HZ CAPITAL INTERNATIONAL LTD v. CHINA VOCATIONAL EDUCATION CO LTD AND OTHERS

HCCT 48/2016

[2020] HKCFI 1507

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 48 OF 2016

_____________

_____________

BETWEEN

_____________

_____________

DECISION

_____________

1.  By a Summons dated on 11 December 2019 (the “Summons for Leave”), the 5^th to 8^th Respondents (the “Respondents”) seek leave to appeal against the decision handed down on 27 November 2019 (the “Decision”) dismissing their summons dated 10 April 2017 (the “Summons to Set Aside”) to set aside an Order made by Mr Justice Chow herein on 24 February 2017 (the “Order”) granting leave for the Applicant to enforce as a judgment an arbitration award made on 29 July 2016 (the “Award”).

BACKGROUND 

2.  The factual background of the case has been fully set out in the Decision (Paragraphs 9 to 23). Suffice it to say that the Award arising from a contractual dispute under the “C2 Agreement” was made by the arbitrators against, inter alia, the 5^th to 8^th Respondents after an evidential hearing in January 2015. 

3.  Several rounds of affirmations were filed herein under the Summons to Set Aside and direction was given on 30 April 2018 for cross-examination of the respective deponents.  It is extraordinary that at the hearing on 12 June 2019, the Applicant appeared by counsel only to inform that court that he had no instruction to advance any argument to oppose the Summons to Set Aside. The matter was left on the basis that it was up to the Respondents to satisfy the Court that the Order ought to be set aside.

4.  At the hearing on 29 May 2020, Mr. Kelvin Cheung of Messrs. Kelvin Cheung & Co appeared briefly on behalf of the Applicant just to maintain the same stance. Therefore, his attendance was excused accordingly. Pausing there, unlike in a case involving an application to set aside an arbitration award, it is up to the Applicant to consent to the Summons to Set Aside.  The effect of that is simply to forebear the right to enforce the Award as a judgment. Why this was not done is beyond the fathom of the Court.  However, one thing that must be made clear is that the Court is not a rubber-stamp of procedure manoeuvres between the parties.

THE PROPOSED GROUNDS OF APPEAL

5.  Mr. Ernest Ng (appearing with Mr. Mike Yeung) for the Respondents readily accepted that the burden was on them to demonstrate that there were “reasonable prospects of success” in the proposed grounds of appeal or there were other reasons in the interest of justice that the intended appeal should be heard. To this, I would add that the chance of succeeding must be more than “fanciful”, without having to be “probable” (see Le Pichon JA in SMSE v KL [2009] 4 HKLRD 125 at 129, Paragraph 17).

6.  Further, the Respondents acknowledged that the Decision involved an exercise of discretion of the Court which will not be lightly interfered with upon an appeal unless it was “based upon a misunderstanding of the law or of the evidence” or “so aberrant that it must be set aside upon the ground that no reasonable judge regardful of his duty to act judicially could have reached it” (see Lord Diplock in Hadmor Production v Hamilton [1983] AC 191 (at 220B-F).

7.  In essence, the Respondents advanced three proposed grounds of appeal, viz:

(a) Ground 1 – The Court erred in holding that the Respondents had waived the condition precedent under the “Mandatory Negotiation Tier” (“MNT”) stipulated in Clause 13.1.1 of the C2 Agreement in light of the uncontroverted evidence afforded by the affirmations of Zhou Jiting (Zhou) of the Respondents that (i) the “Request Letter” purportedly signed by Zhao Wenyao (Zhao) of the Applicant on 3 May 2013 in fact did not come into existence until 30 May 2013 (ii) Zhou signed and backdated the “Refusal Letter” to 4 May 2013 while being influenced by a deceit perpetrated by the representatives of the Applicants (Decision Paragraphs 41 to 54 and  61to 70);

(b) Ground 2 – The Court erred in holding that MNT requirement under Clause 13.1.1 had been varied as evidenced by the series of emails including, inter alia, the “Request Letter”, the “Refusal Letter” (Decision at Paragraphs 55 to 60).

(c) Ground 3 – The Court erred in not finding any Serious Irregularity during the proceedings before the Tribunal in that the Respondents were precluded from relying on the “Twin Emails[1]” which would have shown that the “Request Letter” and “Refusal Letter” were backdated and hence the said condition precedent (or MNT requirement) had not been fulfilled before the Applicant proceeded to issue the Notice of Arbitration.

8.  For the reasons set out hereinbelow, despite the valiant attempt made by Mr. Ernest Ng, I am not convinced that there is any reasonable prospects of success in any of the three proposed grounds of appeal nor is that any other reason for the appeal to be heard in the interest of justice.

Ground 1 – No Waiver

9.  As confirmed by Mr. Ng before the Court, notwithstanding that the MNT requirement as a condition precedent to the arbitration proceedings was not specifically pleaded in the Defence, it was the Respondents’ intention to raise the issue in the evidential hearing before the Tribunal. As indeed, Mr. Ng acknowledged that the jurisdictional point was ruled against the Respondents.

10.  Mr. Ng also rightly accepted that the burden was on the Respondents before the Court to prove a case of “deceit” on the part of the Applicant in backdating the “Request Letter and procuring the “Refusal Letter” from the Respondents, which were relied upon by the Applicant as evidence of fulfilment of the condition precedent necessary for establishing competence or jurisdiction of the Tribunal.

11.  To advance this point, the Respondents relied on, in particular, the evidence contained in the 1^st Affirmation of Zhou (Paragraphs 23 to 32). In gist, it was alleged that the Mr. Zheng (the 19^th Respondent) was unwary of the deceit perpetrated by the Applicant (acting through Zhao) and was misled into signing and backdating the Refusal Letter in the belief that (a) there was genuine dispute between the Applicant and New World (both being parties to the C2 Agreement); (b) the signing and backdating of the Refusal Letter would facilitate negotiation between the Applicant and New World.

12.  It was suggested in Paragraph 33 of the 1^st Affirmation of Zhou that he was surprised to receive the “Notice of Arbitration” on 5 June 2013 but he fell far short of explaining what had prompted such reaction on his part.

13.  Without citing any authorities, Mr. Ng made the bald submission that since Zhao did not present himself for cross-examination, the Court is powerless but to ignore in its entirety the evidence afforded by the affirmations of Zhao (filed on behalf of the Applicant).  In brief, Mr. Ng’s assertion went even further then the decision in Chow Kam Fa ex p Rambas Marketing Co LLC [2004] 1 HKLRD 161 wherein DHCJ To said:

“42. My reading of Order 38 rule 2(3) is that once the order for cross-examination is made, the exclusion of the deponent's affidavit follows as a matter of course upon his default of attendance, and not that the court has to make a further order to that effect. If the exclusion does not follow as of course, the order for cross-examination is nugatory as being an empty order without the threat of any sanction. . . For this reason, I think my order for cross-examination should be fortified with an order for exclusion of his affidavit in default of his attendance. Thus, if I am wrong in my interpretation of the rule, I am prepared, for avoidance of doubt, to clarify my order for cross-examination with the further order that if the Debtor does not attend, his affidavit shall not be used as evidence without the leave of the Court.” (emphasis added)

14.  The so-called Twin Emails relied upon by the Respondents to show “deceit” were admittedly part of a series of emails leading to the execution of the Request Letter and Refusal Letter.  As pointed out in the Decision (at Paragraphs 50 to 51), it is rather inexplicable that an important email in the series dated 29 May 2013 (Exhibit ZWY-11) was missing from the series of emails presented by Zhou (Exhibit ZJT-16) in his affirmation (the “Missing Email”). 

15.  The significance of the Missing Email is that it clearly shows that the parties were bargaining at arm’s length with the benefit of legal advice in drafting and concluding the terms of the Request Letter and Refusal Letter.

16.  In effect, Mr. Ng’s submission is tantamount to imposing on the Court an obligation to put blinkers on in ruling on the evidence just because the Applicant chose, for whatever reason, not to participate in the hearing. In the absence of any legal precedent on the point, still less binding precedent, I reject the Mr. Ng’s argument.  The Missing Email is clearly credible and material evidence shedding light on the circumstances and the frame of mind of the parties at the material time. As such, the Court should not turn a blind eye to such evidence.

17.  More importantly, as pointed out in Paragraph 62 of the Decision, Mr Ng was quite unable to explain to the court what was the nature of the deceit.  There is no proper identification of the representation made by the Applicant, which was subsequently discovered or proven to be false.  There is no evidence to the effect, for instance, that there was in fact (a) no genuine dispute between the Applicant and New World; (b) the Applicant in fact had no intention to negotiate with New World in procuring the Refusal Letter from the Respondents.

18.  In short, the use of “deceit” as a label without full particulars and cogent evidence is far from being sufficient to make out a case in support of the Summons to Set Aside.  Despite the absence of the Applicant, the Respondent woefully failed to discharge its burden.

19.  The finding of a waiver is the observe side of the Respondent’s case on deceit (Decision at Paragraph 54). Without proper explanation being proffered by the Respondents, the contemporaneous documents including the Twin Emails, the Missing Email, the execution of the guarantees coupled with the less than candid way in which the Respondents chose to conduct the arbitration proceedings in raising the jurisdictional point, the only reasonable conclusion to be drawn is that the Respondents had indeed waived the MNT requirement as a condition precedent.

Ground 2 – No Variation

20.  In his written submission, Mr. Ng cited and readily accepted the classic statement by Denning LJ (as he the was) in Charles Richards Ltd v Oppenheim [1950] 1 KB 616 (at 623) that:

“If the defendant, as he did, led the plaintiffs to believe that he would not insist on the stipulation as to time, and that, if they carried out the work, he would accept it, and they did it, he could not afterwards set up the stipulation as to the time against them. Whether it be called waiver or forbearance on his part, or an agreed variation or substituted performance, does not matter. It is a kind of estoppel. By his conduct he evinced an intention to affect their legal relations. He made, in effect, a promise not to insist on his strict legal rights. That promise was intended to be acted on, and was in fact acted on. He cannot afterwards go back it.” (emphasis added)

21.  Hence, it does not matter whether the wavier to be called a variation of the MNT requirement. However, Mr. Ng sought to argue that the arbitration agreement, which is contained in Clause 13.1.1 of the C2 Agreement (with the MNT requirement as a condition precedent), is itself subject to Clause 14.6 having the effect that any variation had to be consented to by all parties to the C2 Agreement (ie including all Investors under the C2 Agreement).

22.  The C2 Agreement is a multilateral agreement. Due regard should be given to the words “as the case may be” in Clause 14.6 when it comes to consent of the parties to a term of variation (see Paragraph 56 of Decision). Properly construed, Clause 13.1.1 entails a separate arbitration agreement between a party with each other party, inter se, and the arbitration in question only concerned the Applicant and the Respondents.   

23.  The finding of a variation to the MNT requirement as between the Applicant and the Respondents (at Paragraphs 55 to 60) is alternative to finding of a wavier in the circumstances. At the material time when the Request Letter and Refusal Letter were issued, at least 2 other investors, namely, New World and Cathay had already commenced separate arbitration proceedings against the Respondents. As a matter of logic, it is odd to say the least to insist on the consent of all parties to the C2 Agreement in respect of a variation of the MNT requirement which only concerned the Applicant and the Respondents.

24.  In short, I am of the view that even if Ground 2 may be arguable in isolation, I am not convinced that the ground, whether considered individually or collectively with other grounds, afford the Respondents a reasonable chance of success in the intended appeal.

Ground 3 – Procedural unfairness leading to Serious Irregularity

25.  This ground pertains to the ruling of the Tribunal in disallowing the use of the Twin Emails to show that the Request Letter and Refusal Letter were backdated and hence the MNT requirement had not been fulfilled.

26.  This point was dealt with in Paragraphs 73 to 80 of the Decision. Mr. Ng confirmed that there was no evidence that the Twin Emails were somehow not available for disclosure prior to the evidential hearing before the Tribunal. Given that the parties were given ample opportunity up to just a few days before the evidential hearing to make disclosure of documents, it is inexplicable why the Twin Emails were not disclosed until the time when they were fished out during the course of cross-examination of the Applicant’s witnesses. It is equally inexplicable that this aspect of the Respondents’ case pertinent to the “deceit” was not mentioned in any of the Respondents’ witness statements before the Tribunal.

27.  In this connection, all that the Respondents could offer by way of explanation was that their counsel appearing before the Tribunal, not being trained in common law jurisdiction, was not familiar with the system in Hong Kong (see Paragraph 14 of the 2^nd Affirmation of Zhou). Such explanation is unsatisfactory and insufficient bearing in mind that it was an international arbitration governed by the UNCITRAL Arbitration Rules (as revised in 2010).

28.  If anything, it tends to point to a conscious decision to take the Applicant’s witnesses by surprise in cross-examination.  In all circumstances, I do not find any merits whatsoever on this ground.

DISPOSAL

29.  On the foregoing analysis, the application for leave to appeal is dismissed.  For the same reasons, the application for stay of execution is also dismissed.

30.  In summary, the Summons for Leave is dismissed in its entirety with no order as to costs.