TONGCHENG TRAVEL HOLDINGS LTD (formerly known as TONGCHENG-ELONG HOLDINGS LTD) v. OOO SECURITIES (HK) GROUP LTD (formerly known as ORIENTIERT XYZ SECURITIES LTD and AMTD GLOBAL MARKETS LTD)

HCA 1258/2022

[2024] HKCFI 2710

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1258 OF 2022

_____________

BETWEEN

_____________

_________________________

REASONS FOR DECISION

_________________________

Background

1.  This is an application made by the Defendant’s summons issued on 2 April 2024 (“Summons”), to set aside the final judgment entered by the Plaintiff against it on 22 January 2024 (“Judgment”), and to stay these proceedings to arbitration. Since a garnishee order nisi/to show cause was obtained on 22 February 2024 by way of enforcement of the Judgment, the Defendant further seeks to set aside the order.

2.  These proceedings were instituted by the Plaintiff against the Defendant on 27 September 2022. According to the original Indorsement of Claim, the Plaintiff’s claim is for a declaration that an investment management agreement made between the Plaintiff and the Defendant on 27 November 2018 (“IMA”) has been terminated, a declaration that the Plaintiff is entitled to terminate the trust in relation to all assets managed by the Defendant for it and held in a discretionary account, return of the amount of the assets managed under the IMA, and damages.

3.  The Statement of Claim was filed in the action on 24 August 2023, amended on 25 September 2023, and re-amended on 1 December 2023. According to the final version of the Re-Amended Statement of Claim (“SOC”), the Plaintiff claims that the Defendant had agreed to provide asset management services to the Plaintiff after its initial public offering in 2018 (“IPO”). It is the Plaintiff’s claim that prior to the parties’ execution of the IMA, there was an oral agreement made between the Chief Strategy Officer of the Plaintiff (“Mr W”) and the Chairman of the Defendant (“Mr C”) around 12 November 2018 (“Oral Agreement”), whereby it was agreed that the Defendant would manage US$30 million of the total IPO proceeds (“Principal Amount”) for the Plaintiff, and that the term of the IMA and the repayment plan of the Principal Amount was to be a maximum of 3 years. The Plaintiff alleges that under the Oral Agreement, the Plaintiff could withdraw the managed assets after the first 2 years of the IMA coming into effect, and that the Defendant must return to the Plaintiff all the remaining balance of the managed assets by the end of the third year of the term of the IMA.

4.  Upon receiving the proceeds from the IPO and in anticipation of the parties’ execution of the IMA, the Principal Amount was directly deposited into a designated discretionary account maintained by the Defendant, together with US$900,000 as the advance payment of the Defendant’s management fees for 2 years under the IMA. The Plaintiff claims that the managed assets were held by the Defendant on trust for the Plaintiff, and that the Defendant has fiduciary duties, inter alia, to act only for the proper purposes of the trust and to return the managed assets to the Plaintiff upon demand, following the termination of the IMA.

5.  The Plaintiff claims that in March 2020, in anticipation of the 2^nd anniversary of the signing of the IMA, it sought the partial withdrawal of the managed assets. After the 2^nd anniversary of the IMA in December 2020, the Plaintiff further requested the Defendant to provide a plan for the return of the managed assets, but the Defendant failed to respond or to comply with the Plaintiff’s said demands. In April 2021, the Plaintiff proposed a plan to the Defendant for the withdrawal of the Principal amount by 31 December 2021, in 3 installments, but the Defendant did not agree.

6.  By a written notice dated 4 January 2022 (“Termination Notice”), the Plaintiff informed the Defendant in writing its confirmation to terminate the IMA and its demand for the managed assets to be returned in full to the Plaintiff by 31 January 2022.

7.  By the SOC, the Plaintiff claims that the Defendant was in breach of the IMA and its fiduciary duties as trustee, when it failed to agree to the Plaintiff’s Termination Notice, and by failing to return the balance of the managed assets to the Plaintiff despite the Plaintiff’s demand and its Termination Notice. The relief sought in the SOC is for an order that the Defendant should return and deliver up to the Plaintiff the sum of US$29,550,000 (the Principal Amount less management fees payable under the IMA), and interest.

8.  The Writ was served at the registered office address of the Defendant. The Defendant did not acknowledge service or file notice of its intention to defend the action, and the Plaintiff was able to obtain Judgment in default against the Defendant, for payment of US$29,550,000 with interest and costs, on 22 January 2024.

9.  Although it is the Defendant’s claim that it had not received the Writ and had no notice of the proceedings, it has not maintained its claim at the hearing that the Judgment obtained by the Plaintiff was a regular one. This is only sensible since the Writ had been duly served at the registered office address of the Defendant.

10.  In seeking to set aside the Judgment, the Defendant relies on the fact that there is a valid arbitration agreement contained in the IMA, such that the proceedings should never have been commenced in court. It applies under section 20 of the Arbitration Ordinance (“Ordinance”) to stay the proceedings to arbitration, and to set aside the Judgment. In the alternative, the Defendant claims that the Judgment should be set aside as it has a defence which has a real prospect of success.

11.  At the conclusion of the hearing on 3 September 2024, this Court granted the applications, set aside the Judgment and stayed the proceedings to arbitration. The following sets out the reasons for the decision.

Relevant terms of the IMA

12.  The IMA is for the Defendant to manage the investments of the Plaintiff.

13.  The Defendant is a licensed securities firm in Hong Kong, and was part of the AMTD group (“Group”) until late 2022 and early 2023, during which period it underwent a change in shareholding and management (“Change in Control”).

14.  The Plaintiff is a company incorporated on the Mainland, and was in the business of providing travel services and products. It claims to be a market leader in the online travel industry of the Mainland, and became listed in Hong Kong in November 2018.

15.  Under the IMA which states that it was signed by the parties in Hong Kong on 27 November 2018, there are express terms as to the effective date of the Plaintiff’s engagement of the Defendant, the duration of the agreement, and its termination. The IMA is in Chinese. The following sets out the English translation of the relevant clauses, and there is no dispute as to text.

“1.3 This engagement and this agreement are effective as from 27 November 2018, until both parties agree in writing to terminate this agreement.

2.1 The Client hereby declares and warrants to the Investment Manager the following: (a) The initial size of the Managed Assets shall not be less than US$30 million (the Initial Managed Assets), and the Client agrees to deposit the Initial Managed Assets and the management fees for the first two years into the Client’s management account opened with the Investment Manager on or before 26 November 2018 in accordance with the calculation method in Annex 2. The Client agrees that, during the effective period of this Agreement, the Client shall not withdraw or partially withdraw the Managed Assets.

9.1 This agreement is effective as from 27 November 2018, until both parties agree in writing to terminate this agreement.

9.3 “Termination Date” shall be understood as the date on which both parties agree in writing to terminate this Agreement. Termination of this Agreement shall in no way affect the liabilities arising from transactions initiated before the Termination Date. After termination of this Agreement, assets in the managed assets shall still belong to investment arrangements with incentive fees or incentive dividends, and incentive fees or incentive dividends will continue to accrue and be calculated as expenses in the relevant managed assets.

11.2 The courts of Hong Kong shall have exclusive jurisdiction over the parties to this Agreement.

11.3 Any and all dispute(s) arising out of or in connection with this agreement shall be resolved by friendly negotiations between the parties insofar as possible. Both parties agree to negotiate in good faith to resolve any dispute(s). If, within 7 days of one party notifying the other of any dispute(s), the parties fail to resolve any such dispute(s), the dispute(s) shall be submitted to the relevant legally authorised body in Hong Kong for arbitration in accordance with the arbitration rules presently in force at the time of submission to arbitration. The place of arbitration shall be Hong Kong and the language for arbitration shall be Chinese or English. The arbitral award is final and binding on both parties. During the period of dispute resolution, the parties shall continue to perform this agreement save for the disputed matters.

12 Entire Agreement Amendment. This Agreement (including the relevant Annexes) constitutes the entire agreement between the parties on the relevant matters and will replace any warranty, representation or arrangement given or made except as expressly provided in this Agreement. This Agreement may not be amended unless approved in writing signed by all parties to this Agreement.

13 Any failure or delay by a party to exercise any right or remedy under this Agreement shall not be deemed a waiver of such right or remedy, and the exercise of any or part of a right or remedy shall not prevent the waiver of other rights or remedies or further waiver of such right or remedy. Any waiver of rights will be invalid unless such waiver is authorised by the party that has indicated that it is entitled to exercise the waiver. Unless otherwise expressly provided, this Agreement shall not be amended unless such amendment, modification or waiver is in writing signed by both parties to this Agreement.” (Emphasis added)

16.  Schedule 2 of the IMA contains the following provisions:

“The Client undertakes that, while the Asset Management Plan is in effect, the Client shall not withdraw or partially withdraw the Managed Assets before both parties agree in writing to terminate the Agreement.

Starting from the third year after the effective date of the Agreement, the Client shall pay the management fee for that year to the investment manager within five business days of the anniversary of the effective date of each agreement. If the Client fails to pay as scheduled, the investment manager will pay the management fee in the agreement within five business days. The management fee plus a 0.5% performance fee will be automatically deducted from the Managed Assets or client accounts at 9.00 am on the sixth business day of the anniversary date of the effective date. The deducted management fees will not be guaranteed by the investment manager unless the client fully pays the relevant deducted management fees to the Investment Manager within 7 days of the anniversary of the effective date of the Agreement.”

17.  Schedule 3 of the IMA further provides that the “Guaranteed Amount”, being the Principal Amount less unpaid management fees, are only recoverable by the Plaintiff “upon the termination of the IMA by both parties’ agreement in writing”.

Applicable legal principles

18.  Neither Counsel for the Plaintiff nor Counsel for the Defendant disputes that the approach advocated by Ma J (as he then was) in Dah Chong Hong (Engineering) Ltd v Boldwin Construction Co Ltd HCA 1291/2002, 11 October 2002 (“DCH”) is applicable to the present case. In DCH, there was similarly judgment entered in default of an Acknowledgment of Service, and an application was made to set aside the default judgment and to stay the action to arbitration. The Court found that the judgment in the case had been regularly obtained. It then proceeded to deal, first, with the application for stay, explaining that if the stay application is successful, the default judgment will also be set aside and the court will not consider the merits of the defence. If the court takes the view that the stay application will or is likely to fail, then a defence which has a real prospect of success has to be shown in order for the court to set aside the default judgment.

19.  The rationale for this approach is explained in detail at paragraphs 17 to 21 of the judgment:

“17. The principles to be applied in applications to set aside default judgments are well-known and are succinctly set out in Hong Kong Civil Procedure 2002 Vol.1 at 13/9/12-13/9/14. Among the matters that the applicant must show in applying to set aside (and often this is the most important, if not decisive, element in the exercise of the court's discretion) is the existence of a defence that has a real prospect of success or, as is sometimes put, a defence that carries some degree of conviction : see Hong Kong Civil Procedure Vol.1 at 13/9/14 referring to, among other cases, L&M Specialist Construction Limited v. Wo Hing Construction Company Limited [2000] 3 HKLRD 262 (Court of Appeal). As Mr Justice Ribeiro JA said in that case at 265J-266B :

"Where, as in the present case, the judgment was regularly entered, the court will consider the nature of and reasons for the default but it would focus primarily on whether [the] defence has sufficient merits."

18. Thus, this requirement to demonstrate a defence that has a real prospect of success (which I shall call "the Defence Requirement") is very much a dominant factor, although it has to be pointed out that it is not necessarily in every case decisive. The court must also weigh in the balance other factors such as the reasons for letting the default judgment occur, any delay in applying to set aside, and the intervention of third party interests: see the cases referred to in Hong Kong Civil Procedure 2002 Vol.1 at 13/9/13. In most cases, though, the Defence Requirement will be the most important, if not decisive, factor.

19. The present case, however, poses an unusual feature. It will be recalled that there is in existence an arbitration agreement between the parties dealing with the resolution of disputes and differences between them. In these circumstances, does the requirement of demonstrating the existence of a defence that has a real prospect of success, apply at all or at least not to its full rigour?

20. The arguments in favour of the proposition that the Defence Requirement is inapplicable in these circumstances can be summarised as follows :

(1) The rationale behind the Defence Requirement is that the court looks at the position it and the parties would be put in should the relevant default judgment be set aside. The court then has to determine whether or not in these circumstances, there is any real point in setting aside the judgment. If there is, then in the absence of any other factors that would be overwhelming (such as delay, etc.), justice will require the default judgment to be set aside. After all, as Mr Justice Riberiro JA said in L&M Specialist Construction Limited at 265J,

"The discretion is there 'to avoid the injustice which may be caused if judgment follows automatically on default.' "

If there is not, then the default judgment will not be set aside.

(2) In most actions, the position that the court and the parties find themselves in should the default judgment be set aside, is that the disputes or differences between the parties will have to be resolved at trial in court. Hence the need for the court itself to determine whether or not there exists a defence that has a real prospect of success or carries some degree of conviction (for it will be the forum for the trial). If this requirement (the Defence Requirement) is satisfied, it can then readily be seen that there is a real point in setting aside the default judgment. Conversely, if the Defence Requirement is not satisfied, then there would be little or no point in setting aside the default judgment in question.

(3) This rationale of looking at the position should the default judgment be set aside and therefore determining whether there is any real point in setting aside, can be found in various statements in numerous cases : see for example, The Saudi Eagle [1986] 2 Lloyd's Rep. 222, at 223(1) (English Court of Appeal); Premier Fashion Wears Limited v. Li Hing Chung [1994] 1 HKC 213 at 216 (Court of Appeal). All these statements are based largely on Evans v. Bartlam [1937] AC 473, where the same point is made by Lord Russell of Killowen at 482 and Lord Wright at 489. In the speech of Lord Wright in Evans v. Bartlam at 489, he also says this in relation to the matter before their Lordships, "He [the defendant in that case in relation to a betting indebtedness] clearly shows an issue which the court should try." (emphasis added)

(4) This quote from Evans v. Bartlam emphasises a point I have made earlier, that in most cases, the court is looking at the trial in court of the disputes or differences between the parties when considering whether or not to set aside a default judgment. It is quite different when an arbitration agreement is involved. Here, the position or scenario is that should the default judgment be set aside, the court will, as in the present case, often be faced with an application by the defendant for the action to be stayed so that the disputes or differences can be referred to arbitration.

(5) The role of the court when faced with a stay application (whether under section 6 of the Ordinance or Article 8 of UNCITRAL Model Law) is clear. It must refer the disputes or differences to arbitration unless one or more of the following is demonstrated :

(a) There is no arbitration agreement at all.

(b) The arbitration agreement is null and void, inoperative or incapable of being performed.

(c) There is in fact no dispute or difference to be referred to arbitration.

(d) The relevant dispute or difference is not one that is covered at all by the arbitration provisions in the arbitration agreement.

(6) The court's approach these days in dealing with applications for stay emphasise the twin icons of party autonomy and minimal court interference as far as arbitration agreements are concerned. In short, the parties are left to the tribunal that they have by contract chosen to determine the disputes or differences between them.

(7) In this context, "disputes" or "differences" exist unless there has been a clear and unequivocal admission of both liability and quantum. In other words, even an unanswerable claim will not mean that a dispute or difference does not exist unless there is a clear and unequivocal admission of liability and quantum. See, among many other cases : Tai Hing Cotton Mill Limited v. Glencore Grain Rotterdam BV [1996] 1 HKC 363, Guangdong Agriculture Company Limited v. Conagra International (Far East) Limited [1993] 1 HKLR 113, Louis Dreyfus Trading Company Limited v. Bonarich International (Group) Limited [1997] 3 HKC 597 and F&D Buildings Services Engineering Company Limited v. Chevalier (E&M Contracting) Company Limited [2001] 3 HKC 403.

(8) The above points highlight what I believe to be a fundamental difference in approach when the court is dealing with an application to set aside a default judgment in circumstances where there exists an arbitration agreement between the parties and it is the intention of one of them to apply to stay the court proceedings should the relevant default judgment be set aside. Essentially, there are three major differences in this context :

(a) The position that the court and the parties find themselves in should the default judgment be set aside is not the trial of the action by the court, but the application by one of the parties for a stay. It must therefore be to that application that the court's immediate attention is directed.

(b) The court's role in the stay application is limited in that the court can only look at those aspects set out in sub-paragraph (5) above.

(c) In particular, in considering the merits of the dispute between the parties, the court effectively does not do so and its role is restricted to finding out whether there is a clear and unequivocal admission of liability and quantum. The only proper forum for the resolution of the disputes or differences between the parties is the chosen one (viz. the arbitral tribunal).

21. In my judgment, the arguments set out in the previous paragraph are compelling and lead to the conclusion that the Defence Requirement (as defined above) has no initial part to play in an application to set aside where an arbitration agreement is in existence and it is the stated intention of one of the parties that a stay of the action would be sought once the default judgment is set aside. I use the word "initial" because the approach of the court in such circumstances can be summarised as follows :

(1) The court must of course reach a view on the stay application. Usually of course, as in the present case, such an application will be made at the same time as the application to set aside default judgment. Where the court will or is likely to grant the stay, the court does not consider the merits of the defence at all. In other words, the Defence Requirement need not be satisfied.

(2) Where, however the court takes the view that the stay application will or is likely to fail, the Defence Requirement will then have to be satisfied by the defendant since the court will then be projecting itself to the trial of the action by it should the default judgment be set aside.

(3) The matters referred to in sub-paragraphs (1) and (2) above do not of course signal the end of the court's enquiry in considering the application to set aside. The court will also have to consider those other factors I have referred to in paragraph 18 above.” (Emphasis added)

20.  With respect, there is nothing further which can be usefully added to what the former Chief Justice has amply explained in the passages quoted above.

21.  The DCH approach was followed in 楊佩玲 v Super Best Investment Limited [2024] HKCA 520, a decision of the Court of Appeal, and in Truearns Company Limited v Wealthy Fountain Holdings Inc [2019] HKCFI 1840.

22.  When dealing with an application for stay made under section 20 of the Ordinance, the principles are clear and set out in Tommy CP Sze & Co v Li & Fung (Trading) Ltd [2003] 1 HKC 418. The 4 questions for the Court are:

(1) Is the arbitration clause an arbitration agreement?

(2) Is the arbitration agreement null and void, inoperative or incapable of being performed?

(3) Is there in reality a dispute or difference between the parties?

(4) Is the dispute or difference between the parties within the ambit of the arbitration agreement?

23.  In PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309, the Court made it clear that the test is whether there is a prima facie case that the parties are bound by the arbitration clause, and unless the point is clear, the court should not attempt to resolve the issue, and the matter should be stayed for arbitration.

24.  As pointed out by Counsel for the Defendant, there is no serious issue raised in this case in relation to questions (3) and (4) as identified in Tommy CP Sze, namely there is a dispute between the parties, and the dispute falls within the ambit of the arbitration clause. The Plaintiff’s opposition to the stay is on the basis that:

(1) the arbitration clause in the IMA is invalid or inoperable, because it refers allegedly to a non-existent institution;

(2) clause 11.2 confers exclusive jurisdiction on the Hong Kong courts, which contradicts the arbitration clause;

(3) the Defendant has already elected the Hong Kong court as the forum for the dispute between the Plaintiff and the Defendant, and has led the Plaintiff to believe, reasonably, that the Defendant has already abandoned the arbitration agreement.

25.  The issues issues raised in these proceeding will be considered with the above settled principles in mind.

Stay application: (1) Whether arbitration agreement

26.  The arbitration clause in the IMA, namely clause 11.13 (“Arbitration Clause”), provides for the parties’ reference of disputes to “the relevant legally authorized body in Hong Kong for arbitration”.

27.  Although Counsel for the Plaintiff did not pursue them in the skeleton submissions filed for the hearing, the Defendant made various arguments in the affirmation of Ma Li filed in opposition to the Defendant’s Summons. These arguments include the claim that there was no “relevant legally authorized body in Hong Kong for arbitration”, and that it is not possible to commence arbitration pursuant to the Arbitration Clause.

28.  Although I will deal with these arguments in this Decision, it should be made clear to all parties that submissions and statements of opinion have no proper place in any affidavits or affirmations. Order 41 rule 5 RHC states that an affidavit may contain “only such facts as the deponent is able of his own knowledge to prove”. It is a complete waste of time and costs for affirmations or affidavits of factual witnesses to deal with submissions and arguments, which should properly be made by Counsel at the hearing. Nor is it conducive to any of the underlying objectives set out in Order 1A RHC, for arguments to be made by witnesses in affirmations, either to be abandoned by Counsel at the hearing, or to be repeated by Counsel at the hearing, or for the Court and the other party to have to compare the submissions made in the evidence and at the hearing, to decide which are pursued in part or in full, and which are abandoned. Costs should be made against the lawyers responsible for filing the affidavits/affirmations in these circumstances.

29.  In the case of Chimbusco International Petroleum (Singapore) Pte Ltd v Fully Best Trading Ltd [2016] 1 HKC 149, this Court held:

“Lucky-Goldstar International (HK) Ltd v Ng Moo Kee Engineering Ltd [1993] 1 HKC 404 is clear authority that where the parties have clearly expressed an intention to arbitrate, the agreement is not nullified even if they chose the rules of a non-existent organizations. In the present case, the parties expressed the manifestly clear intention to have the dispute submitted to arbitration in Singapore. Such agreement is capable of being performed in Singapore, and it is for the tribunal to decide on its own jurisdiction, and on the rules to be adopted. If necessary, the parties can apply to the Singapore court to appoint the arbitrator (s).”

30.  Counsel for the Defendant also referred to paragraph 4.86 of Joseph QC’s Jurisdiction and Arbitration Agreements and their Enforcement (3^rd edition, 2015), where it was explained:

“As a general principle an agreement to resolve disputes in a particular manner, and in particular to arbitrate in a private way, are to be construed in such a manner so it will be upheld, given force and not struck down (ut res magis valeat quan pereat). Thus where the parties have agreed to arbitrate disputes in an identified seat under the auspices of a particular institution which does not exist or has ceased to exist, then it is suggested that an English court is likely to conclude that the parties’ agreement to arbitrate should remain enforceable. Without more, the parties will be taken to have still intended to arbitrate at the particular seat under the general provisions applicable by reference to the governing arbitration law but not under the auspices of the identified but failed rules/institution.”

31.  In the present case, the parties have clearly expressed an intention to submit disputes arising out of the IMA to arbitration in Hong Kong. I do not accept that HKIAC cannot be a “relevant” and “legally authorized” body for arbitration in Hong Kong. The HKIAC has wide powers under the Ordinance to manage disputes. Even if it were not the “relevant and legally authorized body” referred to in the Arbitration Clause, I find that the parties have clearly expressed the intention to arbitrate in Hong Kong, which is sufficient and adequate for there to be a valid and operable arbitration agreement which can be performed in Hong Kong. If necessary, applications can be made to the HKIAC under the Ordinance, for example, to decide the number of arbitrators (under section 23(3) of the Ordinance), and for the appointment of arbitrators (under section 24 of the Ordinance).

(2) Conflict between clauses 11.2 and 11.3?

32.  I accept the submissions made for the Defendant, that on the strength of the authorities, there is no irreconcilable conflict between clauses 11.2 and 11.3 of the IMA. Whereas clause 11.3 is an expression of the parties’ intention to refer disputes to arbitration in Hong Kong, article 11.2 in providing for the parties’ submission to the exclusive jurisdiction of the Hong Kong courts can be reconciled to mean that the Hong Kong court is to have supervisory jurisdiction over the arbitration in Hong Kong. This is the construction placed by the courts on similar provisions contained in agreements.

33.  As the learned editors of Russell on Arbitration 24^th edition, 2015 (at paras 2-027 and 2-028) and Joseph’s Jurisdiction and Arbitration Agreements and their Enforcement (3^rd edition, 2015, at paras 4.77 and 4.78) pointed out, the courts will strive to reconcile apparently conflicting dispute resolution clauses, and cases where the court strikes down a dispute resolution clause are few and far between.

34.  In the case of Lee Cheong Construction & Building Materials Ltd v The Arcadia (IO) [2012] HKLRD 975, the relevant clause D25(b) in the parties’ agreement provided that the contract shall be interpreted in accordance with and be governed by the laws of Hong Kong, and that “both parties submit to the non-exclusive jurisdiction of the Courts of Hong Kong”. At the same time, clause D27 of the agreement provided for the parties “to refer all the disputes in connection with this Contract to arbitration which shall be conducted in a way recognized by Hong Kong and be handled by Hong Kong International Arbitration Centre”. Burrell J held that clause D25 (b) did not impose a positive obligation to resolve all disputes only in the Hong Kong courts, but had the effect only of the parties submitting to the Hong Kong jurisdiction, and that there was no inconsistency between the 2 clauses.

35.  In Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127, the court dealt with clause 13 of an agreement, providing for any dispute or difference concerning the construction of the agreement or the rights or liabilities of either party thereunder to be adjudicated upon under the rules of Conciliation and Arbitration of the ICC, and clause 14 of the same agreement which provided that the agreement shall be interpreted according to English law, and that “the Courts of England shall have exclusive jurisdiction over it to which jurisdiction the parties hereby submit”. At pages 129 to 130 of the judgment, Steyn J (as he then was) made the following observation:

“Fortunately, there is a simple and straightforward answer to the suggestion that Clauses 13 and 14 are inconsistent. Clause 13 is a self-contained agreement providing for the resolution of disputes by arbitration. Clause 14 specifies the lex arbitri the curial law or the law governing the arbitration, which will apply to this particular arbitration. The law governing the arbitration is not to be confused with (1) the proper law of the contract, (2) the proper law of the arbitration agreement, or (3) the procedural rules which will apply in the arbitration.

…

If clause 14 is read as specifying the law governing the arbitration, there is no inconsistency between clauses 13 and 14. Admittedly, the language is not felicitous: it provides for the exclusive jurisdiction of the English Courts ‘over it’, ie the agreement. Strictly, it should refer to the law governing the arbitration.”

36.  The English court in the case of Sulmerica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWHC 42 (Comm) was more robust and lucid in its explanation:

“47. I was referred to ACE Ltd v CMS Energy Corporation [2009] 1LRIR 414 and in particular to paragraphs 68-86 where Christopher Clarke J discussed mandatory arbitration and exclusive English jurisdiction clauses and the difficulty in reconciling the two and giving meaning to both. Whereas Condition 11 of the policy appears permissive in allowing a party to refer a dispute to arbitration in the circumstances referred to, Condition 12 provides that such disputes "shall" be referred to arbitration. Whilst the Insurers argued that the contract gives rise to a permissive right to refer to arbitration, and that the only mandatory element requires that, if that permissive right is exercised, the arbitration must take place under ARIAS rules, for the purposes of this argument, I treat the arbitration clause as being mandatory. The question arises as to whether there is such inconsistency between the exclusive Brazilian jurisdiction clause on the one hand, and the arbitration clause on the other, that they cannot be reconciled. The courts have struggled with such matters in cases such as Paul Smith v H & S International Holding Inc., [1991] 2LLR 127 and SIPC Ltd v Coral Oil Co. Ltd, [1999] 1LLR 72, as well as the ACE decision. The cases illustrate the principle that the contract must be read as a whole and that every effort should be made to give effect to all of its clauses. A clause should not be rejected unless it is manifestly inconsistent with, or repugnant to, the rest of the agreement. It is only if such limited reconciliation cannot successfully be done that the court will treat a clause that has been specifically agreed as prevailing over an incorporated standard term.

48. The English courts, when faced with an exclusive jurisdiction clause and an arbitration agreement, look to the strong legal policy in favour of arbitration and the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal. Unless expressly provided otherwise, the parties must be taken to have agreed on a single tribunal for the resolution of all disputes. A liberal approach to the words chosen by the parties in their arbitration clause must now be accepted as part of our law. I follow in this regard the comments of Christopher Clarke J.

49. In the present case, on the construction that I have held, all disputes or differences can be and must be referred to arbitration under the terms of Condition 12, but if that is so, what is left of the exclusive jurisdiction of the courts of Brazil under Condition 7? The answer is very little in practice - much the same as found by Christopher Clarke J in paragraph 82 of the ACE decision. It enables the parties to found jurisdiction in a court in Brazil to declare the arbitrable nature of the dispute, to compel arbitration, to declare the validity of the award, to enforce the award, or to confirm the jurisdiction of the Brazilian courts on the merits in the event that the parties agree to dispense with arbitration. It specifically operates to prevent the parties proceeding in another court on the merits. Use of the Condition 7 rights for these purposes does not detract from the arbitration clause but gives them meaning. Furthermore, enforcement in Brazil against Brazilian parties is self-evidently a realistic possibility.

50. The effect is, of course, to give priority to the arbitration clause over the exclusive jurisdiction clause but there is no other way of reconciling the two. To give full width to the exclusive jurisdiction clause would be to exclude the right to arbitrate altogether. The only other option would be to allow both the right to litigate in Brazil and the right to arbitrate to run in tandem, with the potential for a race to judgment between the two. That, for the reasons already given, is a most unlikely construction of the parties’ intentions, as all the authorities indicate.” (Emphases added)

37.  In Arta Properties Ltd v Li Fu Yat Tso HCA 2741/1998, 2 June 1998, the Court followed Paul Smith in its reconciliation of two clauses, article 21 of which provided for dispute or differences to be referred to a single arbitrator in accordance with the Arbitration Ordinance in Hong Kong, and article 22 of which provided that the deed in question shall be governed by Hong Kong law, and “each party shall submit to the jurisdiction of the Hong Kong courts in case there are any disputes”. In the judgment, Findlay J held that the reference to the jurisdiction of the Hong Kong courts in article 22 referred to the supervisory jurisdiction of the Hong Kong courts over the arbitration. As His Lordship observed in the judgment, when parties enter into a serious and formal agreement, one must assume that the parties expected what they had agreed to be effective and to be workable, and that the court should not strive to frustrate the parties’ wish to implement every clause of the agreement if it is reasonably and sensibly possible to construe the two clauses so that they can sit together. As correctly summarized by Counsel for the Plaintiff, the Court observed in Arta Properties that for arbitration to be workable, it must be backed by the supervisory powers of the courts, and that it is “perfectly usual for matters that have been submitted to arbitration to also come before the courts”.

38.  The same approach and construction have been applied in Bluegold Investments Holdings Ltd v Kwan Chun Fun Calvin (HCA 1492/2015, 4 March 2016) and Neo Intelligence Holdings Ltd v Giant Crown Industries Ltd (HCA 1127/2017, 27 November 2017).

39.  Consistent with the decided cases, I find that there is a prima facie case of the existence of an arbitration agreement in this case, which agreement is not null and void, inoperable or incapable of being performed. More detailed reasons for finding that the arbitration agreement is not inoperable are also set out under the next heading.

(3) Whether application for stay made “not later than when submitting the first statement on the substance of the dispute”

40.  The main thrust of the submissions made by Counsel for the Plaintiff is that immediately after the Plaintiff’s commencement of these proceedings on 27 September 2022, the Defendant had itself issued proceedings in the Hong Kong Court against the Plaintiff under HCA 1266/2022 on 27 September 2022 (“HCA 1266”). The Plaintiff’s contention is that by its Writ and Indorsement of Claim filed in HCA 1266, the Defendant had already submitted its “first statement on the substance of the dispute” within the meaning of Article 8(1) of the Model Law, such that a stay should not be granted by the Court.

41.  As referred to in paragraph 2 above, the original Indorsement of Claim in this action referred to the Plaintiff’s claim for a declaration that the IMA has been terminated, a declaration that the Plaintiff is entitled to terminate the trust in relation to all assets managed by the Defendant and held in a discretionary account, return of the amount of the assets managed under the IMA, and damages. In the Indorsement of Claim filed by the Defendant in HCA 1266, the Defendant refers to the Plaintiff’s wrongful termination of the IMA without cause, the Plaintiff’s breach of clause 2.1 and Schedule 2 to the IMA, the breach of the Plaintiff’s representation and guarantee that it would not withdraw any part of its assets during the effective period of the IMA, and its failure to pay management fees under the IMA, with a claim for damages, specific performance and declaratory relief that the IMA remained in full force and effect.

42.  On the Plaintiff’s case, the Summons for stay of these proceedings was issued after the time permitted under Article 8(1), when the Defendant’s filing of the Writ and Indorsement of Claim in HCA 1266 amounts to its statement on the substance of the dispute between the Plaintiff and the Defendant in relation to the IMA, and further constitutes the Defendant’s abandonment of any right it may have to arbitrate the dispute pursuant to the Arbitration Clause. According to the Plaintiff, the filing of the HCA 1266 Indorsement amounts to an unequivocal step to answer the Plaintiff’s substantive claim in these proceedings, thereby depriving the Defendant of its right to refer the dispute under the IMA to arbitration.

43.  The authorities referred to by Counsel for the Plaintiff focused on the meaning of “steps taken” “in the proceedings”, whether by way of filing a defence, or taking an equivalent step, in the proceedings, to answer the claim made. There is no reference in these authorities to a defendant taking some step otherwise than in the proceedings in which a stay is sought.

44.  Article 8(1) itself refers to a party “submitting his first statement on the substance of the dispute”:

“A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

45.  For the present purposes, Article 8(1) contemplates: (i) an action brought before the court; (ii) a matter which is the subject of an arbitration agreement; and (iii) the submission of a statement on the substance of the dispute. On a plain reading, a stay should be granted if the matters covered by (i), (ii) and (iii) are one and the same, to justify the stay being sought of the action commenced in court pursuant to the arbitration agreement. If the matter before the court is not the same as the matter which is the subject of an arbitration agreement, the mandatory stay does not apply. In my judgment, this strongly suggests that the statement on the substance of the dispute must also refer to the same matter as that before the court and which is to be stayed to arbitration. That is the only matter before the court, which concerns the court, and the decision to be made whether to stay the matter.

46.  Such a construction is supported by the Analytical Commentary on the Draft Text of a Model Law on International Commercial Arbitration (1985) in the Report of the Secretary General to the 18^th session of the United Nations Commission on International Trade Law, where it was observed (at page 24):

“As under the 1958 New York Convention, the court would refer the parties to arbitration, i.e. decline (the exercise of its) jurisdiction,only upon request by a party and, thus, not on its own motion. A time element has been added that the request be made at the latest with or in the first statement on the substance of the dispute. It is submitted that this point of time should be taken literally and applied uniformly in all legal systems, including those which normally regard such a request as a procedural plea to be raised at an earlier stage than any pleadings on substance.

As regards the effect of a party's failure to invoke the arbitration agreement by way of such a timely request, it seems clear that article 8(1) prevents that party from invoking the agreement during the subsequent phases of the court proceedings. It may be noted that the Working Group, despite the wide support for the view that the failure of the party should preclude reliance on the agreement also in other proceedings or contexts, decided not to incorporate a provision on such general effect because it would be impossible to devise a simple rule which would satisfactorily deal with all the aspects of this complex issue.” (Emphases added)

47.  Counsel for the Defendant referred to the Hong Kong Court’s decision in Louis Dreyfus Training Ltd v Bonarich International (Group) Ltd [1997] 3 HKC 597, which concerned an application for stay of proceedings under Article 8 (1). At page 606 of the judgment, Waung J observed as follows:

“Mr Kat submits that the tenor of the Model Law is strongly in favor of international arbitration and that the court should construe the bar to mandatory stay in art 8 narrowly. I accept that submission as obviously it is not the intention of the Model Law to take away the strong new right of mandatory stay easily by any casual act of the defendant. It seems to me therefore legitimate to construe art 8 as contemplating the bar to the right to be some formal act of consequence on the part of defendant in the court action who later seeks to arbitrate the dispute.” (Emphases added)

48.  In Schindler Lifts (Hong Kong) Ltd v Sui Chong Construction and Engineering Co Ltd (DCCJ 2784/2014), the learned judge came to the same conclusion, that the defendant’s submission of its statement on the substance of the dispute should be in the same action commenced before the court and which is to be referred to arbitration. In that case, the plaintiff had commenced the first set of proceedings in the Small Claims Tribunal for a payment due under the construction subcontract between the plaintiff and the defendant, to which the defendant had filed a statement of defence. The Plaintiff then commenced a second set of proceedings in the Small Claims Tribunal for the final payment due under the subcontract, before discontinuing the two sets of proceedings, and commencing proceedings in the High Court for the two payments combined. The defendant applied for a stay of the High Court proceedings, and the issue before the Court was whether the defence in the first set of proceedings before the Small Claims Tribunal amounted to the “first statement on the substance of the dispute” within the meaning of Article 8 (1). The issue was analyzed by the Court at paragraphs 28 to 37 of the judgment:

“28. For the 1^st requirement, [that the applicant for stay must request the Court to refer the parties to arbitration not later than when submitting the first statement on the substance of the dispute], the question is whether by filing the defence in the 1^st SCT Proceedings, the defendant has submitted its “first statement on the substance of the dispute” within the meaning of Article 8(1) of the Model Law. This is a point of law which concerns the interpretation of Article 8(1).

29. I agree with Mr Jason Yu, counsel for the defendant that, according to the language of Article 8(1), the correct principle is that the defendant’s “first statement” must be submitted in the action sought to be stayed and not in another action.

30. The words in Article 8(1) “[a] court before which an action is brought …… when submitting his first statement on the substance of the dispute” envisage the “first statement” being a statement submitted in either in the arbitral process as was found by the Canadian court (see Bab Systems v McLurg [1994] Carswell Ont 4226 at §10) or in the action sought to be stayed as found by the Hong Kong court (see Paladin Agricultural v Excelsior [2001] 2 HKC 215 at 222F-223D per Burrell J).

31. In my view, it is clear that a “statement” in this context does not mean a statement in another action before another court or tribunal.

32. I further agree with Mr Yu’s submission that it would be wrong to construe Article 8(1) narrowly to mean that a defendant is debarred from invoking the mandatory stay in other proceedings if he had made a statement in other proceedings before another court.”

49.  At paragraph 33, the judge then referred to the observations made by Waung J in Louis Dreyfuss Trading v Bonarich on the construction of the bar under Article 8 (1), and also to the Analytical Commentary referred to at paragraph 46 above, and concluded at paragraphs 35 to 37, as follows:

“35. Based on the above, the defendant submits that, to construe Article 8 to mean that the defendant’s filing of a defence in the 1^st SCT Proceedings has the general effect of precluding the defendant from relying on the arbitration agreement to stay other proceedings, such as the present action, would be directly contrary to the legislative intent contained in the Analytical Commentary.

36. I agree.

37. I further agree with the defendant that, consistent with the above, the English implementation of Article 8(1) had been interpreted to mean that the right to seek a stay of judicial proceedings will be lost to the applicant “after he has taken any step in those proceedings to answer the substantive claim”: Patel v Patel [2000] QB 551 at 5556C-D per Lord Woolf MR and 558B per Otton LJ. This lends weight to support the defendant’s argument.”

50.  In any event, I accept the submissions made by Counsel for the Defendant that the Indorsement of Claim filed in HCA 1266 (“HCA 1266 Indorsement”) cannot be treated as the Defendant’s statement on “the substance of the dispute”, when the Indorsement of Claim in HCA 1266 is considered in the context of and in conjunction with the claims made by the Plaintiff in the Indorsement of Claim in these proceedings (“HCA 1258 Indorsement”). Although the Plaintiff argued that the claims made by the Defendant in the HCA 1266 Indorsement are the reverse of those claims made by the Plaintiff in the HCA 1258 Indorsement, since the Defendant claims that the IMA has been wrongfully terminated, whilst the Plaintiff claims in these proceedings that it had already terminated the IMA and seeks a declaration that it is entitled so to terminate, the HCA 1266 Indorsement has not pleaded why the Plaintiff is not entitled to terminate the IMA and the alleged trust, and why the Defendant is not liable to return the managed assets to the Plaintiff. I bear in mind that what Article 8(1) requires is a statement on the "substance" of the dispute, and not a mere proclamation or assertion of a claim, which is what the HCA 1266 Indorsement amounts to, nor a bare denial of a claim without more. There is in fact no answer to and no statement in the HCA 1266 Indorsement on the substance of the claims made in the HCA 1258 Indorsement.

51.  On behalf of the Plaintiff, Counsel further argued that by instituting HCA 1266, the Defendant had unequivocally and clearly abandoned any right it may have to arbitrate in accordance with the Arbitration Clause of the IMA, and that the arbitration agreement had thereby become inoperative. I cannot accept these submissions.

52.  In the case of Polytec Overseas Ltd v Grand Dragon International Holdings Ltd [2017] 3 HKLRD 258, this Court held that as a stay is mandatory provided there is a prima facie case on the existence of an arbitration agreement, there must be sufficiently clear evidence that the applicant had clearly indicated to the other side, by its conduct, that it was “unequivocally exercising its right to litigate”, and was abandoning its rights under the arbitration agreement, before the stay can be refused.

53.  Counsel for the Defendant referred also to Costain v Tarmac Holdings Ltd [2017] 1 CLC 491, where the learned judge observed at paragraph 88 of the judgment:

“In my view, for the arbitration provision to be inoperative because it has been abandoned, there must have been an agreement between the parties (either express or implied) that arbitration would no longer comprise the final means of dispute resolution. That was what Paul Walker J found in Hashwani. In the present case, I find on the facts that there was no express and no implied agreement that arbitration would not be the final means of dispute resolution. The abandonment argument must therefore fail.”

54.  In this regard, Counsel for the Defendant highlighted the judgment of Lord Diplock in Paal Wilson & Co v Blumenthal [1983] 1 AC 854, where the concept of rescission of contract by abandonment, and the legal nature of the obligations assumed by the parties to a commercial contract under an arbitration clause was explained, at paragraph 915B-F:

“Abandonment of a contract ("the former contract") which is still executory, i.e. one in which at least one primary obligation of one or other of the parties remains unperformed, is effected by the parties entering into a new contract ("the contract of abandonment") by which each party promises the other to release that other party from further performance of any primary obligations on his part under the former contract then remaining unperformed, without such non-performance giving rise to any substituted secondary obligation under the former contract to pay damages.

It is the latter part of the promise by each party, i.e. the release of the other party from all further secondary as well as primary obligations, that distinguishes the legal concept of abandonment of the former contract from the extinction of unperformed primary obligations of both parties under the former contract by fundamental breach of a primary obligation (or breach of condition) by one of them, followed by the election of the party not in breach to put an end to all primary obligations of both parties under the former contract remaining unperformed. Unlike the contract of abandonment this leaves the secondary obligations under the former contract of the party who committed the breach enforceable against him by the other party.

To the formation of the contract of abandonment, the ordinary principles of the English law of contract apply. To create a contract by exchange of promises between two parties where the promise of each party constitutes the consideration for the promise of the other, what is necessary is that the intention of each as it has been communicated to and understood by the other (even though that which has been communicated does not represent the actual state of mind of the communicator) should coincide. That is what English lawyers mean when they resort to the Latin phrase consensus ad idem and the words that I have italicised are essential to the concept of consensus ad idem, the lack of which prevents the formation of a binding contract in English law.” (Emphases added)

55.  In Paladin Agricultural Ltd v Excelsior Hotel [2001] to HKC 215, it was held that the fact of the defendant joining the 1^st plaintiff in a litigation commenced by the defendant against the 1^st plaintiff’s parent company under a guarantee cannot be regarded as a positive election by the defendant to abandon its right to arbitrate as between the defendant and the 1^st plaintiff. In rejecting the 1^st plaintiff’s claim that the right to apply for a stay of the action to arbitration had been waived by the defendant as soon as the amended statement of claim was served in the earlier action against the 1^st plaintiff’s parent company, Burrell J explained (at page 223 of the reported judgment):

“The words of art 8 (1) envisage, in my judgment, the ‘statement’ being a statement in the ‘action’ referred to in the opening words of art 8 (1). In our case, that means the arbitral process available to the defendant in this action and not the guarantee action. The 1^st plaintiff was not even a party to the litigation when the original statement of claim was served. Its parent company was the original sole defendant. The mere act of adding the 1^st plaintiff to those proceedings cannot be regarded as a positive election by the defendant to abandon its right to arbitrate on this action.”

His Lordship then referred to a commentary on a Canadian case, Bab Systems Inc v McLurg YB Comm Arb XXI (1996) 200 in 1994:

“The defendant argued that the court should not stay the judicial proceedings under the Ontario equivalent of Art 8 (1) MAL because the application for stay had been made after the plaintiff had submitted its ‘first statement on the substance of the dispute’ by filing an application with the court. The court held that the ‘statement” in Art 8 (1) meant the 1^st statement in the arbitral process, as distinct from the litigation process.”

56.  The Defendants emphasized the fact that it had not effected service of the Writ in HCA 1266 on the Plaintiff, and further, that the period of validity for service of the said Writ has since expired without any renewal. These are matters to be considered by the Court with all the other circumstances of the case, when the Court determines whether there is evidence of an unequivocal abandonment of the right to arbitrate, and the clear and unequivocal exercise of the intention to litigate instead.

57.  On its part, the Plaintiff has highlighted the fact that, as evidenced by a transcript of the conversation between the two representatives of the Plaintiff and the Defendant respectively, each of the Plaintiff and the Defendant was at the relevant time in October 2022 aware of the two Writs which had been issued. The Plaintiff also put emphasis on the fact that despite the Defendant’s assertion that it had never received/been served with the Writ in these proceedings, it is patently clear from the transcript of the conversation that the Defendant was fully aware of the existence and hence the content of the Writ, such that the Defendant’s allegations should be rejected by the Court as being incredible.

58.  There is of course dispute between the parties as to whether it was Mr Issac See (“IS”) who was party to the conversation, the meaning and effect of the conversation, and whether such conversation was without prejudice and is admissible. These are matters of facts in dispute which are for determination either at trial or in the arbitration proceedings, and it is unnecessary and inappropriate for the Court to consider them at this stage on the affirmation evidence filed.

59.  There is however no dispute that the Writ in HCA 1266 was never served by the Defendant on the Plaintiff. It is also clear that the Defendant never filed any statement of its defence in these proceedings, nor took any step to defend these proceedings, which may reasonably be considered by the Plaintiff as the Defendant’s acknowledgment of the propriety of the Plaintiff’s litigation of the dispute arising out of the IMA, as opposed to the arbitration of such dispute pursuant to the Arbitration Clause.

60.  The Defendant has also highlighted the fact that under clause 12 of the IMA, the parties expressly agreed that the IMA was not to be amended unless approved in writing signed by both parties, and further, accepted and agreed that the IMA constitutes the entire agreement. In the absence of any written variation and amendment of the Arbitration Clause, Counsel submitted that there can be no waiver or abandonment of the parties’ agreement to arbitrate. Nor, in my judgment, can the Plaintiff reasonably believe, in the absence of any written variation, that the Defendant had abandoned its right to arbitrate pursuant to the Arbitration Clause. Counsel for the Plaintiff has not given any satisfactory answer to these.

61.  Thus, my findings are that the stay application has been properly made before the submission of the Defendant’s first statement on the substance of the dispute, and that there is no sufficiently unequivocal conduct which can constitute the Defendant’s abandonment of its right to arbitrate, or clear communication of such abandonment to the Plaintiff, for estoppel or waiver to apply.

62.  In my judgment, it is simply unnecessary to make any findings in relation to the conversation which allegedly took place on 6 October 2022. If it was necessary, I am of the view that the conversation clearly indicates that the communication was made at a time when there was an existing dispute between the Plaintiff and the Defendant, when legal proceedings had been commenced or were contemplated, and that the discussion was made in a genuine attempt to further negotiations to settle the dispute. From that, it can be inferred that the communication was made with the intention that, if negotiations failed, the communication would not be disclosed save with the consent of the parties. The authorities are clear that it is not necessary to apply a “without prejudice” stamp to the negotiations. Hence, on the authorities of Poon Loi Tak v Poon Loi Cheung Desmond [2020] 1 HKLRD 511 and Forster v Friedland (unreported, 1992 WL 1351421) the conversation on 6 October 2022 was without prejudice and privileged, and hence inadmissible.

Whether default judgment should be set aside

63.  Being satisfied that there is a valid arbitration agreement between the parties which extends to the dispute in the present proceedings, there should be a mandatory stay of the action to arbitration under section 20 of the Ordinance. The parties agreed that their dispute under the IMA should be referred to arbitration, and that is what should happen and the Court will not usurp the function and duties of the arbitral tribunal to decide the dispute on the merits, including any dispute as to the jurisdiction of the tribunal. This approach and the rationale have been explained in DCH and need not be repeated here.

64.  On behalf of the Plaintiff, Counsel argued that the judgment in DCH itself made it clear that even having decided in favor of a stay under section 20, there are still factors which the Court must weigh in the balance before deciding whether the regular judgment should be set aside. These factors include (see paragraph 18 of the judgment) any delay in the application to set aside, the reasons for letting the default judgment occur and the reasons for the delay.

65.  It was highlighted that in this case, there has been a delay of more than 1.5 years from the Plaintiff’s commencement of these proceedings, and the Defendant’s Summons in April 2024 to stay the proceedings and to set aside the Judgment regularly obtained. The Plaintiff argued that despite the Defendant’s allegations that it had not received and had no knowledge of the Writ, it is clear from the conversation between the representatives of the Defendant and of the Plaintiff, that the relevant personnel of the Defendant clearly had notice of the fact that the Writ had been issued, and the Defendant had been trying to use the commencement of HCA 1266 as leverage to exert pressure on the Plaintiff to withdraw these proceedings. The Plaintiff argued that the Defendant’s conduct and attempts to lie about its notice of the Writ served on it is reprehensible, and ought to be considered by the Court as a factor against the exercise of discretion in favour of the Defendant.

66.  I have to agree that 1.5 years is a long period of delay on the Defendant’s part in its application to set aside the Judgment. However, all other circumstances of the case have to be taken into consideration in the balancing exercise. On the Defendant’s part, its explanation for the inactivity and delay is that there had been a major Change in Control in its shareholding and management in late 2022, when it ceased to become part of or be associated with the Group. It was around the time of the Change in Control between late December 2022 and early 2023 that He Huan became the Managing Director of the Defendant, but He had no personal knowledge of any of the dealings concerning the IMA. The Plaintiff alleges that it was IS of the Defendant who had conducted the relevant conversation with the Plaintiff on matters relating to the Writs in HCA 1266 and in these proceedings and the terms of withdrawal thereof, but on the Defendant’s case, IS was employed by the Group which was the parent company of the Defendant before the Change in Control, IS was summarily dismissed in April 2024 and the reason for his dismissal was his gross misconduct which included his mishandling of records and information and having intentionally left matters unattended, unanswered and unreported. In essence, the purported explanation is that the Defendant had not been properly apprised of the issue of the Writ in these proceedings and in HCA 1266, nor of the alleged conversation the Plaintiff’s representative had with IS (if it was IS who was party to the conversation) as to the status of the proceedings. It was only after the Judgment was obtained in these proceedings, after a delay on the Plaintiff’s part of approximately 16 months after the issue of the Writ, that the Defendant was given notice of the Judgment when a Garnishee Order nisi was served on its bank.

67.  Although the merits of the Defence should not be considered by the Court, the Court can in the exercise of its discretion give regard to the fact that even on a peripheral review of the IMA which is the subject matter of the dispute and the Plaintiff’s claim of the Defendant’s breach thereof, it is clear that the Defendant does have a defence which has a real prospect of success. The express terms of the IMA clearly provide (by clause 1.3, 9.1 and 9.3) for the engagement and the term of the agreement to be effective until both parties agree in writing to terminate same, and for the “termination date” to be the date on which both parties agree in writing to terminate. The Plaintiff further agreed (by clause 2.1) not to withdraw the managed assets during the effective term of the agreement.

68.  It is trite, that no term can be implied if it contradicts the express terms of the agreement.

69.  As for the alleged oral agreement and the alleged breach thereof, the entire agreement provision in clause 12 of the IMA, which also provides that amendment of the agreement has to be approved in writing signed by all parties, affords an arguable defence with real prospects of success.

70.  As pointed out by the Court in the course of the hearing, the Plaintiff’s submission that the Court should impose conditions (for payment into court) before setting aside the Judgment is contradictory to the clear findings made by the courts, that at this stage when a stay of proceedings to arbitration is considered, merits should not be reviewed by the court but should be reserved to the arbitral tribunal. However, even if the Court should give consideration to the merits of the defence, it is clear on the facts of this case that the defence is not shadowy, as the Plaintiff submits.

71.  Taking into account all the relevant circumstances of the case, I consider that it is a proper exercise of the Court’s discretion to allow the Defendant to set aside the Judgment.

Plaintiff’s summons to adduce the 2^nd affirmation of Ma Li

72.  As can be seen from the above, nothing turns on the evidence sought to be introduced by the Plaintiff, as to whether the identity of the person to the telephone conversations was IS, or someone else of the Defendant. The conversation was without prejudice and inadmissible in evidence. In my judgment, the further evidence is unhelpful and unnecessary, and does not satisfy the conditions set out in Ladd v Marshall [1954] 1 WLR 1489. There is no satisfactory reason why the evidence could not have been obtained with reasonable diligence when the Plaintiff’s evidence was first filed, and pertinently, the evidence does not have any important influence on the outcome of the decision of this Court.

Disposition

73.  For the above reasons, leave was granted to the Defendant to set aside the Judgment of 22 January 2024 and the Garnishee Order to show cause made on 22 February 2024, and the proceedings were stayed for reference to arbitration, in terms of the Summons.

74.  It is the Defendant which seeks the indulgence of the Court, to set aside the regular Judgment, after a delay of 1.5 years. In all the circumstances, I consider that the fair order to be made is for the Defendant to pay the Plaintiff’s costs of and incidental to the Summons, with certificate for Counsel. No order for costs is made on the Plaintiff’s summons of 5 August 2024 to adduce evidence.

75.  The above costs orders are made on nisi basis, and shall become absolute unless application for variation is made within 14 days.