CHINA NPL HOLDINGS PTE LTD v. Mo Haidan AND OTHERS

HCA 513/2019

[2020] HKCFI 980

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 513 OF 2019

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JUDGMENT

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Introduction

1.  This action arises in respect of PRC judgment debts obtained against the 1^st and the 2^nd defendants (“D1” and “D2”) as guarantors in respect of loans entered into in the PRC by a PRC company with Industrial and Commercial Bank of China Ltd (“ICBC”), which judgment debts were subsequently assigned first to China Huarong and subsequently to the plaintiff (“P”), pursuant to further judgments duly published in the PRC.

2.  The writ endorsed with a statement of claim was issued on 26 March 2019 and on the following day P obtained an ex parte on notice Mareva injunction against D1 and a Chabra injunction against the 3^rd defendant (“D3”), D1’s nominee company and the holder of a property at Flat A, 38/F, Tower 6A, Imperial Cullinan, No 10 Hoi Fai Road, Kowloon, Hong Kong, which had recently been sold for approximately HK$56.5 million.

3.  At the return date on 12 April 2019, D1 and D3, having confirmed that the sale of the property was to be effected by transfer of D1’s entire shareholding in D3, the Chabra injunction against D3 was discharged, by consent, and the Mareva injunction against D1 was continued pending the substantive hearing of D1’s discharge application, subject to terms permitting D1 to withdraw a lump sum of HK$1.3 million for her legal costs including in proceedings to take place in the PRC, and to withdraw HK$125,000 per month for ordinary expenses, which sum was increased to HK$170,000 from 1 June 2019.

4.  From P’s perspective, the judgment debt remains outstanding and D1 and D2 remain liable to pay costs and interest under the PRC judgment debts.

5.  P seeks to enforce the judgment at common law; alternatively based on the legal doctrine of obligation.

6.  This matter was heard on 21 November 2019 (“the hearing”) but before judgment was handed down the court was notified in December 2019 of relevant developments in the PRC which D1 wanted to bring to the attention of the court.  As a result new evidence was filed by D1 on 27 March 2020 pursuant to Au Yeung J’s Directions dated 15 January and 5 March 2020, comprising four Retrial Orders dated 24 December 2019 (“the Retrial Orders”) pronounced by the Guangzhou People’s Court.  These, D1 submits, make a fundamental difference to the situation as pertaining at the hearing.

The facts

7.  There is no dispute as to the basic facts.

8.  D1 and D2 are the joint and several guarantors in respect of certain loan contracts (the “Loan Contracts”) entered into in the PRC between a PRC company (Guangzhou Zaihua Trading Development Co Ltd) (“Guangzhou Zaihua”) as borrower, and ICBC as lender, in 2014.

9.  The guarantee between D1 and D2 and ICBC (the “Guarantee”) was dated 1 April 2014 and the fingerprints of D1 and D2 were affixed to the signature page together with their apparent signatures.  D1 and D2’s joint and several liabilities under the Guarantee is capped at RMB 65,000,000 and the Guarantee covers any loans entered into between Guangzhou Zaihua and ICBC for a five-year period from 1 April 2014 to 1 April 2019.

10.  ICBC obtained the PRC judgments against Guangzhou Zaihua, D1 and D2 in the People’s Court of Huangpu District, Guangzhou under the Loan Contracts and the Guarantee in the aggregate sum of RMB 80,922,042.24.

11.  The judgment debt has been assigned by written judgments of the same court dated 15 July 2016 and 9 July 2018, respectively, from ICBC to China Huarong and from China Huarong to P.

D1’s application to discharge

12.  D1’s submissions at the hearing was that she is the wife of D2, is not related to the borrower, and does not even know the borrower.  She is a Hong Kong resident and it is her case that she never signed or saw the Guarantee and her signature on the Guarantee was forged and fabricated.  In support D1 submitted that she was not in the PRC on the day the Guarantee was allegedly signed, the trial took place in her absence and without her knowledge and she was unaware of the PRC judgments and the fact of the assignment to P of the judgment sum.

13.  It was submitted that the fact that D1 made no attempt to sell her property in 2015, when the PRC judgments were handed down, nor in 2018, at the time of the assignment to P adds weight to her submission that the sale when it eventually occurred, on 5 March 2019, was not made with a view to evading liability under the alleged Guarantee.  Indeed, it was D1’s submission that when she first learned of PRC judgments as the result of these proceedings, she immediately lodged an application for re-trial in the PRC on 3 September 2019.

14.  By virtue of the new evidence filed on her behalf, D1 submits that the Retrial Orders had the effect of terminating or suspending the original judgments pending the retrial proceedings.  It is submitted that in the Retrial Orders it was held by the Intermediate People’s Court that D1’s case fulfilled the requirements under article 200 (1) and (2) of the Civil Procedure Law of the PRC namely that (1) there is new evidence which is sufficient to overturn the original judgments; and (2) the evidence on which the original judgments based was insufficient.  The new evidence adduced including immigration records purported to show that D1 was not in mainland China on the date on which the Guarantee was purportedly signed and moreover that the signature on the Guarantee was purportedly forged as supported by forensics expert evidence.

The law

15.  There is no dispute in regard to the circumstances justifying the grant of Mareva relief.  The circumstances are well established.  P must demonstrate:

(1)  that it has a good, arguable case on a substantive claim over which the court has jurisdiction;

(2)  that there are assets within the jurisdiction;

(3)  that the balance of convenience is in favour of grant; and

(4)  that there is a real risk of dissipation of assets or removal of assets from the jurisdiction which would render P’s judgment of no effect.

Good, arguable case

16.  P seeks to enforce the judgment debt at common law because it is common ground that the PRC judgments are not amenable to being enforced under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap 597) and so I do need to consider this.

17.  P seeks judgment against D1 in the sum of RMB 75,347,434.93 (or its HKD equivalent), being the amount due under the Guarantee, plus costs and interests under the PRC proceedings and an injunction restraining D1 from dealing with or diminishing the value of her assets up to that value, including but not limited to the proceeds of the sale of the property.  P relies on the decision of Lisa Wong J in Jiang Xi An Fa Da Wine Co Ltd v Zhan King [2019] HKCFI 2411, HCMP 1574/2017, 27 September 2019, where she sets out the relevant test for enforcement of foreign judgment in Hong Kong under the common law, at p 20 §52, as follows:

“ It is further acknowledged that the traditional criteria for the enforcement of a foreign judgment by action under the common law are that the judgment is:

(1) for a debt or definite sum of money;

(2) made by a court of competent jurisdiction over the parties and the subject-matter;

(3) between the same parties or their privies on an identical issue;

(4) final and conclusive on the merits;

(5)   not impeachable according to the rules on conflict of laws of Hong Kong.”

18.  D1 however submitted at the hearing that the PRC judgments are not final and conclusive because she did not have a proper chance to present her case on the merits since she was oblivious to the proceedings; it is submitted that she does not live at the address given for her in the judgments and that she has never been to China since 13 August 2014.

19.  D1 relied for this purpose on a PRC expert Mr Hu Xiangqi who, in his first affidavit has opined that:

(1)  D1 is entitled to appeal the PRC judgments to the Superior Court under Section 199 of PRC Civil Law;

(2)  A re-trial would be granted if it is found that (1) there is new evidence, (2) the substantive evidence leading to the judgment was fabricated; or (3) the substantial evidence leading to the judgment has not been tested; and

(3)  If the application for re-trial is refused, D1 still has recourse to the People’s Procuratorate under Article 209 of the Civil Procedure Law.

20.  D1 submitted that there is evidence that (1) the Guarantee may be fabricated since D1 was not in China on 1 April 2014 (as shown by her travel records which were not before the court in China) and so could not have signed the document on that date; (2) there is forensic testimony from an expert suggesting the signature on the Guarantee is a forgery; (3) the Guarantee was not notarized which, it is submitted, is contrary to usual practice; and (4) the loan agreement all post-date the Guarantee and do not refer specifically to it.  In addition, the trial took place in the absence of D1.

21.  Further D1 submits that the fact that P has acknowledged that the appropriate forum for resolving the issues now raised by D1 is the PRC courts is an acknowledgment on its part that the judgments are not final and conclusive. 

22.  As a result of the new evidence now filed it is submitted that by reason of the Retrial Orders it is abundantly clear that the original four judgments made by the Basic People’s Court of Huangpu District are not final and conclusive.  Further, it is submitted there is no dispute that according to the Retrial Orders the enforcement/execution of the original judgments has at least been suspended or delayed.  In such circumstances D1 submits that it would not be possible for P to sue on the original judgments in this action in Hong Kong as they lack the elements of finality and conclusiveness.  Thus, it is D1’s case that the injunction must be set aside/discharged on the basis that P has failed to meet the threshold of establishing a good, arguable case that the judgments are enforceable in Hong Kong.

23.  D1 has submitted further expert evidence in the form of a second legal opinion from Mr Hu Xiangqi which sets out how the retrial will be conducted.  His evidence is that the Intermediate People’s Court will form a collegial panel to conduct the retrial which will be a full and complete review and reconsideration of the case.  At the retrial the parties will be provided with the opportunity to adduce evidence, question the witnesses and experts and D1 will have an opportunity to set out her evidence justifying the retrial so that new factual findings may be made.  It is his evidence that whilst the retrial court has full power to affirm, repeal, amend or correct the original judgments as well as to make new judgments to replace or override the original judgments even if it affirms any decision or conclusion of the original judgments it is the new judgment or ruling after the retrial which gives effect and authority to the validity of such decision or conclusion.  In addition, it is his evidence that any party aggrieved by the new judgment or holding may even at that stage apply to the People’s Procuratorate for a review of the decision.

24.  D1 submits that P has failed to establish that the original judgments are final and conclusive since the mere existence of a trial supervision system in the PRC itself renders any PRC judgment not final and conclusive, although in this case it is said there is no need to fall back on this argument since retrial orders have already been pronounced.  Furthermore, it is submitted that P has not produced any sufficient evidence to refute D1’s expert opinion that the Retrial Orders have at the very least had the effect of suspending or staying the original judgments and at common law that is itself sufficient to deprive a foreign judgment of its finality or conclusiveness.

25.  At the hearing there were detailed submissions about the finality of PRC judgments and specifically whether the domestic “trial supervision” system in the PRC makes domestic judgments not final and conclusive and I summarize these here since it remains the P’s case that nothing has changed as a result of the Retrial Orders.

26.  P’s submission is that whether the domestic “trial supervision” system in the PRC makes domestic judgments not final and conclusive is a matter of public importance, and involves complex legal issues that cannot be determined in interlocutory proceedings on paper, and must only be determined at trial with oral evidence from PRC law experts (Lee Yau Wing v Lee Shui Kwan [2007] 2 HKLRD 749 at 750).

27.  This was confirmed, more recently it is submitted in the Court of Appeal, by Tang VP (as he then was) in Wu Wei v Liu Yi Ping(unreported) CACV 32/2009, 27 March 2009, at §7, where he concluded that whether the PRC judgment before him should be recognised as final or conclusive “must be decided after trial”.

28.  In Bank of China Ltd v Yang Fan [2016] 3 HKLRD 7 at 24 – 31, Anthony To J analysed the relevant case law and after concluding that there is no doubt that judgments of our court under our system are final and conclusive, he went on to say that it can equally be argued that PRC judgments under a system containing a protest regime are final and conclusive.  He went on to conclude:

“ In any event, the Court of Appeal has never held that PRC judgments are not final and conclusive by reason only of the protest regime. It has expressly left that issue open. For the purpose of the present application, I am not required to answer that question. The issue in these proceedings is whether the plaintiff seeking relief in aid of a foreign judgment has proved an arguable case or a serious issue to be tried that it will likely obtain a judgment in the foreign court and that such judgment will likely be final and conclusive for the purpose of the Ordinance. In view of the above analysis of the Code, I would be slow to hold that PRC judgments are rendered not final and conclusive by reason of the protest regime. I consider I am bound by the Court of Appeal decisions that in view of its complicated nature and public importance, that question could not be determined in interlocutory proceedings without hearing evidence from expert witnesses. However, I am well satisfied for the purpose of the present interlocutory application that the plaintiff has discharged its burden of showing an arguable case that such judgment, if obtained, is final and conclusive for the purpose of the Ordinance.” (§54)

29.  P submits that the most recent exposition of the law in this regard is set out in Lisa Wong J’s judgment in Jiang Xi An Fa Da Wine Co Ltd at p 33:

“ 85. As to the finality and conclusiveness of the Prospective PRC Judgment, as said in [50] above, the ‘trial supervision’ system has been deployed in the Hong Kong courts on a number of occasions to resist enforcement of PRC judgments.

86. The picture as to whether such procedure would per se render a PRC judgment not final and/or inconclusive has become less definite and more unclear after Chiyu Banking Corporation Limited v Chan Tin Kwun, supra.

87. In Lee Yau Wing v Lee Shui Kwan [2007]2 HKLRD 749,the majority of the Court of Appeal, in setting aside a summary judgment enforcing a PRC judgment, observed that the issue with which we are presently concerned is one of public importance and involved complicated legal questions that could not be determined in the absence of trial. See Cheung JA at [15] – [29] and Yuen JA at [34] – [38].

88. In Wu Wei v Liu Yi Ping, CACV 32/2009, unreported,27 March 2007, Tang VP (as he then was) agreed at [7] that the question as to whether the PRC judgment in the case before him should be recognised as ‘final and conclusive’ ‘必須在正審之後才可以作出裁決’.

89. In short, there is no definite authority that the existence of the ‘trial supervision’ procedure would deprive a PRC judgment of its otherwise final and conclusive character.  Rather, the matter has to be proved at trial at which evidence of material PRC law would have to be adduced by the parties and assessed by the court in the actual enforcement proceedings.”

30.  These authorities all relate to a situation where there is the potential for an appeal and not to a situation where a retrial has already been ordered, but in his supplemental submission Mr Hughes for P submits that nothing has changed and that as a matter of Hong Kong law the original judgments remain final and conclusive.

31.  He submits first that it is for this court and not the PRC court to determine whether the original judgments are final and conclusive.

32.  Secondly, he submits that a foreign judgment remains final and conclusive, even if it is liable to be set aside either by the court rendering it or by an appellate court, unless and until it is set aside.  He relies for this purpose on the decision of Deputy High Court Judge To in Fabiano Hotels Ltd v Profitmax Holdings Inc [2017] 6 HKC 414.

33.  Thirdly, he submits that the current position in Hong Kong is that, at least at the interlocutory stage and in the context in particular of applications for injunctive relief, default judgment in the PRC are final and conclusive even if they may be subject to retrial.  He continues to rely here on what is said in Bank of China Ltd v Yang Fan and Jiang Xi An Fa Da Wine Co Ltd v Zhan King.

34.  Finally, he submits that where an appeal or retrial is pending in respect of a final and conclusive foreign judgment the correct approach is for the court to order a stay of proceedings for recognition or enforcement of the foreign judgment pending determination of the appeal.

35.  On this basis it is Mr Hughes’s submission that the original judgments have not been set aside and rather The People’s Intermediate Court has ordered a temporary suspension of the execution of the original judgments pending the retrial but that nonetheless the original judgments continue to have effect in the meanwhile.  He relies in this respect on a further legal expert opinion of Mr Tu Chaofeng which opines as follows:-

“ ...the Court has ordered a suspension of the execution of the original judgments – it does not negate the legal force of the original judgments. It only means that the Plaintiff is not allowed to enforce the original judgments pending retrial, and the original judgments continue to have effect. The original judgments will only be of no effect if the Court decides to overturn the original judgments after trial.”

36.   Mr Khaw SC for D1 submits that this ignores the legal effect of the Retrial Orders made by the Intermediate People’s Court.  He points to the fact that it is necessary, when the court examines the questions of finality and conclusiveness, to address the question of foreign law by applying Hong Kong Rules of Conflict of Laws and that it is clear under these principles that the judgment must be final and conclusive according to the law of the court granting the foreign judgment.  See Korea Data Systems Co Ltd v Chiang Jay Tien and another [2001] 3 HKC 239 per DHCJ Poon (as he then was).

37.  Mr Khaw SC further submits that P has taken Fabiano completely out of context.  He submits that in that case the plaintiff commenced proceedings in Hong Kong to enforce an English default judgment against the defendants.  What the court decided was whether a default judgment made by the English court could by its very nature be final and conclusive before it was set aside.  The court finally concluded (at p429 §40) that “on the fact, there is nothing to suggest that the English judgment (relied on by the plaintiff) was not final and conclusive or in any way irregular”.

38.  Mr Khaw SC submits that the court in Fabiano does not lay down any general principle or proposition as contended by Mr Hughes.  He points to the fact in particular that unlike in the present case there was nothing in Fabiano to suggest that the defendants took any steps to challenge the default judgment in England.  However in the present case as a result of the Retrial Orders the PRC actions are now within the jurisdiction of the Intermediate People’s Court which will conduct a full and complete re-trial in order to consider new evidence and arguments.

39.  He goes further however and says that whilst Fabiano is plainly distinguishable on the facts, it’s judgment clearly acknowledges that a foreign judgment “may be final and conclusive for the purpose of its enforcement in the local jurisdiction, provided it is ‘res judicata’ in the foreign legal system” (p423 §25).  In other words, he submits the test of finality is the treatment of the judgment by the tribunal pronouncing it as ‘res judicata’ between the parties and putting it beyond its power to abrogate or alter its decision (p420 §19).

40.  Fabiano goes on to provide that if the foreign judicial system provides for a procedure to enable the parties to re-argue their case before the same court pronouncing the judgment, which would enable the same court to set aside the judgment or alter it, such judgment is not final.

41.  As a result it is D1’s submission that even on the principles set out in Fabiano the original judgments could not possibly be final and conclusive.  Mr Khaw SC refers the court to the English Court of Appeal decision in Bobolas & Anor v Economist Newspaper Ltd [1987] 1 WLR 1101 where it was held that where a retrial has been ordered any rulings made or issues decided in the course of the original trial are not ‘res judicata’ and are not binding at the retrial (see p1105 A-E per Lloyd LJ and p1109 F per Balcombe LJ).

42.  It seems to me there is a clear distinction between a judgment of a foreign court where there is an appeal pending which I accept might be regarded as final and conclusive, notwithstanding the ongoing appellate process in the overseas jurisdiction and the position, as here, where a retrial has been ordered in the overseas jurisdiction such that the original judgment has been set aside, the findings are not binding on the court hearing the retrial and there is therefore no question of the matters being ‘res judicata’.

43.  I cannot see how it can be said that a judgment in the second situation is final and conclusive; I accept the evidence of Mr Hu that there is no ‘res judicata’ arising from the original proceedings in the PRC and in the circumstances it would be contrary to common sense as well as to the established principles of Hong Kong Conflict of Laws to regard it as such for enforcement purposes in Hong Kong.

44.  Accordingly, I am unable to conclude that P has discharged its obligation to demonstrate a good, arguable claim based on a final and conclusive judgment of the PRC court.

45.  Mr Hughes has submitted that where an appeal or retrial is pending in the local jurisdiction the correct approach for this court is to order a stay of the proceedings pending determination of the appeal or retrial and he cites in support a passage from Dicey, Morris & Collins on the Conflict of Laws (15^th Ed 2012 at p15).

46.  Mr Khaw SC’s response to this is that Dicey does not support this proposition at all since it makes clear that a foreign judgment may be final and conclusive even though an appeal is pending in the foreign country but the question of finality and conclusiveness in each case depends on the position of the relevant foreign law.

47.  In the circumstances of my decision that the PRC judgments underpinning P’s claim is not final and conclusive given the powers of the court in the PRC to decide matters afresh at retrial it would in my view be unjust to subject D1 to a stay or a continuing injunction in the current form.

48.  There was extensive submission at the hearing in relation to the question of dissipation of assets but I do not need to deal with these since the balance of convenience does not warrant this court restraining D1 in circumstances where no good, arguable case on a substantive claim over which the court has jurisdiction has been established.

49.  Accordingly, I make a costs order nisi in favour of D1 with a certificate for two counsel.