CHONGQING MACHINERY IMPORT & EXPORT CO., LTD. v. YIU HOI AND OTHERS

HCCT 19/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATON PROCEEDINGS
NO. 19 OF 2001

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REASONS FOR DECISION

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1. This is an application under Order 73, rule 10(6) to set aside an order of Mr Justice Burrell dated 5 March 2001 that the plaintiff be at liberty to enforce in Hong Kong an award of the Chongqing Arbitration Commission against the defendants dated 18 May 2000. At the conclusion of the hearing I dismissed the application and now give my reasons for so doing.

HISTORY OF THE DISPUTE

2. The dispute between the parties arose out of a contract dated 25 September 1993 entered into between the plaintiff, then called China National Machinery & Equipment Import & Export Corporation Chongqing Branch, and the defendants, by which the former agreed to build two vessels for a total price of HK$9,977,600.00, and to deliver the same to Hong Kong by 30 June 1994. The vessels were duly constructed, albeit with some delay, not being delivered until late 1995. This delay was partly the subject of a further agreement between the parties dated 14 February 1996, by which they agreed that the sum due from the defendants, presumably including interest, was now $11,694,560.00, of which a partial payment of $2,799,640.00 had been made, and, after setting off the sum of $950,000.00 in respect of the delay, and a further $524,755.00 for the costs of rebuilding a mast, the sum of $7,400,000.00 remained outstanding. It was further agreed that this would be paid by instalments between 15 April 1996 and 15 August 1996 together with interest. The payments were not made and correspondence ensued over the next three years in which new instalment schedules were proposed by the defendants and calculations of interest made. These again were not adhered to but a number of payments were made, principally in respect of interest. The plaintiff clearly became dissatisfied with the progress of payments and commenced these arbitration proceedings.

3. The arbitration award was on the basis of an Arbitration Agreement entered into between the plaintiff and the defendants and dated 10 May 2000 which agrees the outstanding sum as $4,420,000.00 with interest of $785,970.67, making a total of $5,205,970.67, and sets out a further payment schedule. There was no hearing of evidence and the arbitration was conducted solely on paper. No payments have since been made. Later that year the defendants applied to the First Intermediate People's Court of Chongqing City to set aside the arbitration award on the ground that the Chongqing Arbitration Commission had no jurisdiction to hear the arbitration, that the chop on an agreement of 6 December 1999 setting out the amount due was not the statutory chop of the defendant company, and that the dispute should only be resolved in accordance with the original agreement of 25 September 1993. That court found that the Chongqing Arbitration Commission did have jurisdiction, that, although the defendants' statutory chop was not affixed to all the documents, the relevant ones had been signed by Mr Cheung Shing Yau, who had signed the original contract, on behalf of the defendants, and the arbitration was in accordance with their agreements.

GROUNDS OF THIS APPLICATION

4. Miss Lai, for the defendants, has put forward a number of grounds which she says entitle the defendants to have the order of Mr Justice Burrell set aside. They may be summarised as follows: (i) Mr Cheung Shing Yau was not authorised to sign on behalf of the defendants and was not their legal representative; (ii) that the defendants are no longer indebted to the plaintiff; (iii) that no notice was given of the arbitration proceedings; (iv) that it was contemplated by the contract that the Beijing Conciliation Centre should mediate any dispute; (v) that the defendants were entitled to repudiate the contract because of the late delivery; (vi) that the First Intermediate Court of Chongqing City decided the matter of Mr Cheung's signature without allowing any representations or evidence; and (vii) that there was a conflict of interest in the Chongqing Arbitration Commission and the plaintiff both being state entities. I will deal with them separately.

Authority of Mr Cheung

5. In his affidavit Mr Cheung says that he was a partner in the defendant company from 23 October 1992 to 30 September 1993, and from 4 March 1996 until 8 December 2000. He admits that he signed the original contract in September 1993, but not only says he had no authority to sign any agreements as to the alleged indebtedness, but that he did not do so, and such signatures are a forgery by the plaintiff who is guilty of fraud. Further he says that he was not in Chongqing at the relevant time and produces travel records to show this. I can deal with this latter point very briefly. There is no evidence as to where these documents were signed, and they may well have been executed in Hong Kong, or in Shenzhen during what appear from those records to have been his short visits there.

6. As to the allegation of forgery and fraud, these are extremely serious charges of a criminal nature to level at the plaintiff, and I would need to have very much more evidence beyond Mr Cheung's bare assertion to give any weight to them. His signature appears to be on most, if not all, of the documents emanating from the defendant company throughout their dealings with the plaintiff, and there is no suggestion that any expert evidence has been, or should be, obtained to question their validity. I also note that the matter of his signature was not raised at the application to set aside in China, only the lack of a company chop. It is interesting that he does not mention that application in spite of the fact that his name again appears as the defendants' representative, and the fact of the application is not denied by Miss Lai in her submission. Further, his signature appears on remittance advices produced by the defendants and dated during periods he claims he was not a partner. In short I find this allegation totally unsupported by the evidence, and it is clear from the documents before me that, even if he was not at one time a partner, of which similarly there is no independent evidence, he was clearly authorised by the defendants to enter into contracts and agreements on their behalf, whether as a partner or agent.

Indebtedness of the defendants

7. In the 2nd affidavit of Chan Wei Yi on behalf of the defendants a list of payments made by them is set out with the conclusion that they have totally settled the amount due. However, from late 1997 onwards it is clear that such payments, if made, were each comparatively modest, and have the appearance of payments of interest only. This too was not mentioned in the application to set aside in the Chongqing Court. In any event, in view of my rejection of the contention that Mr Cheung did not sign the agreements as to indebtedness and the arbitration on behalf of the defendants, there is clear agreement that the sum claimed by the plaintiff was still owed.

Lack of notice of the arbitration proceedings

8. It is stated by Chan Wei Yi in both affidavits that the defendants did not know of the arbitration, and it is alleged that the first indication was the receipt by them of the order of Mr Justice Burrell. This is clearly not true. Not only did they institute the application in China to have the award set aside, which is unlikely to have been done by the plaintiff, but there is ample evidence from the plaintiff's attorney that all arbitration documents were properly served by courier, and the receipt of notification of the award itself was acknowledged by the defendants by affixing the company chop. This again was not raised as a ground in the application to set aside in China and I find no merit in it now.

Venue of arbitration

9. In the agreement of September 1993 it is stipulated that any dispute shall be submitted to "the relevant department of the China Council for the Promotion of International Trade" for arbitration. In her affidavit, Chan Wei Yi says that it was contemplated that disputes would go to the Beijing Conciliation Centre, set up by the above council. However, I have evidence from the plaintiff that the Chongqing Arbitration Commission was also a body authorised under Chinese Law, and see no reason why it should not have dealt with this matter. In any event, as I have found above, the evidence shows that Mr Cheung signed the arbitration agreement on behalf of the defendants in the proceedings before that commission, and thereby accepted its jurisdiction.

Entitlement to repudiate the contract

10. This again is not an arguable point. While the defendants may well have had a right to repudiate because of delay prior to delivery of the vessels, once they had taken delivery, commenced payment and negotiated payment schedules, they had clearly ratified the contract. Miss Chan admits this in her affidavit at paragraph 23 where she says that the defendant company had agreed that they would not exercise the right to repudiate.

Failure of the First Intermediate Court to admit evidence as to signatures

11. There is no evidence at all of the proceedings before the First Intermediate Court, only the findings. It is clear from this that they did make their findings after investigation and I have no reason to believe that those findings were not in accordance with the evidence before them.

Conflict of interest

12. It is a fact of life and the commercial and government structure of the People's Republic of China that many organisations both statutory and commercial are under the umbrella of either state or local government bodies. While this gives rise to a possibility of conflict of interest, it would be necessary for me to have some evidence of actual conflict in a case such as this to find that, as a matter of public policy, the award of the commission should not be enforced. There is no such evidence here, and this is another matter which was not raised on appeal in China.

13. For these reasons I found that there was no merit in the defendants' application.

COSTS

14. Mr Fung for the plaintiff submits that this is a proper case for indemnity costs to be awarded in that it is not made in good faith and fails to show any cause why the order should be set aside. I agree. As is apparent from my reasons above for dismissing this application, I find little merit in any of the grounds put forward, and some of the evidence, for example that as to notice of the proceedings, is clearly untrue. I accordingly find that this is not a bona fide application, to the extent that it is an abuse of process, and accordingly order that the defendants pay the plaintiff's costs of these proceedings on the indemnity basis.