MIAO ZHENGUO AND OTHERS v. CHUNG WINSTON

HCA 1283/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1283 OF 2011

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BETWEEN

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D E C I S I O N

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1.  This is the return day of the plaintiffs’ application for summary judgment. However, such application was superseded by subsequent development of events. The parties made a settlement agreement in California to settle the legal actions between them both in California and in Hong Kong (“the Settlement Agreement”).

2.  As a result of the Settlement Agreement, the consent order dated 5 December 2011 was made in the Hong Kong court (“the Consent Order”). 

3.  It is common ground that the defendant did not make a payment as specified in the schedule of the Consent Order.  By reason of such default, the plaintiffs are making the present application before me to enter judgment against the defendant pursuant to the terms in the schedule of the Consent Order. 

4.  According to clause 10.10 of the Settlement Agreement, the rights and the obligations under the Settlement Agreement shall be construed and enforced in accordance with and governed by the law of California other than the consent order which should be governed by Hong Kong law.

5.  After the making of the Settlement Agreement, the defendant issued legal proceedings in the California court to seek for, inter alia, a declaration that clause 3 of the Settlement Agreement is unenforceable because it is penal in nature.  I understand that there is a hearing scheduled on 7 March 2012 in the California court for such case. 

6.  In the hearing before myself, there is a dispute between the parties about the true meaning of clause 10.10 of the Settlement Agreement. According to Mr Smith SC, counsel for the plaintiffs, the Consent Order is solely governed by Hong Kong law and so the Hong Kong court should proceed to enforce the Consent Order no matter what happens in the California proceedings.  On the other hand, Mr Lam, counsel for the defendant, submits that, as the Consent Order was entered into pursuant to the Settlement Agreement, if the California court strikes out clause 3 of the Settlement Agreement, the Hong Kong court should not enforce the Consent Order which was made pursuant to the Settlement Agreement.  In other words, the true meaning of clause 10.10 is that only the enforcement of the Consent Order is governed by Hong Kong law.

7.  But before the court deals with this argument, Mr Lam asks the court to adjourn the present application pending the result of the California proceedings in the hearing on 7 March 2012 which is only 7 days away.

8.  I accept Mr Lam’s suggestion based on the following reasons.

9.  Firstly, the plaintiffs’ lawyer in California had written to the California court asking for the hearing to be re-fixed to an earlier date because the decision might be relevant to the application before me today.  In such case, it is estopped for the plaintiffs to deny that the outcome of the hearing on 7 March 2012 is not relevant to the application before me.

10.  Secondly, if the court proceeds with the hearing today, the court has to make a determination about the true meaning of clause 10.10 of the Settlement Agreement.  According to Mr Smith, the defendant’s argument about the penal nature of clause 3 of the Settlement Agreement is wholly without merit.  If Mr Smith is correct, he should get a judgment in his favour very easily in the California court.  In such case, the plaintiffs can simply enforce the Consent Order without the need to resolve the legal argument on the true meaning of clause 10.10.  This can save a lot of judicial time and avoid unnecessary appeal.

11.  Finally, there is some force in the argument that the court cannot simply construe and execute the Consent Order without taking into account the possible challenge to the Settlement Agreement in the California court, otherwise it will lead to the absurd result that part of the Settlement Agreement is construed and enforced according to the law of California while the other part of the Agreement is construed and enforced according to Hong Kong law.  However, I must emphasise that I am not making a final determination on the true meaning of clause 10.10 of the Settlement Agreement.

12.  Obviously, the court is concerned about the possible delay in the California proceedings.  However, the evidence so far presented to this court indicates that the California proceedings have proceeded expeditiously.  On the basis that there is valid judgment in the plaintiffs’ favour in the California proceedings, the Hong Kong court will proceed to enforce the Consent Order even if there is any appeal against the decision in the California court.  As the parties in the Settlement Agreement agreed for their rights and obligations under the Settlement Agreement to be construed and governed by California law, the interim delay facing the plaintiffs is inevitable.

13.  Based on the aforesaid, I make an order adjourning the present application with liberty to either party to apply to restore the hearing before the court.