting should be convened in the event that D1 is unable to comply with its repayment obligations under the Bonds.

(iii) The Bond Documents

5.13  The Bond Documents contains a section on 重要聲明 (Important Declarations), a section on 重大事項提示 (Important Reminders) and 11 sections (节).

5.14  At clause 6 within the section on Important Declarations, it is stated that the bondholders are deemed to agree to the Bond Trustee Agreement, the Rules for Bondholders’ Meetings and the Bond Documents in so far as they set out the rights and obligations of D1, the bondholders and the Trustee.

5.15  At clause 6 within the section on Important Reminders, it is provided that in order to delineate the rights and obligations of D1, the bondholders and the Trustee, D1 had engaged the Trustee and entered into the Bond Trustee Agreement. Bondholders are deemed to agree to the Bond Trustee Agreement.

5.16  Section 4 is a section on protective measures:

(1) At page 32 of the Bond Documents of the First Tranche Bonds (there is a corresponding provision for the Second Tranche Bonds, it is stated that D1 has engaged the Trustee to act for the bondholders and to represent the bondholders to take any viable action in the event of D1’s default; and

(2) At page 34, it is provided that in the event of D1’s default, the Trustee would act in accordance with the Bond Trustee Agreement to represent the bondholders in recovery actions, and if the Trustee fails to act in accordance with the Bond Trustee Agreement, the bondholders may directly claim against D1 according to the law and pursue the Trustee for breach of its duties.

5.17  Section 8 is a section on bondholders’ meetings:

(1) The preamble expressly states that a bondholder is deemed to agree to the Rules for Bondholders' Meetings;

(2) Subsection 1 provides that, in so far as the Rules for Bondholders' Meetings have made provisions for a matter to be transacted at a bondholders' meeting, a bondholder should protect its interests through his participation at a bondholders' meeting. In respect of any other matters, a bondholder should seek to protect his interests according to the applicable law and regulations and the terms of the Bond Documents;

(3) Subsection 2 sets out the major terms of the Rules of Bondholders' Meeting. The matters set out at §§5.11 and 5.12 above are expressly stated therein.

5.18  Section 9 is a section on the Trustee. Pertinently:

(1) The preamble provides that any bondholder subscribing for the Bonds is deemed to agree to the Bond Trustee Agreement;

(2) Subsection 2 seeks to set out the major terms of the Bond Trustee Agreement. BTA Clause 9 is, for all intents and purposes, reproduced (at sub-subsection 8) as follows:

“ 因履行 [Bond Trustee Agreement] 而產生的或與 [Bond Trustee Agreement] 有關的任何爭議、分歧或索賠，[D1] 與 [the Trustee] 應本著平等互利原則，通過友好協調解決;協商不能達成一致意見的，則可直接向公司 [ie D1]所在地的人民法院提起訴訟解決 。在訴訟過程中，除協議雙方有爭議的、正在進行訴訟的事項外，雙方仍應繼續履行 [Bond Trustee Agreement]中的其他條款。”

5.19  It is plain that BTA Clause 9, which is on its face an agreement only between D1 and the Trustee, is reproduced as such within the Bond Documents.

(iv) My observations on the contractual framework

5.20  As is clear from the above-cited express provisions, the contractual framework lays down a specific mechanism for the commencement of legal proceedings against D1 upon D1’s default (“Contractual Mechanism”).

5.21  The Contractual Mechanism contemplates that the commencement of legal proceedings should first be authorized at a bondholders’ meeting convened and such authorized legal proceedings are to be commenced by the Trustee in its own name and handled by it. The bondholders have agreed to abide by the majority rule at the bondholders’ meeting (which includes the possibility that a resolution to commence legal proceedings may not be passed).

5.22  Under the Contractual Mechanism, any proceedings directly commenced by a bondholder against D1 are contemplated only in the event that the Trustee has failed to act in accordance with the Bond Trustee Agreement.

5.23  It seems to me it is also relevant to bear in mind that the Bond Documents were not specifically negotiated between D1 and the bondholders. The Bond Documents were issued to the investing public, and a subscriber of the Bonds is then considered to have agreed to their terms (including deemed agreement to the pre-existing Bond Trustee Agreement between D1 and the Trustee).

5.24  The Extension Argument and the Incorporation Argument contend that BTA Clause 9 also applies to legal proceedings, as here, directly commenced by a bondholder. It should be pointed out that, in the present case, there are no specific allegations that the legal proceedings commenced by P directly against D1 were as a result of any failure on the Trustee’s part to act in accordance with the Bond Trustee Agreement.

5.25  It must be emphasized I am not here concerned with whether P had “wrongly” commenced the proceedings against D1. A perfectly valid judgment obtained in the Mainland may nevertheless not be registrable pursuant to the Ordinance.

6.   The Extension Argument

6.1  The argument here is whether P should be regarded as a party to the Bond Trustee Agreement. The proposition that P should be so regarded was first advanced by P at the ex parte stage: Ngai 3^rd §7(c) and Li 2^nd pages 8 to 9. In gist, it is contended that the court should look behind the “named parties” of BTA Clause 9 (ie D1 and the Trustee) and hold that the “real parties” are the bondholders (P) and D1.

(i) Li’s evidence

6.2  The foregoing proposition is further elaborated in Li 3^rd:

(1) At page 4, Li refers to Articles 2[8] and 13[9] of the Contract Law of the Mainland. According to Li, since the Bond Trustee Agreement makes provisions for the rights and duties of D1, the Trustee and the bondholders (including P), once P subscribes for the Bonds, the Bond Trustee Agreement takes effect and becomes binding on all 3 parties;

(2) Under Articles 162[10] and 925[11] of the Civil Code, where an agent (in this case the Trustee), acting within the scope of authority granted by the principal (in this case the bondholders including P), concludes a contract with a third person (in this case D1) in his own name, if the third person is aware of the agency relationship between the agent and the principal, the said contract shall directly bind the principal and the third person, unless there is evidence establishing that the said contract binds only the agent and the third person (at pages 4 to 5);

(3) Li therefore reasons that the rights and obligations set out in the Bond Trustee Agreement binding D1 and the Trustee are extended to the bondholders, including the right to seek recovery upon D1’s default in reliance on BTA Clause 9 (at page 5)[12].

6.3  Chen 2^nd challenges the applicability of the Civil Code, on the basis that it came into effect after the bond default in the present case. However, irrespective of whether the Civil Code applies, Li 4^th refers to Article 402 of the Contract Law[13] which is of similar effect as that of Article 925 of the Civil Code.

(ii) Chen’s evidence

6.4  Mr Liu did not address Li 4^th, in particular her opinion that Article 402 has the same effect as Article 925 of the Civil Code. However, at section 3.1.1.2 of Chen 2^nd, separate reasons are proffered as to why P should not be regarded as a party to the Bond Trustee Agreement. In gist, it is Chen’s opinion that the Trustee acted for all the bondholders collectively (section 3.1.1.2.2 at page 3), that there are specific mechanisms laid down for the purpose of authorizing the commencement of legal proceedings at bondholders’ meetings (section 3.1.1.2.2 at page 3), and that BTA Clause 9 is only applicable to legal proceedings commenced under that mechanism (section 3.1.1.2.4 at pages 4 to 5). In the present case, the Mainland Judgment was obtained in an action commenced by P itself, not by the Trustee as authorized by the bondholders at a bondholders’ meeting.

(iii) Analysis

6.5  I prefer Chen’s evidence for the following reasons.

6.6  It is evident that Chen’s evidence aligns with how, in my view, the Contractual Mechanism operates set out above. I accept the evidence set out at section 3.1.1.2.4 of Chen 2^nd, namely BTA Clause 9, which is an agreement between D1 and the Trustee (and reproduced as such in the Bonds Document), is only applicable to a legal action commenced by the Trustee against D1 as authorized under the Contractual Mechanism.

6.7  With respect, I do not accept Mr Ho’s submissions that the Rules of Bondholders’ Meeting can be marginalized as “merely [showing] the existence of a majority rule”:

(1) As pointed out at §5.16 above, under section 4 of the Bond Documents, legal action by an individual bondholder is only envisaged in the event where the Trustee has failed to act in accordance with the Bond Trustee Agreement;

(2) By section 8 of the Bond Documents, P is deemed to have agreed to the Rules of Bondholders’ Meeting and the bondholders have agreed to leave the decision to commence legal proceedings as a matter to be considered and resolved at a bondholders’ meeting. In my view, bondholders may legitimately take different positions on the desirability to commence legal proceedings upon D1’s default. Some may view that further indulgence or a moratorium is commercially more sensible and bondholders have agreed to abide by the majority rule at bondholders’ meeting. I prefer Chen’s evidence that legal proceedings commenced outside of the Contractual Mechanism do not fall within the Bond Trustee Agreement and, as a result, BTA Clause 9 does not apply.

6.8  Both counsel have invited me to adopt the approach set out at 黃书建 v 代威 [2020] 1 HKC 309 §§33 to 36, in that I am obliged to use my own legal training where it has a bearing in determining conflicts in expert evidence, especially where the concepts involved are not very different from Hong Kong law. The court is entitled to and indeed duty bound to reject foreign law expert evidence if the relevant expert has not applied his mind to the real point of law or if the matters stated by the expert did not support his conclusion according to any stated or implied process of reasoning.

6.9  In my view, Li has not proffered any analysis to support her conclusion set out at §6.2(3) above. Her general proposition is that the Bond Trustee Agreement is binding on P. That much is clear and is expressly stated to be so in the Bond Documents. But Li’s view begs the question on how the Bond Trustee Agreement is binding on P. There is no or no clear analysis on why, if P decided, as here, to commence proceedings outside of the Contractual Mechanism, P may nevertheless rely on BTA Clause 9: P’s Skeleton Submissions §§39-46.

6.10  Both Article 925 of the Civil Code and Article 402 of the Contract Law are applicable to the entirety of the Bond Trustee Agreement, not only to BTA Clause 9. In the circumstances where the legal proceedings commenced by P were not in accordance with the Contractual Mechanism, Li has not explained why P can selectively rely on BTA Clause 9 or BTA Clause 9 can be contractually carved out to apply to that scenario.

6.11  For completeness, in so far as I am to apply my own legal training, having reviewed the contractual framework and the Mainland legal provisions relied on by P, my conclusion is consonant with Chen’s evidence. Where there is in existence the Contractual Mechanism, I do not see how P can simply “step into the shoes” of the Trustee in BTA Clause 9 when the legal proceedings were commenced by it outside of the Contractual Mechanism.

6.12  The thrust of the Extension Argument is that I should look behind the “named parties” under BTA Clause 9 (ie D1 and the Trustee) and conclude that the “real parties” are D1 and the bondholders including P. It does not appear to me that the foregoing is a sound contractual argument. It must be borne in mind that the Contractual Mechanism is stated to encapsulate a delineation between rights and obligations of D1, the bondholders and the Trustee (eg §§5.4, 5.7 and 5.14 above). It is clear that the Trustee and D1 have their own rights and obligations under the Contractual Mechanism, in particular on commencement of legal proceedings. For example, in so far as the Trustee commences legal proceedings against D1, one possible dispute is whether such proceedings have been properly authorized at a bondholders’ meeting (see also §7.13 and 7.14 below).

6.13  I am of the view that even were P regarded as a party of the Bond Trustee Agreement (in so far as that is different from P having been deemed to agree to the terms of the Bond Trustee Agreement), BTA Clause 9 still only applies to a legal action commenced by the Trustee against D1, as authorized under the Contractual Mechanism.

7.   The Incorporation Argument

7.1  There are two aspects to the Incorporation Argument: (1) whether BTA Clause 9 is incorporated into the Bond Documents and (2) if so, what is the proper interpretation of the incorporated provision.

7.2  In relation to the first issue, Mr Liu referred to a number of cases cited by Chen to support the proposition that various Mainland cases have adopted a position which is similar to the doctrine of separability in Hong Kong, namely jurisdiction clauses such as BTA Clause 9 are considered as independent agreements. For example, in the decision of 浙江省金華市中級人民法院 dated 30 October 2020, despite similar provisions in the bond documents (投資者認購或持有本次公司債券視作同意債券受託管理協議), the Mainland Court held that the arbitration clause in the bond trustee management agreement was an independent dispute resolution clause (獨立的爭議解決條款), and hence was not incorporated in the bond documents which only incorporated the substantive provisions in relation to the parties’ rights and obligations (有關權利義務規定的範疇) in the bond trustee management agreement.

7.3  I do not believe the above assists D1 in the Incorporation Argument. In the present case, section 9 of the Bond Agreement has expressly incorporated BTA Clause 9.

7.4  The real issue is the second issue, namely what is the proper interpretation of BTA Clause 9 as incorporated in the Bond Documents.

7.5  There is no dispute between counsel that, under Mainland law, the relevant provision is Article 125(1) of the Contract Law, which provides:

“ In the event that the parties dispute about the understanding of a clause of the contract, the actual meaning of the clause shall be inferred and determined on the basis of the words and sentences used in the contract, related clauses of the contract, aim of the contract, trade practices and the principle of good faith.”

7.6  As pointed out at Beijing Renji §45:

“ It seems to me that Mainland law, as the governing law of all the relevant contracts in question, governs this issue which is one of construction… Art 125(1) of the Contract Law of the PRC… is reflected in the approach adopted in Hong Kong cases on this question of construction. Although the wording of the clauses in those cases differ, they are instructive on the proper approach.”

7.7  Both experts have referred to a number of Mainland cases which are said to be relevant to the construction exercise. However, I think it is accepted by counsel that they predominantly do not set out detailed analyses to be of great assistance to my present deliberation. According to Mr Ho, the only exception maybe 最高人民法院 (2019) 最高法民轄終 132 號 (“Supreme Court Case”). As pointed out by Mr Liu, the Supreme Court case is concerned with a claim by a trustee (apparently in a position analogous to GF in the present case) against the bond issuer and as such factually different from the present case. In any event, in so far as the Supreme Court Case is an authority for the position that the relevant contractual documents should be construed holistically, it does not add to Article 125(1): Beijing Renji §56.

7.8  For completeness, counsel have also referred to a document called "Proceedings of the Forum on the Trial of Bond Dispute Cases in National Courts" (Law [2020] No. 185) which was published on 15 July 2020 (“2020 Notification”). The 2020 Notification was published by the Supreme Court to regularize or unify how bond disputes should be handled in the Mainland Courts. Paragraph 10 of section 3 therein, concerning the jurisdiction of bond default cases, provides that “a contractual dispute case brought by the trustee or a bondholder against the issuer or the credit enhancement institution as the defendant, for repayment of the principal and interest of bonds... shall be under the jurisdiction of the People’s Court of the place where the issuer has its domicile…”. The foregoing, however, only applies in the absence of express contractual provisions. The 2020 Notification expressly states that where there exist express contractual provisions, they are to be followed. I therefore do not regard the 2020 Notification as germane to the present interpretation exercise.

7.9  I have no difficulty in accepting Mr Ho’s submission that P, as a bondholder, has agreed to BTA Clause 9. This is expressly provided for in section 9 of the Bond Documents: P’s Submissions §56.

7.10  Although incorporated into the Bond Documents, the question remains how the incorporated BTA Clause 9 should be construed. As I understand Mr Ho, it is his submission that the incorporated BTA Clause 9 (whilst on its face incorporated as an agreement between D1 and the Trustee) should be interpreted as a dispute resolution clause between D1 and the bondholders including P.

7.11  With respect, I am unable to come to that conclusion, for considerations largely similar to those set out in section 6 above.

7.12  Section 9 of the Bond Documents does not simply set out BTA Clause 9. Section 9 purports to set out all the major terms of the Bond Trustee Agreement of which BTA Clause 9 is part. When read with the contractual clauses set out in section 5 above, in particular section 4 and section 8 of the Bond Documents, it seems to me that the Contractual Mechanism is inimical to Mr Ho’s submission that the incorporated BTA Clause 9 should be construed as a dispute resolution clause applying to legal proceedings commenced outside the scope of the Contractual Mechanism.

7.13  Further, I believe it is a self-evident proposition that a dispute resolution clause must be consensual. As pointed out at §5.23 above, the Bond Documents were not specifically negotiated between D1 and the bondholders, whereas the Bond Trustee Agreement was an agreement signed by (and presumably negotiated specifically) between the D1 and the Trustee. Along with the Rules for Bondholders’ Meeting, D1 and the Trustee had put in place the Contractual Mechanism to which subscribers of the Bonds are deemed to agree.

7.14  In my view, the Contractual Mechanism provides benefits to D1 as well. It contemplates that D1, in the event of default, predominantly only has to deal with the Trustee (unless the Trustee is in breach of its obligation), instead of carrying out negotiations with or having to deal with legal proceedings commenced by a plethora of individual bondholders.

7.15  The above context provides a further reason for declining to construe the incorporated BTA Clause 9 in the manner suggested by Mr Ho.

7.16  For the above reasons, I am of the view that BTA Clause 9 has been incorporated into the Bond Documents but the incorporated clause should be interpreted as only applying to legal proceedings commenced by the Trustee in accordance with the Contractual Mechanism but not to legal proceedings commenced by individual bondholders outside the Contractual Mechanism.

8.   Conclusion on the Extension Argument and the Incorporation Argument

8.1  For the above reasons, whether under the Extension Argument or the Incorporation Argument, I am of the view that P and D1 had agreed on a choice of Mainland court agreement in the form of BTA Clause 9 but it only applies to legal proceedings commenced by the Trustee under the Contractual Mechanism.

8.2  I have however rejected P’s case that BTA Clause 9 should be extended to or interpreted to mean that it applies to legal proceedings commenced by an individual bondholder (including P) outside the Contractual Mechanism.

8.3  As pointed out at Beijing Renji section D1, the court has to first determine whether BTA Clause 9 applies to the dispute between P and D1. In my view, it does not.

9.   MJREO Question

9.1  In view of my conclusion that BTA Clause 9 does not apply to the proceedings leading to the Mainland Judgment, it is not strictly necessary for me to deal with the MJREO Question.

9.2  For completeness, I deal with it briefly.

9.3  I accept Mr Ho’s submissions that Fu Kwan (at §28) is an authority for the proposition that under section 3(2) of the Ordinance, the words “in connection with the specified contract” should be given a wide interpretation.

9.4  However, even accepting the above, I am unable to conclude that BTA Clause 9 qualifies as the relevant choice of Mainland court agreement, as it is an agreement governing legal proceedings only between D1 and the Trustee. The Bond Agreements do not contain any dispute resolution clause governing legal proceedings commenced by individual bondholders outside the Contractual Mechanism.

9.5  In that sense, the present case is not materially different from the analysis set out at Beijing Renji (§§39-43). For example, under the 2020 Notification, an individual bondholder of the Bonds, in the absence of express provisions, can directly commence proceedings itself against D1 in the Shantou Court. But that is a result of the 2020 Notification and not by reason of the parties’ agreement. As set out at Beijing Renji :

“[40] The MJREO does not make all Mainland judgments registrable in Hong Kong, but only those that satisfy the specific requirements. The approach adopted in the statute is to focus on judgments for payment in civil and commercial matters and give effect to the parties’ agreement in relation to dispute resolution – in other words a consent-based regime for enforcement… This requires that the parties’agreement must specify (指明) the courts in question.

[42] In my view, the Guarantee, which is the written agreement between the parties here, does not specify the courts in the Mainland or any of them as the courts with jurisdiction to resolve their disputes. There is nothing in the Guarantee whereby the parties make that agreement, either directly or by reference to another document. In fact, the Guarantee is completely silent on the parties’ choice of court. It has admittedly been held that, under Mainland law, which is the governing law of the Guarantee, the jurisdiction agreement in clause 90 of the Partnership Agreement is applicable to the disputes between the parties under the Guarantee, but as explained by the Higher People’s Court that conclusion is based on the effect of Mainland law, not the provisions of the Guarantee.”

10.   Conclusion

10.1  For the above reasons, I accede to the Summons and make an order in terms of §1 thereof.

10.2  I also make a costs order nisi that P do pay to D1 the costs of the Summons to be taxed if not agreed.