SHENZHEN HONEYCOMB SYSTEM CO LTD v. HCT TECHNOLOGIES (HONG KONG) CO LTD

HCCT 20/2019

[2020] HKCFI 3175

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 20 OF 2019

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REASONS FOR DECISION

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Background

1.  The Applicant in these proceedings (“SHS”) seeks leave of the Court to enforce an Award dated 20 June 2017 made in arbitration proceedings commenced on the Mainland (“Arbitration”) against the Respondent (“HCT”). On 20 May 2020, this Court ruled against HCT’s application to strike out and dismiss the proceedings on the basis that the action had not been commenced with due authority on the part of SHS.  Following that, SHS’s application for leave to enforce the Award, and HCT’s opposition against enforcement, was heard on the merits on 2 December 2020.  At the end of the hearing, I granted leave to enforce the Award in Hong Kong, with costs to be paid by HCT on indemnity basis.  The following sets out the reasons for my decision.

2.  The background facts are already set out in this Court’s earlier Decision of 20 May 2020, and will not be repeated here.

3.  Under section 92 of the Arbitration Ordinance (“Ordinance”), a Mainland award is enforceable in Hong Kong in the same manner as a judgment of the Court.  Section 95 states that enforcement of a Mainland award may not to be refused except in the cases mentioned in the section.  Section 95 (2) provides that enforcement of a Mainland award may be refused if the person against whom it is invoked proves, inter alia, that the arbitration agreement was not valid (section 95 (2) (b)), or that enforcement of the award would be contrary to public policy (section 95 (3) (b)).

4.  HCT opposes the enforcement on the ground that the underlying agreement relied upon by SHS in the Arbitration (and which provides for arbitration of disputes) is forged and was entered into without the authority of HCT, such that there was no arbitration agreement and HCT had never consented to the submission of the dispute to the arbitral tribunal which made the Award.  HCT claims, on that basis, that it would be contrary to the public policy of Hong Kong to enforce the Award based on a forged document.

5.  Whilst I accept the submissions of HCT, that the Court has to determine independently whether or not HCT was a party to the arbitration agreement which confers jurisdiction on the tribunal (as held in S Co v B Co [2014] 4 HKC 421), it must also be borne in mind that, as expressly provided for in section 95 (2) of the Ordinance, it is for HCT to prove that the arbitration agreement was a forgery as it claims, and that it was not a party to the agreement.  Contrary therefore to what was argued by Counsel for HCT, it is not sufficient for HCT to rely simply on the fact that SHS had adduced no evidence in these proceedings as to how the underlying agreement for sale and purchase made between HCT and SHS, and bearing the date of 1 January 2013 (“Agreement”), was executed by HCT, and how the chop of HCT was affixed to the Agreement.

6.  A claim that a contract, or any document, is a forgery is a serious allegation to make, and the standard of proof required must be commensurate with the seriousness of the allegation.  Evidence to a very high standard of cogency is necessary before a court could be justified in finding that a document has been forged.  Inferences of fraud and serious misconduct are not to be reached by conjecture, nor on a mere balance of probability, but have to be plainly established as a matter of inference from proved facts.  The court is not entitled to merely choose between guesses on the ground that one seems more likely than another (Ming Shiu Chung v Ming Shiu Shum (2006) 9 HKCFAR 334).  As further explained in Re H & Others (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 at 856 (and cited in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at 560), when assessing the probabilities, the court must have in mind as a factor that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on a balance of probability.

7.  It is with these principles in mind that, at the hearing on 2 December 2020, this Court reminded the parties, and HCT in particular, of the seriousness of the allegations which have been made and the manner in which the evidence of HCT was adduced.  The claims and assertions of forgery are made in the 3^rd affirmation and 4^th affirmation of Qu, a director of HCT and a resident on the Mainland.  These were exhibited to the affirmations of HCT’s lawyer in Hong Kong.  Neither of the Qu affirmations was notarized, and whilst this was explained on the basis that it was not possible for Qu to come to Hong Kong to make his affirmations because of the pandemic, the affirmations were not even signed before any witness or lawyer on the Mainland.  The 2 affirmations of Qu were in English, and signed in Chinese, but there was no declaration or statement made by the lawyer that the affirmations had been explained to Qu or translated to him.  I regard these all to be unsatisfactory, particularly when serious allegations of forgery are made by Qu against SHS and Jin, its director.

8.  Legal representatives should need no reminder that the Court frowns upon allegations of fraud which are made without proper evidence, and if these are made irresponsibly, the Court will exercise its inherent jurisdiction to strike out such claims (Choi Bing Wing v Chief Executive of Hong Kong SAR [2006] 1 HKLRD 666, 670).

9.  After considering all the evidence adduced and relied upon by HCT in this case, I had no hesitation in dismissing HCT’s opposition, since there is no evidence at all to support the claim of forgery.  In the absence of any application made (in a timely manner) by HCT for witnesses to be called and cross-examined on the making of the Agreement, in order to substantiate the allegations it makes, the Court is left only with the bare and untested assertions made in the affirmations, and can only assess these in the light of such documentary evidence as is available, and against the balance of probabilities in the manner explained in Ming Shiu Chung and Re H & Others.

10.  HCT relies essentially on the fact that Jin, one of the shareholders and directors of HCT (and who is also a director of SHS), had been removed from involvement in HCT’s business in July 2015, but he had refused to return to HCT the company chop and seals of HCT, which Jin had in his possession and which he retained after July 2015.  According to Qu, the directors of HCT had adopted a new rubber chop which was first used for HCT on 17 July 2015.  The new chop was round in shape, as distinct from the old chop which Jin had retained, which was oval.

11.  Qu claims that Jin commenced the Arbitration in 2016, to seek payment for products supplied by SHS to HCT during the period from 18 October 2015 to 31 January 2016, relying on the Agreement purportedly made between SHS and HCT.  According to Qu, the Agreement was a forged document, to which HCT’s old, oval chop was affixed by Jin, without the authority of HCT.

12.  On SHS’ part, it claims that the Agreement was made between SHS as seller, and HCT as purchaser, of products, and the claim made by SHS in the Arbitration was a simple one, for the price of the products supplied and delivered to HCT for sale to overseas customers.  HCT had received purchase orders from customers, and forwarded these orders to SHS for SHS to arrange for the purchase of raw materials, manufacturing, and then shipment to the overseas buyers.  According to SHS, the price of the products had been received by HCT from the ultimate customers, but had not been paid by HCT to SHS.

13.  According to the evidence of Qu, SHS and HCT had the same shareholders and common directors, and “ran a mixed operation” with shared staff and shared offices.  Qu, Jin and another party, Wang, were all shareholders of both HCT and SHS.  On Qu’s claims, there was never any formal agreement made between SHS and HCT for the sale and purchase of goods between them, and before disputes with Jin arose in August 2015, there had never been formal orders placed by HCT with SHS for the products ordered by the end-customers.

14.  On Qu’s evidence, the business co-operation between SHS and HCT involved HCT being responsible for paperwork, taking orders from overseas customers, preparing invoices, and receiving payment from customers, whereas SHS was responsible for procuring raw materials, manufacturing, and arranging for storage and logistics for the products ordered by overseas customers.  Qu claims that before July 2015, all such work of HCT and SHS had been handled by the staff of SHS, and before disputes arose between the parties in around August 2015, HCT had never prepared or placed corresponding orders to SHS, for the products ordered by customers.  All payments made by customers to HCT were retained in Hong Kong, in view of the absence of foreign exchange control and the low tax rate here.  Qu accepted that payments had been made to SHS from time to time, to cope with the operating expenses and costs incurred by SHS.

15.  On HCT’s own case, therefore, there were actual business dealings between HCT and SHS, which were separate albeit connected entities.  However informal the arrangement between them, Qu’s evidence shows that there were orders placed by overseas customers for the products manufactured by SHS, and payment made by the overseas customers to HCT for such products.  Qu admitted (in paragraph 19 of his 4^th affirmation) that he had in or after August 2015 signed, on behalf of HCT, purchase orders for the products supplied by SHS, since he had to do this in order to supply the products to the overseas customers.  Qu knew that the oval chop of HCT was affixed by Jin to the purchase orders Qu signed.

16.  Significantly, Qu also admitted that HCT had made payment to SHS for the products after January 2016, in order to effect delivery to the end customers. Qu’s excuse is that he had no alternative but to “succumb to Jin’s pressure” and to sign these purchase orders, and make such payment.

17.  On the part of SHS, Counsel highlighted the fact that payment of US$2 million had been made by HCT to SHS, after SHS had commenced an earlier arbitration, based on the same Agreement, in 2015 and obtained a separate award in 2016 for payment of the price due for products supplied by SHS before July 2015.  By the time of the first award in May 2016 and HCT’s payment thereunder, HCT had known of the existence of the Agreement.  Yet, no claim had been made by HCT, and no action had been taken to challenge or set aside the earlier award, on the basis of the Agreement being forged, or a sham.  Instead, HCT chose to make payment under the award.

18.  In my view, the conduct of HCT in issuing purchase orders in September 2016, making payment in January 2016 for the products supplied by SHS (as Qu claims he had done in paragraph 29 of his 4^th affirmation), and in making payment under the first award based on the Agreement, are all consistent with the existence of a genuine and effective Agreement.

19.  The fact that Jin had refused to return the oval chop of HCT in 2015 cannot be evidence of Qu’s assertion that the Agreement of January 2013 which bears the oval chop was a forgery.  On Qu’s own evidence, he had no involvement in the respective operations of HCT and SHS before July 2015, and all the necessary work had been handled by SHS and its staff.  It is material that before July 2015, Jin was the general manager of HCT, and one of the 2 authorized signatories of HCT’s bank account in Hong Kong.  It is not disputed by HCT that before July 2015, Jin had possession of and was authorized to use the name chop of HCT.  Jin could, in all probability, have affixed the chop of HCT to the Agreement in January 2013, when he was the authorized representative of HCT.  Qu’s lack of personal knowledge of the execution of the Agreement in 2013 does not mean that the Agreement was not genuine, but had been forged by Jin.

20.  According to Jin’s evidence, the Agreement had in fact, and at all material times, been deployed in the usual and normal business operations of SHS, and been produced by SHS to the Mainland customs authorities for arranging shipments of the products overseas, all with the knowledge and consent of Qu and HCT.

21.  Emphasis was made by HCT on the fact that the Agreement bears no signature, and only contained the chops of the parties.  From my experience in dealing with evidence of Mainland contracts in the Arbitration Court and the Commercial Court, I cannot accept this feature to be so rare or unusual that it can mean, let alone must mean, that the Agreement is a product of forgery.  The fact that the Mainland courts have, in the Mainland proceedings related to the Award and to Jin’s authority to act for SHS, found the Agreement to be valid lends some support to this Court’s conclusion.

22.  Taking all the circumstances and evidence into account in this case, the conclusion is that HCT has failed to produce evidence sufficiently cogent in nature to prove that the Agreement was forged, and that there was no arbitration agreement between HCT and SHS to confer jurisdiction on the tribunal.  The public policy ground likewise falls away.