廣東長虹電子有限公司 v. INSPUR ELECTRONICS (HK) LTD

HCCT 43/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 43 OF 2013

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D E C I S I O N

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Background

1. This is an application by Inspur Electronics (HK) Limited (“IEL”), the respondent in these proceedings, to set aside the order of this Court dated 13 February 2014 (“Order”), granting leave to enforce an arbitral award dated 6 March 2013 (“Award”) made by SCIETAC of the Mainland (“Tribunal”).  Under the Award, IEL was ordered to pay to Guangdong Changhong Electric Co Ltd (“GD”), the applicant in these proceedings, US$417,024.09, liquidated damages of US$68,460 and arbitration costs, for breach of contract made between GD as purchaser and IEL as seller of various products.  The grounds relied upon by IEL for setting aside the Order and not to enforce the Award under s 95 of the Arbitration Ordinance (“Ordinance”) are that there was no valid contract between GD and IEL, and that accordingly, it would be contrary to public policy to enforce the Award.

2. IEL also argued that the original arbitration agreement was never produced, as required under s 94 of the Ordinance, such that the Award should not be enforced for lack of compliance with the mandatory provisions of s 94. 

3. IEL is a Hong Kong company established in 1998 for the distribution of IT products.  It has an associated company with a confusingly similar name, Inspur (HK) Electronics Limited (“Associated Company”), which was set up in December 2002, and which thereafter took over the business of trading in computer components from IEL. 

4. GD is a Mainland company.

The Arbitration

5. On 7 May 2012, GD commenced arbitration proceedings on the Mainland (“Arbitration”), in reliance on an arbitration agreement contained in 3 contracts made between GD and IEL, namely Contract No 4300020409, 4300020410 and 9300001943, all dated 22 June 2009 (“Contracts”), for the sale and supply of LCD (liquid crystal displays) (“Products”), at the unit price of US$72. 

6. The Contracts provide expressly for Chinese law to apply, and clause 16 of each of the Contracts states:

“Any dispute arising from or in connection with this Contract shall be submitted to (SCIETAC) for arbitration which shall be conducted in accordance with the Commission’s arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.”

7. GD claims in the Arbitration that it had paid a total sum of US$720,000 to IEL, representing a deposit of 40% of the total purchase price of the Products under the Contracts.  The deposit was paid into IEL’s bank account in Hong Kong.  IEL delivered 1300 items of the Products under the Contracts, and issued a packing list and an inspection document to GD in respect of such Products.  According to GD, IEL could not deliver any more of the Products to GD under the Contracts, and as a result, the parties entered into 2 agreements in writing respectively dated 13 November 2009 and 30 November 2009 (“Termination Agreement”).

8. Under the Termination Agreement, GD and IEL acknowledged their having entered into the Contracts, GD’s payment of US$720,000, and IEL’s inability to deliver the Products as scheduled, despite their agreement.  IEL agreed, under the Termination Agreement, to either repay to GD US$626,400 and interest of US$7,516.80, or to complete the delivery of the remaining 8700 pieces of the Products.

9. GD claims in the Arbitration that despite the Termination Agreement, IEL neither performed the Contracts by delivering the outstanding quantity of the Products agreed to be delivered under the Contracts, nor made refund to GD of the deposit paid by GD.

10. On 12 June 2012, IEL applied to the Tribunal to dispute its jurisdiction.  Evidence was filed by the parties on the matter of jurisdiction.  The claims made by IEL in its jurisdiction challenge are apparently the same as those now asserted in these proceedings.  IEL claims that there was no genuine contract between it and GD, that the Contracts were signed and chopped by one Chen Qiang (“Chen”) in IEL’s name without IEL’s knowledge, that the chop imprinted on the Contracts was in fact that of IEL’s Associated Company, and that Chen was never a director or authorized person of IEL.  IEL claims that it was only acting as an agent to collect trade debts for another company, 上海艾克森電子有限公司(“Merchandise Provider”), and there was no direct contractual relationship between IEL and GD at all.

11. The Tribunal rejected IEL’s jurisdiction challenge, ruling that it was satisfied that there was prima facie evidence of the existence and performance by the parties of the Contracts, which constituted valid and binding agreements on the parties, such that they were bound by the arbitration clauses in the Contracts.

12. The Tribunal proceeded with the Arbitration, and after receiving the evidence and submissions filed by GD and IEL, the Tribunal made the Award on 6 March 2013.

Whether valid agreement between the parties

13. Section 95 (1) provides that enforcement of a Mainland award will not be refused except in the cases mentioned in s 95.  Section 95 (2) (b) provides that enforcement of a Mainland award may be refused if the person against whom it is invoked proves that the arbitration agreement was not valid under the law to which the parties subjected it, or if there was no indication of the law to which the arbitration agreement was subjected, under the law of the Mainland.

14. There is no expert evidence on Chinese law, save for the Tribunal’s references to the relevant provisions which the Tribunal considered.  In other respects, I will assume, in the absence of expert evidence to the contrary, that Chinese law is the same as Hong Kong law.

15. The arguments made by IEL on the alleged invalidity of the Contracts turn, in truth and in substance, on the fact that they were signed by Chen without IEL’s authority, and allegedly without IEL’s knowledge.  These are incredible on the evidence adduced and the assertions made by Zou Bo (“Zou”) on IEL’s behalf.

16. The Contracts were all entered into in IEL’s name and signed by Chen.  Pu Maoyu (“Pu”) of GD explained in his evidence that copies of the Contracts had been sent by email to Huang Kai (“Huang”), GD’s business clerk.  The Contracts received by email had been signed by Chen on behalf of IEL, and bore the imprint of a seal, which now transpires to be that of the Associated Company but which shows the first 2 characters of IEL’s Chinese name in the centre.  Although the English name of the Associated Company appears in full on the chop, one cannot easily distinguish the difference in the English names of IEL and the Associated Company. 

17. Copies of the Contracts received by Huang were later printed out from Huang’s computer, and produced for submission to the Tribunal.  Copies were also exhibited to Pu’s affirmations filed in these proceedings.  According to Pu, Huang had left GD’s employment and it was not possible to contact him.  Pu himself could not recall if IEL had ever received the original of the Contracts from IEL.

18. From the documentation provided, it is clear that the name of IEL was used in the Contracts, and in the documents related to the Contracts such as the pro forma invoices issued to GD and the packing lists for the Products sold to GD.  The deposits in payment of the purchase price for the Products were paid into IEL’s bank account in Hong Kong, as evidenced by the application for funds transfer and the certification issued by the remitting bank.

19. IEL professes to be merely “an agent for collection of trade debts for and on behalf of” the Merchandise Provider.  That is all that was said of the arrangement and relationship between IEL and the Merchandise Provider.  No further details were furnished as to what this “agency” entailed, how this was set up, what “trade debts” were to be collected, and how they were agreed to be and in practice collected.  Zou accepts that Chen is the responsible person of the Merchandise Provider.

20. It is IEL’s case (paragraph 6 of the 1^st affirmation of Zou) that unbeknown to IEL, the Contracts were signed in the course of the trading between the Merchandise Provider and GD.  Instead of using the name and chop of the Merchandise Provider, the name of IEL was typed in the Contracts, and the chop of the Associated Company was impressed on the Contracts (allegedly without the knowledge of IEL).  It is implicit from Zou’s evidence that it was Chen of the Merchandise Provider who had done all this, and who had signed the Contracts in IEL’s name, all without IEL’s knowledge or authority.

21. IEL never disputed its receipt of the funds which were sent by GD to IEL’s bank account in Hong Kong.  IEL acknowledged that it was, and had consented to being, the agent of the Merchandise Provider for the receipt of the Merchandise Provider’s “trade debts”.  By agreeing to act in that role, IEL as a commercial entity must have known that inevitably, there were or would be contract documents relating or giving rise to such “trade debts”.  I share the Tribunal’s skepticism, that IEL was a mere collecting agent of the Merchandise Provider’s trade debts as it claims, and that it would not have asked for documents to support, explain or evidence the trade debts it was to collect, particularly upon its receipt of funds of US$720,000 in its bank account, and that IEL would have kept silent despite the Contracts and supporting documents showing its name as the contracting party.  If it had seen documents which showed its name, and had made no protest on its receipt of funds under such documents, it can only mean that IEL had consented to being made and named as a party to the Contracts, if only for the purpose of collecting the trade debt on behalf of the Merchandise Provider.

22. Considering the documents adduced in evidence in these proceedings, it seems clear to me that IEL was more than a mere “collecting agent” for the Merchandise Provider, but had agreed to lend its name to the Merchandise Provider for the purposes of enabling the Merchandise Provider to receive monies via IEL’s bank account.  I consider that on all the evidence, it is more probable than not that IEL had in fact consented to and agreed to the arrangement whereby the Merchandise Provider would sign contracts and issue documents in IEL’s name for the purpose of collecting the money payable under the Contracts.  In that respect, it was doing precisely what it described as its role: “collecting” monies or “trade debts” for the Merchandise Provider.  By agreeing to lend its name to the receipt and collection of trade debts, I consider that IEL must also have agreed to lend its name and consented to its name to be used on any documents which can evidence the “debt”, and enable the sum being paid into IEL’s bank account.  That includes the use of its name in the Contracts.

23. For the above reasons, I reject IEL’s assertions that the Contracts were made in its name without its knowledge and authority.

24. As the Tribunal found, the Termination Agreement was signed by both GD and IEL, and this acknowledged the existence and binding effect of the Contracts.  On the evidence presented to the Tribunal, the Contracts were signed by GD by the time they were submitted to the bank to make payment.  In any event, both GD and IEL had by their conduct adopted the Contracts, the former by making payment of the deposits.  Even if there was any arguable point that the Contracts were not signed by GD, the Tribunal found that the Contracts were validly concluded and binding under Article 3 of the PRC Contract Law.  I can find no basis to fault such finding.

Non-compliance with s 94 for of the Ordinance?

25. In relation to the requirement that a “duly certified copy” of the arbitration agreement must be produced under s 94 of the Ordinance, the learned authors of Mustill & Boyd: Commercial Arbitration explained the equivalent evidential requirements of ss 85, 88 and 94 of the Ordinance, as follows (at p 425):

“The references to documents being ... ‘duly certified’... probably add nothing to the ordinary rules of evidence concerning proof of documents - the most convenient method of proof will generally be by exhibiting the document to an affidavit deposing to its authenticity, accuracy as a copy, or truth as a translation, as the case may be.”

26. Pu has exhibited copies of the 3 Contracts to his affirmations filed in these proceedings, explaining how the copies came into GD’s possession and control, and deposing to the truth of the documents and in particular Contract No 4300020410 (paragraph 9 (4) (l) of Pu’s 3^rd affirmation).  I am satisfied from Pu’s evidence that a certified copy of the arbitration agreement, namely clause 16 of Contract No 4300020410, has been produced. 

27. To the extent that there should be any technical defect in GD failing to depose to the truth of Contracts Nos 4300020409 and 9300001943, I fail to see how the outcome of these proceedings can be affected. The arbitration clause in Contract No 4300020410 is wide enough in scope to cover any and all disputes other than one which is “entirely unrelated to the transaction covered by the contract”.  This was so accepted by Hon Ma J (as he then was) in Getwick Engineers Limited v Pilecon Engineering Limited HCA 558/2002.  On the facts of this case, the 3 Contracts and the Termination Agreement are so intricately connected, that a dispute in connection with Contracts Nos 4300020409 and 9300001943 and the Termination Agreement cannot be said to be “entirely unrelated to the transaction covered by” Contract No 4300020410 (a certified copy of which has been adequately produced by Pu’s affirmation). 

Conclusion

28. In conclusion, therefore, I dismiss IEL’s application to set aside the Order on the ground that there was no valid arbitration agreement between GD and IEL.  It follows that it would not be contrary to public policy to enforce the Award. 

29. I will make an order nisi that the costs of the application be paid by IEL to GD on an indemnity basis (A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389.