XCHRX GRAND EMPIRE HOLDINGS LTD. v. MARCO INTERNATIONAL (HK) LTD.

HCA 14891/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14891 OF 1999

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J U D G M E N T

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1. The plaintiff seeks an order pursuant to Order 38, rule 2 that a deponent, Leung Chee attends for cross-examination on his affirmations made in connection with the plaintiff's opposition to the defendant's summons which effectively seeks a stay of the proceedings upon the matter being submitted to arbitration in New York. Leung Chee has made two affirmations and the plaintiff's deponent, Lau Yu has made four. All are substantially on the same issue, namely, whether the contract containing an arbitration clause, upon which the defendant relies, truly reflects what was agreed between the parties or whether it was a sham document. It is obvious that if the plaintiff is given the opportunity of cross-examining Leung Chee, then the defendant will seek and be granted leave to cross-examine Lau Yu. The two deponents are very much at odds as to the true nature of the agreement between them. The plaintiff seeks to persuade the court that the written agreement signed by both parties and which contains the arbitration clause is of no effect, does not contain the terms agreed to by the parties and should be ignored. The defendant simply points to the signed document and its unequivocal terms, as follows :-

" THIS CONTRACT IS AND SHALL BE SUBJECT TO THE TERMS AND CONDITIONS HEREIN STATED AND THOSE STATED ON THE REVERSE SIDE OF THIS CONTRACT, INCLUDING THE PROVISIONS FOR ARBITRATION, ALL OF WHICH ARE ACCEPTED BY BUYER. THIS CONTRACT MAY NOT BE MODIFIED, RESCINDED OR WAIVED EXCEPT IN A WRITING SIGNED BY AN AUTHORIZED OFFICER OF THE PARTY TO BE CHARGED AND ANY WAIVER SHALL ONLY APPLY TO THE SPECIFIC INSTANCE OR DEFAULT WAIVED."

The provision for arbitration is :-

" (b) THE PARTIES TO THIS CONTRACT IRREVOCABLY AGREE THAT EACH AND EVERY CONTROVERSY OR CLAIM ARISING OUT OF, IN CONNECTION WITH OR RELATING TO THIS CONTRACT OR THE INTERPRETATION, PERFORMANCE OR BREACH OF THIS CONTRACT SHALL BE SETTLED BY ARBITRATION, BY A PANEL OF THREE ARBITRATORS, IN THE CITY OF NEW YORK IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES THEN OBTAINING OF THE AMERICAN ARBITRATION ASSOCIATION OR ITS SUCCESSOR, AND UNDER THE LAWS OF THE STATE OF NEW YORK, AND THAT THEY DO NOT INTEND THAT THE STATUS QUO MUST BE MAINTAINED PENDING ARBITRATION AND THAT JUDGMENT MAY BE ENTERED ON ANY ARBITRATION AWARD SO MADE IN ANY COURT HAVING JURISDICTION."

2. The court has an unfettered discretion to order cross-examination and that discretion should be exercised in favour of the party seeking it when the court is satisfied that it is necessary in the interests of justice. In other words, if there is a real risk that justice will not be done if cross-examination is not allowed, then leave should be granted.

3. For the reasons which follow, I am satisfied that this is not a case where I should exercise my discretion and make the order sought. I find there to be no special circumstances which would justify it. A leading authority on the issue of when the discretion should be granted is Wendy Wenta Seng Yuen v. Philip Pak-yiu Yuen [1984] HKLR 431 in which it was held that an applicant is not entitled as of right to an order permitting cross-examination but that he must establish that there is good and sufficient reason for it in all the circumstances of the case.

4. In addition to the interests of justice and the existence of a good and sufficient reason for the application, other factors to be taken into account in deciding whether the discretion should be exercised include whether or not the evidence contained in the affirmation will lead to a final order, and whether or not unacceptable delay or expense will be incurred if the order is granted.

5. In the present case not permitting cross-examination will not result in a final order. On the contrary, it will speed up the process whereby the parties get to the starting gate. If the defendant's application for a stay, to be heard on affirmation evidence and the contract documents themselves, is successful, then the matter goes to arbitration in New York. If it fails, the action gets under way in the Hong Kong courts.

6. Further, if cross-examination is permitted, it will result in some delay and further expense. The stay application will change from a 2-hour hearing to what may be a 3-day hearing. However, the most important reason for not granting this application is that the issues which the plaintiff seeks to cross-examine the deponent on and upon which the defendant's deponent will wish to give evidence in reply are issues which are at the core of the dispute between the parties. If cross-examination is permitted, the judge hearing the application will inevitably have to make findings on credibility. Whatever his decision, the proceedings will then get under way, either before the New York Panel of Arbitrators or before a Hong Kong court, and the same witnesses will be heard on the same (and other) issues but in a different coram. In my judgement, if the cross-examination is to be on the same issues as those which form the basis of the dispute between the parties, an order under Order 38, rule 2 should rarely, if ever, be made. In this case there are no exceptional circumstances which would merit such an order.

7. Mr Paul Wu, for the plaintiff, relied also on equitable principles in support of his application. He correctly stated that equity looks at the substance and not the form of the transaction. His argument in this case is that the contract in question may, in form, look like a contract for repurchase of goods, whereas in substance it was part of a loan agreement. He cited Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 in support in which it was held that :-

" (1) Since equity looks at the substance and not the form of a transaction, the defendant's contention that the transaction was a secured loan required investigation at trial.

(2) Since there was something in the nature of the loan to suggest the plaintiff might be a moneylender, the defendant would be given leave to advance that defence at trial."

8. However, in the context of the present application, the important words in (1) and (2) above are "at trial". Mr Wu may rest assured that whenever and wherever this matter is heard, the principles of equity upon which he relies will not be shut out. An investigation as to the true nature of the agreement between the parties will be fundamental to its determination. It is not necessary nor in the interests of justice to make that determination as a preliminary issue.

9. Finally, apart from his contention that the arbitration clause in the contract should be ignored, Mr Wu conceded that another reason that the plaintiff opposed the stay application was that he had no connection with the USA, does no business there and it would be very inconvenient to go to New York to argue his case. Inconvenience is not a ground to ignore an arbitration clause signed by both parties once it has been determined that it is a valid and operable clause and that a dispute exists between the parties.

10. The plaintiff's summons for an order under Order 38, rule 2 is refused with costs. I now make the following orders in relation to the three other summonses which are also pending :-

(a) On the plaintiff's summons for leave to file further affirmation dated 9 November 1999, I grant leave to file forthwith and the defendant may file a further affirmation in reply within 14 days hereof. Costs in the cause.

(b) The defendant's application dated 22 September 1999 for a declaration that the Hong Kong courts have no jurisdiction to hear the plaintiff's claim and/or the matter be stayed for arbitration in New York be relisted as soon as possible. Allow two hours.

(c) The plaintiff's summons for a speedy trial without pleadings in Hong Kong dated 14 October 1999 be adjourned sine die with liberty to restore after the court's determination on summons (b) above. Costs in the cause.