深圳市深超科技投資有限公司 v. 世紀晶源科技有限公司 AND ANOTHER

CACV 263/2020

[2023] HKCA 888

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 263 OF 2020

(ON APPEAL FROM HCCT NO 38 OF 2019)

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J U D G M E N T

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Hon Yuen JA (giving the Judgment of the Court):

1.  This is an application by the Respondents in HCCT 38/2019 by a summons filed on 23 September 2022 (“the Summons”)  to strike out Grounds 1 to 4 (“the Impugned Grounds”)  of the Amended Supplementary Notice of Appeal filed by the Applicant on 6 July 2021 (“ASNOA”)  on the ground that they disclose no reasonable ground of appeal, are frivolous or vexatious, or otherwise constitute an abuse of process of the court.

2.  The Applicant oppose the striking out application.

3.  The parties have filed affirmations and lodged written submissions regarding this application. Having considered them, the court does not think it is necessary to hold an oral hearing and we will deal with the application on paper. 

Background

4.  The background of this case was summarized by Anthony Chan J (“the Judge”)  in his decisions given on 7 May 2020 (“the Set Aside Decision”)  and 23 June 2020 (“the Refusal of Leave Decision”)  as follows.

5.  Under a Cooperation Agreement made in June 2008 (“the Agreement”), the Applicant agreed to lend RMB 530 million (“the Loan”)  to the 1^st Respondent (“R1”).  Pursuant to the terms of the Agreement, the 2^nd Respondent (“R2”)  provided a personal guarantee for repayment of the Loan. 

6.  Clause 11 of the Agreement contained an agreement for arbitration by中國國際經濟貿易仲裁委員會華南分會 (South China Sub-Commission of the China International Economic and Trade Arbitration Commission)  (“CIETAC(SC)”), which changed its name to華南國際經濟貿易仲裁委員會(“SCIA”)  with effect from 22 October 2012.     

7.  The Loan funds were received by R1 on 25 July 2008.  However, after making the 1^st interest payment of about RMB 10.4 million on 31 December 2008, neither Respondent made further repayment.

8.  On 7 March 2013, the Applicant obtained from Shenzhen Baoan District Court a Pre-action Asset Preservation Order against R1 to the value of RMB 39 million, under which 6 pieces of land belonging to R1 were seized.  Of these 6 pieces, 1 piece had already been made the subject of a Seizing Order in 2011 by another creditor. The remaining 5 pieces were referred to in the Decision as “the 5 Plots of Land”.

9.  On 4 April 2013, the Applicant applied to SCIA for arbitration.  On 26 April 2013, the Respondents challenged the jurisdiction of SCIA on the ground that CIETAC(SC), not SCIA, was the agreed tribunal, and CIETAC(SC)  was only a sub-commission of CIETAC and not an independent body[1].

10.  On 16 May 2013, SCIA ruled that it did have jurisdiction in the matter (“SCIA’s Jurisdiction Decision”).  Subsequently, on 15 July 2015, the Supreme People’s Court (“SPC”)  held that SCIA did indeed have jurisdiction in any arbitration based on arbitration agreements entered into before CIETAC (SC)’s change of name.[2]

11.  Meanwhile, after SCIA’s Jurisdiction Decision on 16 May 2013, the arbitration hearing took place on 26 July 2013 (although the Respondents continued to dispute SCIA’s jurisdiction).

12.  By an Award dated 22 August 2013 (“the Award”), SCIA held that (a)  it had jurisdiction in the matter by reference to the SCIA Jurisdiction Decision, Article 20 of the PRC Arbitration Law, and Article 11 of the Arbitration Rules of SCIA; and (b)  the Respondents were liable to repay the Applicant the principal sum of RMB530 million with interest and other relief.[3]

13.  The Respondents did not apply to set aside the Award, but failed to make any payment under it.

14.  On 13 March 2015 (19 months after the Award), the Applicant instituted an action in the Mainland to enforce the Award.[4] On 16 March 2015, an Enforcement Judgement was granted by the Shenzhen Intermediate People’s Court (“SIPC”)  which ordered (i)  the Respondents to provide the Court with a list of their properties; (ii)  that such properties be frozen or preserved; and (iii)  that such properties be sold or auctioned (“the SIPC Order”). 

15.  The Respondents however failed to comply with the SIPC Order for disclosure of their properties.[5]

16.  By a Notification dated 6 March 2017, the SIPC notified the Applicant that it had seized the 5 Plots of Land.

17.  On 30 October 2018, the SIPC notified the parties of the court-appointed assessor’s valuation of the 5 Plots of Land (“the assessor’s valuation”).  Although R1 objected to the assessor’s valuation, on 16 April 2019, the SIPC informed the parties that the assessor’s valuation was affirmed after review. Subsequent developments on enforcement on the Mainland are set out in paragraph 21 below.

Commencement of HCCT 38/2019

18.  Meanwhile, on 29 July 2019, the Applicant issued an ex parte summons in the Court of First Instance (“CFI”)  in Hong Kong under HCCT 38/2019 for leave under s.92 Arbitration Ordinance (Cap. 609)  (“AO”)  to enforce the Award in the same manner as a judgment of the Court to the same effect, and to enter judgment in terms of the Award.  Section 92 provided (where material):

“(1)  A Mainland award is, subject to this Division, enforceable in Hong Kong either – (b)  in the same manner as an award to which section 84 applies [non-Mainland award], and that section applies to a Mainland award accordingly as if a reference in that section to an award were a Mainland award.

(2)  A Mainland award which is enforceable as mentioned in subsection (1)  is to be treated as binding for all purposes on the parties, and may accordingly be relied on by any of them by way of defence, set off or otherwise in any legal proceedings in Hong Kong”.

19.  On 21 August 2019, Mimmie Chan J made an order granting leave (“the HCCT Order”).

20.  On 30 October 2019, the Respondents filed a summons to set aside the HCCT Order.   There were 3 main grounds for the application:

(1)  the enforcement of the Award infringes s. 93 AO (then in force)  which stipulated:

“(1)  A Mainland award is not, subject to subsection (2), enforceable under this Division if an application has been made on the Mainland for enforcement of the award.

(2)  If a Mainland award is not fully satisfied by way of enforcement proceedings taken in the Mainland, or in any other place than in Hong Kong, that part of the award which is not satisfied in those proceedings is enforceable under this Division”;

(2)  the tribunal (SCIA)  which made the Award was not the one agreed by the parties;

(3)  material non-disclosure by the Applicant at the ex parte application of the enforcement proceedings on the Mainland.

Enforcement on the Mainland at the time of the ex parte summons in Hong Kong

21.  At this time, enforcement on the Mainland was still ongoing.  R1’s appeal against the decision of the SIPC was dismissed by the Guangdong Higher People’s Court on 25 October 2019.  On 20 January 2020, the Respondent’s 5 Plots of Land were auctioned and sold to the Applicant at the assessor’s valuation. By an Enforcement Judgment dated 19 February 2020, the SIPC set off the purchase price against the debt owed to the Applicant by the Respondents, and approved the transfer of the 5 Plots of Land to the Applicant. [6] 

22.  By another Enforcement Judgment dated 21 February 2020, the SIPC held that the Mainland enforcement action had been concluded.

The Judge’s Set Aside Decision

23.  In Hong Kong, the Respondents’ summons filed on 30 October 2019 to set aside the HCCT Order was dealt with by the Judge on paper.  In the Set Aside Decision of 7 May 2020, the Judge set aside the HCCT Order on ground (1)  (set out in paragraph 20 above).

24.  The Judge referred to Shenzhen Kai Loong Investment and Development Co Ltd v CEC Electrical Manufacturing (International)  Co Ltd [2001 – 2003] HKCLRT 649 in which A Cheung J (as he then was)  considered s. 40C of the former AO (Cap. 341), the wording of which was very similar to s.93 AO (Cap.609).  A Cheung J held that both double enforcement and double recovery were prohibited, and that where an award holder had applied for enforcement in the Mainland, he would have to wait until those proceedings were completed or concluded, and the amount recovered ascertained, before he could apply to the Hong Kong Court for enforcement in respect of any deficiency in the recovery.

25.  In the present case, when the Applicant issued the ex parte summons in July 2019 to enforce the Award in Hong Kong, the enforcement of the Award on the Mainland was still ongoing.  The 5 Plots of Land had not yet been sold, and the amount recoverable from them could not be ascertained.[7]

26.  The Judge concluded that on that ground alone, the HCCT Order should be set aside.  The Judge held that he had no jurisdiction to grant the HCCT Order afresh, as s.93 went to the jurisdiction of the Hong Kong court to enforce the Award.[8]

27.  The Respondents’ two other grounds (SCIA’s jurisdiction and material non-disclosure)  were discussed briefly by the Judge, but as they are not material to the present application, it is not necessary for us to deal with them in this Judgment.

The Judge’s Refusal of Leave Decision

28.  On 21 May 2020, the Applicant issued a summons seeking leave to appeal from the Set Aside Decision on the following grounds:

(1)  (a)  the Judge had wrongly construed s.93; (b)  the decision in Shenzhen Kai Loong adopted by the Judge was wrong; and (c) the Judge failed to take into consideration the time limitation of enforcement in Hong Kong.

(2)  The Judge erred in finding that it was not open to him to re-grant the HCCT Order.

29.  On 23 June 2020, the Judge gave the Refusal of Leave Decision refusing leave to appeal the Set Aside Decision.  The Judge did not find any merits in the proposed grounds of appeal for the reasons set out below. 

30.  On ground (1)  (set out in paragraph 28 above), the Judge found that there was no appeal against the findings of fact by the court that at the time of the Applicant’s ex parte application under s.92 AO, the Mainland enforcement proceedings were ongoing, and the amount recoverable could not be ascertained.  Therefore, there was a clear infringement of the prohibition against double enforcement set out in s.93.

31.  Further, the only ground for asserting that A Cheung J’s decision in Shenzhen Kai Loong was wrong was that it would lead to a “loophole” or cause “mischief” due to the 6-year limitation period for enforcement of an arbitral award in Hong Kong. 

32.  The Judge pointed out that there was no basis for suggesting that the legislature was not aware of the 6-year limitation period when s.40C (Cap. 341)/s.93 (Cap. 609)  was enacted.  In any event, the Judge noted that 6 years is a long period, and the evidence before the court was that the Applicant’s Mainland enforcement proceedings were concluded in less than 5 years (2015-2020).  If the Applicant award holder was time barred, it was attributable to its own failure to take any action to enforce the Award for nearly 19 months (between the date of the Award in August 2013 and the commencement of proceedings on the Mainland in March 2015).  And in any event, it had been open to the Applicant to terminate or withdraw its Mainland enforcement proceedings if it was concerned about the limitation period in Hong Kong.   

33.  Lastly, the Judge held that the wording of s. 93 was clear.  The exception provided under s.93(2)  can only apply if the award “is not fully satisfied” (emphasis added). 

34.  As regards to ground (2), the Applicant had not pointed out how the Judge’s holding that he had no jurisdiction to re-grant the HCCT Order was wrong.  

CACV 263/2020

35.  On 13 July 2020, the Applicant filed a Notice of Appeal for an order to set aside the Refusal of Leave Decision.  It would be noted that the Applicant did not apply for leave to appeal from the Court of Appeal.  Presumably this was because the Applicant was aware of the following authorities that only the CFI can give (or refuse)  leave to appeal a decision setting aside leave to enforce an arbitral award. 

36.  In Guangdong Changhong Electric Co Ltd v Inspur Electronics (HK)  Ltd [2015] 2 HKLRD 714 and China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK)  Ltd [2015] 4 HKLRD 609, the Court of Appeal held that it had no jurisdiction to grant leave to appeal a decision setting aside leave for enforcement of an arbitral award.  Instead, the unsuccessful party would have to resort to the residual jurisdiction of the Court of Appeal to set aside the refusal of leave decision (China International Fund and American International Group Inc v Huaxia Life Insurance Co Ltd (2017)  20 HKCFAR 503).

37.  Pausing there, it would be noted that the party challenging such refusal of leave has an “extraordinarily high hurdle to surmount” (Kyla Shipping Co Ltd v Bunge SA [2013] EWCA Civ 734, quoted in Guangdong Changhong, [16]).  In Guangdong Changhong, reference was also made to Mustill LJ’s judgment in Aden Refinery Co Ltd v Ugland Management Co Ltd [1987] QB 650, 666 where his lordship said “I can envisage that if a judge had in truth never reached ‘a decision’ at all on the … refusal of leave, but had reached his conclusion, not by any intellectual process, but through bias, chance, whimsy or personal interest, an appellate … court might find a way to intervene” (emphasis added).  Reference was also made to CGU Insurance Plc v AstraZeneca Insurance Co Ltd (Permission to appeal) [2006] EWCA 1340, where the English Court of Appeal drew a distinction between a challenge to the merits of the decision and the fairness of the procedure.  “What one is looking for is not merely an error of law, but such a substantial defect in the fairness of the process as to invalidate the decision” [79] (emphasis added).  Indeed, in CGU [99], the English Court of Appeal stressed the need for the court to be vigilant in guarding against abuse of the residual jurisdiction, so that it is limited to decisions which are not only wrong but arrived at unfairly, but “in the nature of things it is likely to be an exceptionally rare case where the submission of unfairness is justifiably advanced”.

38.  In China International Fund, this court held:

“45. …As explained above, the residual jurisdiction is different in character and purpose from a right to apply to this Court for leave to appeal. Such difference is important in the context of the structural integrity of our judicial system. It is obvious that this Court must provide a means of redress in the rare case where the decision to refuse leave in the court below cannot be regarded as a judicial decision. The same cannot be said where a judge has refused leave after giving the matter a fair and proper consideration. The rarity of occasions where it would be proper to invoke the residual jurisdiction and the very high threshold that an applicant must meet have repeatedly been emphasised, see Kyla Shipping Co Ltd v Bunge SA [2013] EWCA Civ 734 at [15]; Republic of Kazakhstan v Istil Group Ltd (No 2) at [32] to [33]; Guangdong Changhong Electric Co Ltd v Inspur Electronics (HK)  Ltd at [20]. …” (Emphasis added)

39.  With these legal principles in mind, we turn to consider the Applicant’s Grounds 1 to 4 (the Impugned Grounds)  for challenging the Refusal of Leave Decision in the ASNOA.

40.  The Impugned Grounds are as follows.

(1)  The Judge erred in holding that, if an award holder has applied for the enforcement of a Mainland award, it is debarred from applying for recognition of the award in Hong Kong at the same time (emphasis added).

(2)  On its proper construction, s. 93 AO did not debar an award holder from applying for recognition of the Mainland award by way of a Hong Kong judgment.  Instead, it only debarred the execution of such a Hong Kong judgment while the execution of the award in the Mainland is taking place (emphasis added).

(3)  Shenzhen Kai Loong was wrong in holding that s.40C AO (Cap. 341)  debarred recognition (as opposed to execution)  of a Mainland award in Hong Kong while execution of the same award was taking place in the Mainland.  A Cheung J did not take into account:

3.1.  the fact that debarring recognition of the Mainland award would have the effect of granting the award debtor a defence under the Limitation Ordinance, which was not intended by the legislature, to the detriment of the award holder;

3.2  the legislative intention may be inferred from the “Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the [HKSAR]” (“the Arrgmt”), and the subsequent “Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR made between the Supreme People’s Court of the PRC and the [HKSAR]” signed on 27 November 2020 (“the Supp Arrgmt”);

3.3  the Court’s [presumably meaning A Cheung J’s] construction of s. 93 AO [presumably meaning s.40C AO (Cap. 341)] offends against the principle of legality in the award holder’s fundamental right to property under Article 6 and 105 of the Basic Law is restricted without express words and not by necessary implication.

(4)  By reason of the above, the Judge exceeded his jurisdiction in setting aside the HCCT Order in the Set Aside Decision, and the Court of Appeal has jurisdiction to set aside the Set Aside Decision given that it is “outwith the [CFI’s] jurisdiction”.

Discussion

41.  The legal principles concerning the jurisdiction of this Court to strike out a notice of appeal are well established, and have been summarized in Leung Chung Lan Lorraine v Hang Seng Bank Ltd [2019] HKCA 1408 at [34]:

“34. The Court of Appeal has inherent jurisdiction to strike out a notice of appeal where an appeal is plainly not competent (Aviagents Ltd v Balstravest Investments Ltd [1966] 1 WLR 150 at 154B to E, 155D to G; Ng Shek Po & Anr v Director of Lands [1996] 4 HKC 616 at 619D to E), or where the appeal is frivolous, vexatious or an abuse of the process of the court (Burgess v Stafford Hotel Ltd [1990] 1 WLR 1215 at 1220A to G, 1221B to D; Fok Siu Wing v Hong Kong Housing Authority [2016] 1 HKLRD 238 at [6], [11] to [13]). In the case of the latter, the inherent jurisdiction would be exercised on precisely the same basis as if Order 18 rule 19 strictly applied to notices of appeal (Burgess v Stafford Hotel Ltd at 1221D)”.

42.  The Applicant has not challenged the legal principles on the Court of Appeal’s residuary jurisdiction discussed in paragraphs 36-38 above.  Rather, it is seeking to circumvent those legal principles by appealing on a “separate and independent basis” with a submission based on drawing a distinction between “recognition” and “execution” of an award, arguing that this case only concerned the “recognition” stage, by which it means only converting the Award into a Hong Kong judgment, leaving “execution” to a later stage, at which point in time s.93 would apply.  The Applicant argues that as a result, the Judge’s application of s.93 AO at the “recognition” stage to set aside the HCCT Order was done without jurisdiction.

43.  We do not accept this submission.  First, this is a new point.  The Applicant had never purported to draw a distinction between “recognition” and “execution” when the matter went before the Judge prior to the Set Aside Decision.  It would appear that such a distinction had not been alluded to in the application to the Judge for leave to appeal as well, but even if it had, in our view, there is no reason why it should be permitted to launch a new argument at that stage. 

44.  Second, the Applicant accepts that “no distinction had been drawn by the legislature between the recognition and execution stages of the enforcement of arbitration awards when enacting s. 93 [AO]” (Applicant’s Skeleton Submissions, para. 12).

45.  Third, it is clear from the terms of the ex parte summons that the Applicant was not just seeking “recognition” -- it was explicitly seeking leave “to enforce the [Award]” (emphasis added)  and the HCCT Order entered judgment in terms of the Award, expressly specifying the sums for payment (the principal of the Loan of RMB 530 million, together with interest, etc)  which the Applicant asserted it could enforce against the Respondents even though it was then undertaking enforcement proceedings on the Mainland, thus falling squarely within the prohibition in s.93 AO.  

46.  The Applicant’s challenge to A Cheung J’s decision in Shenzhen Kai Loong is based also upon the distinction between “recognition” and “execution” which we have rejected above.  As for the limitation period argument, we do not see how it assists the Applicant.  There is no material which indicates that the legislature was not aware of the limitation provision when it enacted s.93 AO. In any event, we do not agree that a limitation period causes a “loophole”. Limitation periods provide finality and serve the purpose of ensuring that litigants (award holders)  do not sit on their hands.  There is a public policy element, and if it results in an award debtor being able to apply s.93 AO, that is not a “windfall” due to a “loophole”, but simply the effect of the legislation.    

47.  We do not see how the argument based on the Arrgmt and the Supp Arrgmt helps the Applicant either. The Applicant does not suggest that the Arrgmt made a distinction between “recognition” and “execution” such as to enable an award holder who has not concluded enforcement proceedings on the Mainland to only apply for “recognition” but not “execution” of the award so to avoid the effect of s.93 AO.  As for the Supp Arrgmt, it was made on 27 November 2020, after which s.93 AO was repealed.  The Legislative Council Brief[9] for the Arbitration (Amendment)  Bill 2021 explains the provision enabling an award holder to apply for preservation measures, and how the previous restriction is lifted, allowing an award holder to make simultaneous applications to the Mainland court and the Hong Kong court for enforcement of an arbitral award.[10]  None of these materials supports the argument that before the repeal of s.93 AO, an award holder would not fall foul of this section if it applies for enforcement in Hong Kong when it has not concluded enforcement proceedings on the Mainland.  

48.  The Applicant did not develop the argument on the Basic Law in its skeleton submission, so we shall say no more on it.

49.  Finally, we would say a few words about the Applicant’s attempt to present the Set Aside Decision as being “outwith” the jurisdiction of the Court of First Instance.  This is based on there being a distinction between “recognition” and “execution” and the argument that the ex parte summons was only for “recognition”, which argument we have rejected above.

50.  Accordingly, we do not see how Cetelem SA v Roust Holdings Ltd [2005] 1 WLR 3555 assists the Applicant at all.  In that case, the English Court of Appeal held that a decision made by a judge which he had no jurisdiction to make was not a decision under s.44(7)  Arbitration Act 1996, and therefore the Court of Appeal had jurisdiction to determine an appeal therefrom.   

51.  For the reasons set out above, it is clear that the Impugned Grounds are unarguable on what the Applicant called the “separate and independent basis”.  It has not sought to argue that if the residuary jurisdiction principles are applied, that these grounds would satisfy the high threshold required.  As such, the present case falls within the category of “very clear and obvious cases” where this court would and should exercise its power to strike them out. 

Order

52.  There will be an order in terms of para.1 of the Respondents’ Summons filed on 23 September 2022. 

Costs

53.  We also make an order nisi that the Applicant pay the Respondents’ costs.

54.  The Respondents seek costs on an indemnity basis and claimed a sum of HK$709,300.  They relied upon the decision of Chu JA (as she then was)  in Prakash Hiranand Bharwani v Middle East Petroleum Services Ltd (CACV175/2014), 17.11.2014, where indemnity costs were ordered in a case where the applicant’s notice of appeal was struck out as frivolous and an abuse of process [11].  In its skeleton submission, the Applicant made no submissions in opposition to the application for costs on an indemnity basis.  We consider that it is appropriate to order indemnity costs, and would summarily assess them at $650,000.