H v. L

HCCT 50/2020
HCCT 51/2020
(heard together)

[2021] HKCFI 1203

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 50 OF 2020

______________

AND

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 51 OF 2020

______________

_________________________

REASONS FOR DECISION

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Background

1.  On 4 September 2020, this Court made orders (“Enforcement Orders”) granting leave to the Applicant to enforce the 2 arbitral awards of the Guangzhou Arbitration Commission (“Tribunal”), both dated 23 June 2020 (“Awards”), in 2 arbitrations between the Applicant and the Respondent. The Award made in HCCT 50/2020 was for the Respondent’s payment to the Applicant of the principal sum of RMB 1,891,757.60, interest, other expenses and costs.  The Award made in HCCT 51/2020 was for the Respondent’s payment to the Applicant of the principal sum of RMB 5 million, interest, other expenses and costs.  Both Awards relate to sums claimed by the Applicant to be due from the Respondent under a series of loan agreements (“Loan Agreements”) signed by the Applicant and the Respondent, of various dates from 13 October 2014 to 30 April 2018.  The dates of the Loan Agreements, the amounts specified as the loans advanced under the Loan Agreements, the amounts repaid and those outstanding, are not disputed and so are not material for the purposes of this Decision.  The Awards and documents in the 2 arbitrations forming the subject matter of the 2 proceedings before the Court are largely identical.

2.  On 5 October 2020, the Respondent applied by its Summons, issued out of time in each action and with leave of the Court, to set aside the Enforcement Orders.  The Summons states that the grounds for the application to set aside are that the Awards dealt with a difference not contemplated by or not falling within the terms of the submission to the Arbitration, and that it would be contrary to public policy to enforce the Awards in Hong Kong, ie pursuant to section 95 (2) (d) (i) and 95 (3) (b) of the Arbitration Ordinance (“Ordinance”). The Summons was supported by the Respondent’s affirmation filed on the same day as the Summons.

3.  At the conclusion of the hearing on 28 April 2021, I dismissed the Summonses in both actions, with costs on indemnity basis.  The following are the reasons for my decision.

Whether the Awards dealt with a difference beyond the scope of the submission

4.  No facts set out in the Respondent’s affirmation support this ground. Nor did Counsel advance any argument to pursue this ground.

Whether it would be contrary to public policy to enforce the Awards

5.  The Respondent claims that there was no valid agreement between himself and the Applicant, whether for the loans advanced or for arbitration.  He claims that the funds specified in the Loan Agreements were never transferred to him, but that as stated in the Loan Agreements themselves, the funds were transferred to and paid into the bank accounts of other individuals such as 羅少民 (“Lo”), 李玉靜 (“Li”) and 李玉龍 (“Li YL”). He claims that Lo, Li and Li YL were the real borrowers.  The repayment of the loans was also made by transfers of sums from the accounts of Lo, Li and Li YL to the accounts of the Applicant and her son, 林穎輝 (“Lam”).  The Loan Agreements expressly stated that the money for the loans were transferred from Lam to Lo, or Li, or Li YL.

6.  The Respondent further claims that, as he had stated by way of Defence in the Arbitration, the Applicant was not a licensed moneylender and that the Loan Agreements were unenforceable and invalid under the laws of Hong Kong.

7.  The Respondent further sought to argue in these proceedings that on the advice of his PRC lawyers, the loans were also illegal under PRC law, as the Applicant was not a licensed financial institution under PRC law, and was not permitted to conduct any money lending business without the approval of the People’s Bank of China.  The purported money lending by the Applicant was unlawful under PRC law, and the Loan Agreements were sham arrangements to hide unlawful loans.

8.  The argument advanced for the Respondent was that the Tribunal had failed to adequately consider the issues and the evidence of illegality and invalidity of the Loan Agreements, when deciding that the Loan Agreements were valid and enforceable.  The Respondent claims that the Tribunal failed to give adequate reasons for its decision.

9.  On the above factual bases, the Respondent claims that it would be contrary to the public policy of Hong Kong to enforce the Awards which arose under illegal agreements and sham arrangements, and when the Tribunal had failed to give adequate reasons as to why the Loan Agreements were valid and enforceable.

10.  Under the Ordinance, enforcement of an arbitral award may be refused, if the party against whom the award is invoked can prove to the Court the existence of one or more of the grounds set out in the relevant provision of the Ordinance, in this case section 95 being applicable.

11.  There are no merits in the Respondent’s claim of the Awards being contrary to public policy in Hong Kong.  It is trite, that the ground of public policy is not to be widely construed, nor to be used at random as a catchall provision when it is convenient.  “It is limited in scope and is to be sparingly applied” (Qinhuangdao Tongda Enterprise Development [1993] 1 HKLRD 173, 178).  If it is claimed that there was no valid contract, the Court would expect the party to invoke section 95 (2) (b) of the Ordinance, and not to rely on arguments raised at the hearing as to the validity of the contract, if the only ground stated in the Summons for the setting aside of enforcement is that enforcement would be contrary to public policy under section 95 (3) (b).  Under section 95 (3) (b), enforcement of an award may be refused only if enforcement would be shocking to the Court’s conscience, or contrary to the fundamental conceptions of morality and justice.

12.  The authorities are also clear, that in deciding whether to refuse enforcement of an award, the enforcement Court does not look into the merits of the case, nor at the underlying transaction.  Public policy should not be used as a pretext or excuse, for the Court to review the merits of the Award, or the correctness of the findings of fact or law made by the Tribunal.

13.  It is pertinent to bear in mind the Defences raised by the Respondent in the Arbitration itself.  From the Award, these were that: (1) Hong Kong law applies to the Loan Agreements and the transactions between the Applicant and the Respondent, and that the Loan Agreements are invalid under Hong Kong law as the Applicant is not a licensed moneylender; (2) the Respondent was not the actual borrower, and there was no genuine or valid and enforceable loan agreement or transaction between the Applicant and the Respondent; (3) the Respondent had signed the Loan Agreements under intoxication; and (4) the parties had reached agreement to use a property in Hong Kong to discharge the Respondent’s outstanding loans to the Applicant.

Whether valid agreement

14.  First, the Tribunal did consider and address in the Awards the question of the validity of the Loan Agreements.  In dealing with the alleged illegality of the Loan Agreements under Hong Kong law as allegedly being in contravention of the Money Lenders Ordinance, the Tribunal found Hong Kong law to be inapplicable.  (The Awards are largely identical, and references below to the “Award” are to the Award in HCCT 50/2020.) At page 79 of the Award, the Tribunal noted that the Loan Agreements made no express provision for the governing law, and proceeded to consider the law which had the closest connection with the Loan Agreements and the loan arrangements.  The Tribunal found on the evidence that the loans were made in or connected with the Mainland, and that PRC law was applicable.  Whether the Tribunal is right in its conclusion, is not for review by this Court.

15.  As the Respondent accepted, apart from contending that there was no contract concluded with the Applicant, the question of the alleged illegality of the Loan Agreements under PRC law was not raised by way of defence in the Arbitration.  There can be no complaint that this was not dealt with by the Tribunal.  It is surprising and incredulous that if there was any genuine issue of PRC law which affected the legality or enforceability of the Loan Agreements, such issue would only be raised in these enforcement proceedings in Hong Kong, and was not raised before the Tribunal which is clearly in a better position to determine this issue of PRC law.  I consider that the Respondent has waived any such claim, or is estopped from raising it (Gao Haiyan v Keeneye Holdings Ltd [2012] 1 HKLRD 627; Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 1 HKLRD 665) even if there was any genuine issue in this respect.

16.  It is also pertinent that in December 2020, the Respondent applied to the Guangzhou Intermediate People’s Court, which is the supervisory court at the seat of the Arbitration, to set aside the Awards.  The Respondent claimed before the Court that the Awards should be dismissed since the Loan Agreements should be declared invalid for being sham, or as loans by an unauthorized lender under PRC law.  The supervisory court dismissed the application, pointing out that these issues of illegality should have been raised for consideration by the Tribunal, but had not been raised.

17.  Having found that the Loan Agreements were governed by PRC law, the Tribunal considered the evidence adduced by the parties, and found that the Loan Agreements were enforceable agreements, validly made between the Applicant and the Respondent.  The Tribunal’s decision was made upon its analysis of the contents and substance of the Loan Agreements, the fact that they were made over a period of 4 years in a consistent manner and in a continuous series, were signed, sealed and acknowledged by the Respondent, and repaid in part. The Tribunal pointed out that the manner of payment of the loans were specified in the Loan Agreements, to have been made by Lam to third parties (namely, Lo/Li/Li YL), of which the Respondent was fully aware and had agreed to.

18.  The Tribunal pointed out, in particular, its rejection of the Respondent’s claim that he had signed the Loan Agreements under a state of intoxication.

19.  It is clear from the Awards, that the Tribunal had considered the defences of the Respondent but had rejected same, finding instead that the Loan Agreements were lawful and valid under the PRC Contract Law as having been made by the Respondent as the borrower.

20.  Counsel for the Respondent sought to argue that the Tribunal should have considered, but did not consider, various matters, such as the fact that Lo, Li and Li YL were named in the Loan Agreements as the parties who had received the funds, and not the Respondent, and that repayment of interest and parts of the principal were made directly by Lo to Lam.  At most, this is contending that the Tribunal was wrong in reaching its conclusion that the Loan Agreements were made between the Applicant and the Respondent, or that there was no or insufficient evidence to support the Tribunal’s findings on law and fact. Mistakes or errors of fact or law contained in an arbitral award do not constitute a ground to refuse enforcement of an arbitral award.

21.  This also serves as the reason for rejecting Counsel’s argument, that the Tribunal had failed to consider the Settlement Agreement claimed to have been made between the Applicant and the Respondent, which purportedly provides for the sale of the Respondent’s property to the Applicant to discharge the loans due under the Loan Agreements.  It was contended that the Tribunal was wrong, when it found that the provisional sale and purchase agreement of the property had not been signed by the Applicant’s daughter, as agent for the Applicant.  The Respondent pointed out that the provisional sale and purchase agreement was in fact signed, and had been registered at the Lands Registry in Hong Kong.  It was argued that the Tribunal made a fundamental mistake and that there was serious irregularity, when it failed to deal with this key issue of the provisional sale and purchase agreement and/or Settlement Agreement.  If the Tribunal was wrong in its findings as to the provisional sale and purchase agreement and its conclusion on the Settlement Agreement, or fell into error in its overall consideration of the existence of genuine loan agreements between the Applicant and the Respondent, this only goes to the merits of the claims made in the Arbitration and the Tribunal’s decision thereon, and the Court has no basis to refuse enforcement of the Awards by reason of the Awards containing errors of fact or law, or findings which are not supported by the evidence. The Court of enforcement does not act as an appellate court in respect of the findings made in the Award.

22.  In any event, as Counsel for the Applicant pointed out, the Tribunal’s findings on the Loan Agreements, the Settlement Agreement and the provisional sale and purchase agreement were not simply on the basis that the latter was not signed.  On page 81 of the Award, the Tribunal explained that on the evidence, the parties had still not reached any agreement by 25 November 2018, to use the Respondent’s property to offset the loans due to the Applicant under the Loan Agreements.  The Tribunal referred to the fact that 4 months after the provisional sale and purchase agreement, allegedly signed on 27 July 2018, the Applicant submitted the “proposal” for settlement on 25 November 2018, and from its contents, the Tribunal concluded that the agreement for settlement had still not been reached.

23.  There is accordingly no basis for the Respondent to claim that the Tribunal had failed to consider the Settlement Agreement.

24.  In Gao Haiyan v Keeneye Holdings Ltd [2012] 1 HKLRD 627, Tang VP referred to the judgment of Colman J in Minmetals Germany GmbH v Ferco Steel Ltd [1999] CLC 647 where he observed (albeit in the context of international commerce):

“… A party who contracts into an agreement to arbitrate in a foreign jurisdiction is bound not only by the local arbitration procedure but also by the supervisory jurisdiction of the courts of the seat of the arbitration.

In a case where a remedy for an alleged defect is applied for from the supervisory court, but is refused, leading a final award undisturbed, it will therefore normally be a very strong policy consideration before the English courts that it has been conclusively determined by the courts of the agreed supervisory jurisdiction that the award should stand.”

The above remarks are just as apposite to the agreement in this case to arbitrate on the Mainland, with the acceptance of the supervisory jurisdiction of the Mainland courts.

25.  Here, the supervisory court on the Mainland dismissed the Respondent’s application to set aside the Awards on the basis that the Loan Agreements were a sham and were illegal and unenforceable on the Mainland.  The dismissal of the case and the supervisory court’s finding that the Awards should stand is a matter to which this Court of enforcement should give proper weight, and there is a very strong policy reason for this Court to enforce the Awards which the court of the agreed supervisory jurisdiction has permitted to stand undisturbed.

26.  Even if this Court should examine the Loan Agreements de novo, to be satisfied that they were validly made, I find that the Respondent has not proved that the Loan Agreements were illegal, and should not be enforced under the Money Lenders Ordinance.  There is no clear evidence that the Loan Agreements and the advances made have a closer connection with Hong Kong, than with the Mainland where the advances were paid and repaid, such that the Money Lenders Ordinance should govern the agreements.  The Loan Agreements were made by the Applicant to the Respondent as a close friend of over 40 years (on the Respondent’s own case).  The individuals named in the Loan Agreements were relatives of the Respondent, as opposed to being strangers and business customers of the Applicant.  There is insufficient evidence to show that the Applicant was in the business of moneylending in Hong Kong.  The fact that the Applicant’s total loans advanced under the Loan Agreements were of a substantial sum cannot, by itself or even in conjunction with the other evidence available in this case, prove that she was carrying on a business in Hong Kong.  The interest rates payable under the Loan Agreements were neither extortionate nor excessive within the meaning of the Money Lenders Ordinance. There is no evidence that the Court should not enforce the loans under section 23 of the Money Lenders Ordinance, even if the said Ordinance should apply.

27.  As for the fact that the Loan Agreements provide for the advances to be transferred by the Applicant’s son, to Lo, Li or Li YL as the Respondent directed and specified in the Loan Agreements he signed, that alone cannot mean that the Respondent was not a party to the Loan Agreements.  The loan does not have to be personally paid by the Applicant into the bank accounts of the Respondent. The fact that the Respondent signed the Loan Agreements, under intoxication, is not a valid defence without more.  As Counsel for the Applicant argued, under Hong Kong law, the Loan Agreements would have been enforced by the Court (Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334).

Whether there were reasons for the Awards

28.  The final complaint of the Respondent is that the Tribunal failed to give adequate reasons for its decisions on the Settlement Agreement, and as to the validity and legality of the Loan Agreements, and that such failure constitutes a serious irregularity in failing to deal with questions submitted to the Tribunal for determination, such that it would be contrary to public policy to enforce the Awards.

29.  The Courts have consistently held that reasons for an arbitral award do not have to be elaborate or lengthy.  Awards have to be read and understood in proper context, in particular against the context as to how the relevant issues had been argued before the Tribunal.  This is so because arbitration is a private and confidential dispute resolution process, and an award made in an arbitration is intended to be read by the parties only, who would be familiar with the background and how the issues had been argued, and would not be made public to be read and understood by third parties and strangers to the dispute.  Arbitral awards are intended and expected to be “cost effective, and shorn of complexities and technicalities” (R v F [2012] 5 HKLRD 278). So long as the reasoning is expressed to enable parties to understand how and why a conclusion is reached on a particular issue, and the award explains the basis on which a material finding is made, that would be sufficient.

30.  Reading the Awards in this case, the Tribunal sufficiently explained the basis of its decisions, that PRC law and not Hong Kong law had the closest connection with the loans.  There is no necessity to explain further why the Loan Agreements are not illegal under the Money Lenders Ordinance, or under Hong Kong law.  As explained in paragraphs 16 and 21 above, the Tribunal has adequately and clearly stated the basis on which its findings on the existence of concluded and genuine Loan Agreements were made.

31.  Whilst the Respondent complains in this case of the Tribunal’s alleged failure to deal with significant issues raised in the Arbitration, it is important to draw a distinction between any failure to deal with a claim made in defence, and failure to deal with arguments and evidence raised.  It is also important to bear in mind that the English cases which concern a tribunal’s failure to deal with all issues put to it arose as a ground for challenging an arbitral award for serious irregularity, under section 68 of the English Arbitration Act 1996, which is not a ground to set aside, challenge or refuse enforcement of an arbitral award under the Ordinance, unless the arbitration is governed by section 4 of Schedule 2 to the Ordinance - which is not the case here.

32.  In the context of serious irregularity and failure to deal with issues, the English court made it clear in Secretary of State for the Home Department v Raytheon Systems Ltd [2014] EWHC 4375 (TCC):

“If the tribunal has dealt with the issue in any way, Section 68 (2) (d) is inapplicable and that is the end of the inquiry… It does not matter for the purposes of Section 68 (2) (d) that the tribunal has dealt with it well, badly or indifferently.

A failure to provide any or any sufficient reasons for the decision is not the same as failing to deal with an issue (Fidelity Management v Myriad International [2005] 2 Lloyd’s Rep 508, paragraph 10, World Trade Corporation, paragraph 19). A failure by a tribunal to set out each step by which they reach its conclusion or deal with each point made by a party is not a failure to deal with an issue that was put to it (Hussman v Al Ameen [2000] 2 Lloyd’s Rep 83).

…

A tribunal does not fail to deal with issues if it does not answer every question that qualifies as an “issue”. It can “deal with” an issue where that issue does not arise in view of its decisions on the facts or its legal conclusions.” (Emphases added)

33.  The courts have also emphasized that a failure to deal with an issue (under section 4 (2) of Schedule 2 to the Ordinance) is not equivalent to failure to deal with an argument that had been advanced at the hearing and therefore to have omitted the reasons for rejecting it.  In Weldon Plant Ltd v The Commission for the New Towns [2000] BLR 496, the court explained that section 68 (2) (d) of the English Arbitration Act is not to be used “as a means of launching a detailed inquiry into the manner in which the tribunal considered the various issues”.  Rather:

“It is concerned with a failure, that is to say where the arbitral tribunal has not dealt at all with the case of a party so that a substantial injustice has resulted, eg where a claim has been overlooked, or where the decision cannot be justified as a particular key issue has not been decided which is crucial to the result.”

34.  On such approach, I am not at all satisfied that the alleged failure on the part of the Tribunal to deal with the Respondent’s evidence of the provisional sale and purchase agreement, as a matter supporting the alleged defence, constitutes a failure to deal with an issue causing substantial injustice to result.  Any alleged failure by the Tribunal to consider and deal with the allegation of illegality under Hong Kong law similarly does not constitute failure to deal with or explain a key issue which is crucial to the result.

Alleged lack of good faith

35.  I cannot see how the argument of the Applicant’s alleged lack of good faith affects the question of whether the Enforcement Orders should be set aside and enforcement of the Awards refused.  The Respondent argued that the Applicant was not acting in good faith in the Arbitration when it did not agree on the authenticity and legality of the provisional sale and purchase agreement.  The question of good faith may arguably come into consideration if one of the grounds set out in section 95 of the Ordinance was proved, and the exercise of the Court’s discretion is called for, to enforce the Awards notwithstanding that a ground is proved. In the present case, none of the grounds for refusing enforcement can be established. There is simply no basis to refuse enforcement. The claim of the Applicant’s lack of good faith need not be considered.

Conclusion

36.  For all the above reasons, there is no basis for the Court to refuse enforcement of the Awards, on the basis that it would be contrary to public policy of Hong Kong to do so.  The Respondent was ordered to pay the costs of the application to set aside the Awards, on indemnity basis.