HEBEI PEAK HARVEST BATTERY COMPANY LIMITED v. POLYTEK ENGINEERING COMPANY LIMITED

1995, No. MP 3501

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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JUDGMENT

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Background

1. On 26 May 1995, the plaintiff obtained an award from an arbitral tribunal in Beijing. The plaintiff had paid to the defendant the sum of US$730,000, and claimed its return. The tribunal found that US$600,000 should be returned by the defendant, and that the defendant should pay costs of RMB52,098.50. This was to be done by 30 June 1995.

2. On 7 May 1996, the plaintiff obtained an order from this court entitling it to enforce the award in Hong Kong, and entered judgment on the same day.

The Defendant's Application

3. The defendant was given 14 days to apply to set aside this order, but it did not issue a summons to this end until 3 January 1997.

4. The defendant seeks to set aside the order under section 44(2)(a) of the Arbitration Ordinance (Cap.341). This provision says - "Enforcement of a Convention 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;".

The Grounds for the Defendant's Application

5. In an affirmation filed on behalf of the defendant, Mr Lau Yiu Chung Reddy says that the defendant was ready to pay the plaintiff in May 1996, but the defendant received a request to pay the money to the shareholders. On 30 December 1996, the defendant received information that the plaintiff's approval certificate had been cancelled because its registered capital was not paid up and no "certification of capital had been conducted". The defendant was told that the Bureau of Industry and Commerce of Bao Ting City was considering striking the plaintiff off "its list". The defendant was unable to ascertain the date of the cancellation of the certificate, but believed it was "prior to or at the time of the arbitration application"

6. The plaintiff has produced two certificates. The first was issued by the Bureau of Foreign Economics and Trade of Bao Ting City on 10 January 1997. This says that the plaintiff obtained an approval certificate in August 1991 and this was renewed on 25 December 1996. The second certificate was issued by the Bureau for Industry and Commerce of Zhuozhou City on 20 January 1997. This says that the plaintiff has passed all the annual inspections according to regulations, and that the plaintiff "always has the capacity of Chinese-Foreign Joint Venture Enterprise Legal Person". These certificates are not challenged by the defendant, save to say that they were issued in breach of the relevant Chinese regulations. The legal opinion relied on by the defendant refers to these certificates. It says that they prove only that Baoting City and Zhuozhou City "due to policy of local protectionism, contravened the administrative regulations and rules of the State for several years in protecting Peak Harvest, and the Certificates issued by them are illegal and wrong.". Far from challenging that the plaintiff had been granted an approval certificate, in another affirmation by Mr Lau dated 20 October 1997, he stated that "Upon commencement of the proceedings herein" the defendant obtained a copy of the plaintiff's approval certificate. This is dated 2 August 1991 at Zhuozhou. Mr Lau says that the registered capital should have been paid up by 12 September 1994, and this has not been done.

The Defendant's Legal Evidence

7. In alleging that the plaintiff was under "some incapacity", the defendant relies on two legal opinions on Chinese law produced very late in the day; on 20 October 1997.

8. These opinions seek to make several points.

9. They say that, when the plaintiff signed the contract containing the arbitration clause on 8 March 1991, it did not have the capacity to carry out civil acts, and the contract was void. This capacity was only obtained on 12 September 1991 when its business licence was issued.

10. There is nothing in this point. The contract with which the arbitral tribunal was concerned was signed by the defendant on 23 January 1992 and the plaintiff on 24 February 1992, although it was to be effective from 8 March 1991.

11. One legal opinion says "Since the capital . . . was not paid up . . . as from 13 September 1994 . . . [the plaintiff] shall be regarded as dissolved automatically and its Approval Certificate shall become ineffective. The Administrative Bureau for Industry and Commerce must revoke its business licence and [the plaintiff] shall lose its status of a legal person.". The opinion quotes the relevant regulation that says that, if the investment contributions are not made "the joint venture shall be considered to be dissolved of its own accord, and the approval certificate for the joint venture shall automatically cease. . . if a joint venture fails to go through the procedures for cancellation of registration. . . the administrative department for industry and commerce shall revoke its business licence and announce this publicly.". There is no evidence that the licence was revoked. The opinion quotes another regulation that says that, if the capital contributions are not paid within three years of the date of issuance of the business licence "the approval certificate shall automatically become invalidated and the registration office may revoke the business licence . . ."

12. The opinions assume that it has been established that the investment contributions have not been made as required by the regulations. In my view, this has not been established by the defendant.

13. The parties to the joint venture set the time within which their respective investment contributions must be made. In this case, the parties were to provide the contributions in accordance with the contract concerned in the arbitration. This contract provided for staged payments to the defendant according to performance by the defendant. There is no acceptable evidence that the defendant performed the contract so that the staged payments became due. In fact, the findings of the arbitral tribunal are to the contrary. It follows that the defendant has not established that the investment contributions were due so that the relevant regulations triggering the dissolution of the plaintiff came into play.

14. In any event, the opinions do not deal adequately with other provisions of the regulations concerned with the machinery to be employed where there is a failure to make payment of contributions. These provisions say that the defaulting party must be called on to make the contribution, and, upon failure to do so, an application may be made for approval to dissolve the joint venture. There is no evidence on the effect of these provisions. There is no evidence of compliance with them.

Conclusion

15. I conclude that the defendant has not proved that the plaintiff was under any incapacity at any relevant time.

16. Mr Chain asked that I grant leave to the defendant to cross-examine the plaintiff's Chinese legal expert. There is no need for this. I have found that the defendant has failed to prove its case without the necessity to refer to the opinion of the plaintiff's expert.

Costs

17. On the face of the matter, there seems no reason why the defendant should not pay the costs of this matter. I make an order nisi accordingly.

Order under Order 44A

18. On 13 October 1997, the plaintiff obtained an ex parte order, returnable before me on 23 October 1997, attaching the defendant's interest in some land in Hong Kong as security for the judgment. The affirmation in support of the application for this order revealed that the defendant had entered into an agreement to sell the property, and thus, it is said, evinced an intention to obstruct or delay the execution of the judgment. This order was made under Order 44A, rule 7.

19. There are several difficulties in the plaintiff's way in seeking the order. Firstly, the rule in question is applicable only before judgment. The plaintiff has obtained judgment in this matter. Secondly, the rule requires evidence of an intent to obstruct or delay the execution of any judgment that may be given. There is no direct evidence of this, or any evidence from which such an inference could be drawn.

20. Accordingly, the order must be discharged. There seems no reason why the plaintiff should not pay the defendant's costs of this matter. I make an order nisi in those terms.