G v. T AND ANOTHER

HCA 39/2021

[2022] HKCFI 2214

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 39 OF 2021

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D E C I S I O N

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1.  These proceedings were commenced in January 2021 by the Plaintiff against the 2 Defendants, for amounts due under the Defendants’ Guarantees signed by them on 28 February 2019 (“Guarantees”), and under an Undertaking signed by them on 18 December 2019 (“Undertaking”). The claims are made for the Defendants’ payment of RMB 42.7 million as damages in respect of their breach of the Guarantees and the Undertaking.

2.  By their summons of 29 March 2021 (“Summons”), the Defendants applied to stay all further proceedings in this action, on the ground that they are entitled to rely on an arbitration clause contained in the Guarantees to refer the dispute to arbitration by the Guiyang Arbitration Commission on the Mainland (“Commission”).

3.  The Plaintiff’s solicitors ceased to be solicitors on the record, by virtue of an order granted by the Court on 1 March 2022. The Plaintiff, as a limited company, was not represented at the hearing of the Summons.

4.  Having heard the submissions made on behalf of the Defendants, and having reviewed the Statement of Claim (“SOC”) and the evidence filed by the Plaintiff and the Defendants in this action, I am satisfied that there is more than a prima facie or plainly arguable case that the Plaintiff and the Defendants are bound by an arbitration clause contained in the Guarantees under which the Defendants are sued in this action.

5.  The Plaintiff is a company incorporated on the Mainland, in the business of providing an online peer-to-peer lending platform. The claims made by the Plaintiff against the Defendants in this action are for the Defendants’ alleged breaches of the Guarantees, under which the Defendants personally guaranteed payment to the Plaintiff of the principal loan, interest and damages due from borrowers referred to the Plaintiff under a Framework Agreement made between the Plaintiff and a Mainland company (“HASS”). HASS is in the business of a provider of commercial lending services, of which the Defendants are claimed to be the actual controllers.

6.  The Plaintiff claims, in paragraphs 7 and 9 of the SOC, that the Defendants agreed under the Guarantees to bear joint and several liability to pay principal, interest and liquidated damages arising from the loan agreements which were entered into between the Plaintiff and the borrowers on HASS’ referral.

7.  There is no dispute raised by the Plaintiff that the Guarantees contain a clause for arbitration of all disputes caused by or arising under the Guarantees (“因擔保合同產生的一切糾紛”) (“Arbitration Clause”). The Plaintiff only claims (in the affirmation of its general manager) that it has separate and/or distinct claims against the Defendants in the Hong Kong courts based on the Undertaking, and that the Undertaking does not contain any arbitration or jurisdiction clause.

8.  The Plaintiff further alleges that the 2^nd Defendant had “de‑registered” his residence status on the Mainland, which made it difficult for any authority on the Mainland to confirm the 2^nd Defendant’s identity, and to effect personal service of any documents on the 2^nd Defendant on the Mainland. It is not disputed that the Plaintiff had in fact, prior to the institution of the proceedings herein, commenced arbitration against the Defendants and against the authorized representative of HASS (“Li”) before the Commission in November 2020 (“Arbitration”). However, the Plaintiff claims that as a result of the “deregistration” of the 2^nd Defendant’s residence status, and the difficulties in obtaining identity proof of the 2^nd Defendant, the Arbitration has been stayed. The Plaintiff therefore claims that the Arbitration and/or the arbitration agreement contained in the Guarantees are “inoperative”.

9.  It is clear from the SOC that the cause of action relied upon by the Plaintiff under the Guarantees falls within the ambit and scope of the Arbitration Clause.  The claim for the sums said to be due from the Defendants to the Plaintiff are pleaded to be due by virtue of the Guarantees, and the Defendants’ dispute of their liability for such sums clearly constitute a dispute caused by or arising under the Guarantees (“因擔保合同產生的糾紛”).

10.  There is no substance in the Plaintiff’s allegation, that “the major underlying claim/cause of action” of the Plaintiff in this action is made under the Undertaking. It is clear from the SOC (see paragraphs 7, 9, 16 and 17) that the claims against the Defendants are made in respect of their alleged breach of their obligations under the Guarantees, by which they personally assumed joint and several liability for the borrowers’ payment of the principal, interest and liquidated damages under the loan agreements with the Plaintiff. As Counsel for the Defendants correctly pointed out, the Defendants’ execution of the Undertaking was pleaded, in paragraph 14 of the SOC, to be in performance of their Guarantees.

11.  The Undertaking itself contained the same covenant and agreement by the Defendants, to assume joint and several liability for the principal, interest and costs of the borrowers. The obligations assumed by the Defendants under the Undertaking are of the same nature as, if not identical to, those assumed under the Guarantees.

12.  I accept that on the facts of this case as pleaded in the SOC, the Fiona Trust presumption in favour of arbitrability and the “one-stop” adjudication approach” (Fiona Trust v Privalowv [2007] Bus LR 1719) applies, as a useful starting point. The Plaintiff and the Defendants as rational businessmen are more likely to have intended any dispute arising out of the relationship in which they have entered to be decided by the same tribunal.  The Guarantees and the Undertaking (even if separate and distinct to the Guarantees as emphasized by the Plaintiff) deal with and govern the same relationship between the Plaintiff and the Defendants: for the Defendants to assume liability to the Plaintiff for the debts of the borrowers who had been approved and referred by HASS (controlled by the Defendants), to the Plaintiff.  The Undertaking was entered into “in performance” of the Guarantees, as part and parcel of the same transaction between the Plaintiff and the Defendants, and only involving an additional party, HASS, which is not sued in this action. There is no conflicting clause in the Undertaking as to the manner of resolution of disputes relating to or arising under the Undertaking, no differently expressed choice of jurisdiction, and there is no clear language in the Guarantees to exclude any specific disputes, such as those which may relate to the obligations falling within the scope of the Undertaking.

13.  In fact, as Counsel for the Defendants pointed out, the Undertaking referred to the provisions in the “original agreement” between the Plaintiff and the signatories to the Undertaking, as to the rates of interest and the days for calculating the interest payable under the Undertaking. There is at least a prima facie or plainly arguable case that the reference made in the Undertaking to the “original agreement” is to the Guarantees signed by the Defendants. The Guarantees contain the Arbitration Clause, such that the reference to the Guarantees render the Arbitration Clause a part of the Undertaking as well, by virtue of section 19 of the Arbitration Ordinance.

14.  To conclude, I am satisfied that there is a prima facie case that the Plaintiff and the Defendants are bound by an arbitration agreement. The authorities are clear, that unless the point is clear, the Court should not attempt to resolve the issue, and the matter should be stayed in favour of arbitration for the tribunal to determine its own jurisdiction (PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309).

15.  The Defendants having satisfied the Court of the existence of the arbitration agreement, it is the Plaintiff which has the onus of proving that the arbitration agreement is null and void, inoperative, or incapable of being performed (Overseas Union Insurance Ltd v AA Mutual International Insurance Co Ltd [1988] 2 Lloyd’s Rep 63 at 70). The Plaintiff relies only on the “inoperative” part of section 20 of the Ordinance.

16.  I am not satisfied that the matters to which the Plaintiff referred, as to the alleged difficulties of verifying the identity of the 2^nd Defendant because of the “deregistration” of his residence status on the Mainland, can render an arbitration agreement to be inoperative. The Plaintiff can refer the dispute as to the Guarantees to the Commission, and has in fact done so, with no difficulties. Service of the notice of arbitration and other documents can no doubt be effected in accordance with the applicable rules of the Arbitration, even if the 2^nd Defendant’s “residential status” cannot currently be identified, by substituted or deemed service as may be necessary or applicable. In any event, in the 1^st Defendant’s affirmation filed and served on behalf of the Defendants in these proceedings, the Defendants have confirmed that they would submit themselves to the tribunal, provide all necessary identity proof for the Arbitration, and facilitate and enable the conduct of the Arbitration on the Mainland. There is no other evidence to satisfy me that the Arbitration Clause is either inoperative, or otherwise null and void, or incapable of being performed.

17.  Having decided that there is a prima facie case that the parties are bound by an arbitration agreement contained in the Guarantees, which extend to and cover the dispute and the claims made in these proceedings, and that the arbitration agreement is not inoperative as the Plaintiff alleges, the Court has no further discretion but to stay the action to arbitration.  It is unnecessary to consider the alternative ground of a stay on grounds of forum non conveniens.

18.  The Defendants having succeeded on their application for stay, it follows that the costs of the application (including any costs reserved) are to be paid by the Plaintiff to the Defendants, on indemnity basis (Chimbusco International Petroleum (Singapore) Pte Ltd v Fully Best Trading Ltd [2016] 1 HKLRD 582), with certificate for Counsel, and to be summarily assessed.