XCHRX WUHAN ZHONG SHUO HONG REAL ESTATE CO. LTD. v. THE KWONG SANG HONG INTERNATIONAL LTD.

HCA 14325/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14325 OF 1998

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REASONS FOR DECISION

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1. In 1995, the Plaintiff commenced proceedings in the Higher People's Court of Hubei Province and obtained judgment against Defendant one year later in 1996. Both parties then appealed against the judgment of the Higher People's Court of Hubei Province to the Supreme People's Court.

2. On 28 May 1998, the Supreme People's Court dismissed the appeal by the Defendant. The Supreme People's Court also reduced the amount of the judgment sums granted by the Higher People's Court of Hubei Province in favour of the Plaintiff.

3. The Defendant satisfied, be it not voluntarily part of judgment sums awarded by the Supreme People's Court leaving a balance of about HK$2.9 million and RMB8.3 million.

4. In the present proceedings, the Plaintiff seeks to enforce the outstanding balance of the judgment in Hong Kong.

5. In its defence, the Defendant raises a number of matters. It is suggested firstly that the judgment of the Supreme People's Court is not final and conclusive in that the Supreme People's Procuratorate exercises a supervisory function over civil adjudication and if the Supreme People's Procuratorate lodges a protest against the judgment of a court, such judgment can be altered by the court.

6. In any event, the Defendant said that he had applied to the Supreme People's Court to alter its earlier decision.

7. The Defendant also alleges that the judgment granted by the Supreme People's Court was obtained by fraud and the granting of such judgment was against natural justice and/or contrary to public policy.

8. For the purpose of the present proceedings, it is not necessary to deal with the allegations of fraud and/or natural justice and/or public policy.

9. However, it is the Defendant's contention that the Defendant had in August of 1998 applied to the Supreme People's Court for a retrial and in January 1999 applied to the Supreme People's Procuratorate to protest against the judgment of Supreme People's Court and that the Supreme People's Procuratorate had decided to review the judgment of the Supreme People's Court on the basis that there was no sufficient evidence to establish the material facts and/or the wrong law had applied and/or that the lawful procedure had not been followed.

10. The Defendant's contention was initially based on a letter dated of 25 November 1999 addressed to the Defendant from the Supreme People's Procuratorate.

11. In the circumstances, the Defendant applies for stay of proceedings on the basis that there is a possibility of a retrial and/or that the earlier judgment of the Supreme People's Court may be nullified.

12. The Defendant relies on the case of Chiyu Banking Corporation Ltd v. Chan Tin Kwan [1996] 2 HKLR 395.

13. Cheung J in the Chiyu Banking Corporation Ltd case granted the application of the Defendant to stay the proceedings pending the decision of the Supreme People's Procuratorate to protest against the judgment granted by the court.

14. Cheung J took the view that under the Civil Procedure Law in China, if the Supreme People's Procuratorate lodges a protest, the court can alter its decision on a retrial. As the court retains the potential to modify its own decision, the judgment is not final and conclusive. He was the view that it would be inappropriate to allow an action based on a foreign judgment to continue when the judgment itself was not final and conclusive.

15. In order for a foreign judgment to be enforced in Hong Kong, one of the essential ingredients is that the judgment in question is final and conclusive.

16. There are authorities to the effect that a judgment is not final and conclusive if the court which pronounces it has the power to rescind or vary it subsequently.

17. There are also authorities to the effect that a judgment does not cease to be final merely because it may be the subject of an appeal to a higher court or because an appeal is actually pending, unless a stay of execution has been granted in the foreign country pending the hearing of the appeal.

18. On the issue of whether the judgment in question is final and conclusive, the parties' experts slightly differ in their opinions. The exact nature and effect of the protest by the Supreme People's Procuratorate on the judgment has not been scrutinized at a trial in Hong Kong.

19. As I have observed in the course of counsel's submission, it is not appropriate for me at this stage to resolve this dispute or even to express any strong view on it. Such matter can only be resolved at the trial when the experts are properly questioned so as to enable the court to make a finding of fact on the issue.

20. But suffice it for me to say that if it is established that the judgment in question is not final and conclusive, the proper order to make is to dismiss the action and not just to stay the action. If it is the Defendant's contention that the judgment in question is not final and conclusive, perhaps it should have applied to have this issue dealt with in order to dismiss the Plaintiff's claim and not to stay the proceeding.

21. I accept that in certain circumstances when the issue of whether the judgment is final and conclusive is yet to be decided, it may be appropriate to stay the proceedings pending such decision in order to avoid the multiplicity of actions and to save costs. The court has a discretion under its inherit jurisdiction.

22. But the discretion of the court must be exercised judicially. The court must take into consideration the entire background of the case. The court must also balance the interests of the parties, in particular, the impact on each party of the decision to stay or not to stay the proceedings.

23. It has been 5 years since the Plaintiff commenced the proceedings against Defendant in the Higher People's Court of Hubei Province. More than two years has elapsed since the Supreme People's Court dismissed the Defendant's appeal in May 1998. Part of the judgment, had been satisfied, though I have been told, that it was satisfied only with the sums paid into court by the Defendant. To that extent, such satisfaction of the judgment cannot be said to be voluntary.

24. The Defendant only applied to the Supreme People's Procuratorate to protest against the judgment of the Supreme People's Court in January 1999. There is no conclusive indication as to when the Supreme People's Procuratorate will commence the process of the review and when such process will be concluded, although the latest information suggests that the Supreme People's Procuratorate is still reviewing the case due to its complexity.

25. There is also indications from the Supreme People's Court that it is in the course of reviewing and handling the Defendant's application for a retrial.

26. Mr Tang also draws the court's attention to the fact that the Defendant has not applied for a stay of execution on the judgment in the Supreme People's Court even though the civil procedure code in China permits such a course to be taken.

27. The Plaintiff, of course, is entitled to a swift determination on the issue of whether the judgment can be enforced in the Court of Hong Kong.

28. If a decision on the issue is to be made against the Plaintiff, it can of course commence a fresh action on the substantive claim rather than the enforcement of a foreign judgment.

29. On the present pleadings, even if the issues relating to the conclusiveness and finality or otherwise of the judgment in question were to be decided in favour of the Plaintiff, the court still have to resolve the further issues of whether the judgment was obtained by fraud and whether the granting of the judgment was against natural justice and/or contrary to public policy.

30. On the other hand, if the Defendant can establish at the trial that the judgment in question is not final and conclusive as Miss Ng has so confidently submitted to this court, then the Plaintiff's action will be dismissed, and to that extent, there will be no prejudice to the Defendant to allow the case to proceed to trial.

31. Bearing in mind the status of court's diary, even if the case were to proceed with some degree of urgency, it is unlikely that it will come up for trial in less than six months' time.

32. All these factors are against the application for a stay.

33. But there can be no doubt that if the Supreme People's Court was to alter its earlier decision, there would be no basis upon which the Plaintiff could successfully enforced the judgment. If the case is not stayed, the Defendant will have to make substantial effort and incur significant costs in the preparation of the case for trial as the issues involved, I am convinced, are extremely difficult and complicated.

34. If the Supreme People's Court were to make a decision in favour of the Defendant after the Court in Hong Kong had made a decision against it, it would create huge prejudice and injustice to the Defendant.

35. I appreciate that there is no time limit within which the Supreme People's Court can order a retrial and the Supreme People's Procuratorate can make a protest. If a successful party has to wait until all avenue to challenge a judgment of the court is exhausted, the wait can be infinite, a point made by the Professor Nauping Lin in his Article "A Vulnerable Justice: Finality of Civil Judgments in China."

36. But the information available to this court at this stage suggests that the Supreme People's Court and the Supreme People's Procuratorate have taken steps pursuant to the Defendant's request for a retrial and for an action based on the protest. One of the experts anticipates and suggests that the decision by them will be known within about 6 months.

37. On the other hand, if an order for stay is granted, the only prejudice to the Defendant is a further delay which is the only complaint made by Mr Tang.

38. I appreciate that delay of justice is denial of justice.

39. Mr Tang had complained that there had been substantial delay on the part of the Defendant. I am not persuaded that is so. After all, it has just been two years from the time when the Supreme People's Court granted its judgment and the evidence suggests that within three months, the Defendant had applied to the Supreme People's Court for a retrial and within about 7 months, an application had been made to the Supreme People's Procuratorate for a protest.

40. Having balanced the interests of the parties based on the available information, I am persuaded that a stay of proceedings for a period of 6 months would be right. But the case must be allowed to proceed to trial after the six months' period expires.

41. On the very narrow issue that I have to resolve, the appropriate order to make is that the action will be stayed for a period of six months and after the period is expired, the matter will be listed for a checklist hearing before the listing judge with a view to set the case down for trial.