惠州市東方聯合實業有限公司 v. WONG WAI TSANG

HCCT 73/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 73 OF 2010

____________

____________

------------------------

JUDGMENT

------------------------

1.  On 14 February 2011, Saunders J gave leave to 惠州市東方聯合實業有限公司 (“the Applicant”) pursuant to s 40B and s 2GG of the Arbitration Ordinance (Cap 609) (“AO”), 73 rule 10(1) of the Rules of the High Court, to enforce an award dated 21 June 2005 (“the Award”) made by 佛山仲裁委員會 in the same way as a judgment, order or direction.

2.  The background to the Award is as follows:‑

(1) The original claimant in the arbitration was the Shenzhen Development Bank Foshan Branch (“the Bank”).

(2) Its claim in the arbitration was, first, against Foshan Jin Sheng (“Jin Sheng”). The Bank had extended certain banking facilities to Jin Sheng and Jin Sheng had defaulted. The Bank claimed against Jin Sheng on the basis of, among other things, a loan agreement dated 25 December 2003. (“the Loan Agreement”).

(3) As against the Debtor in the present application (“the Debtor”), the Bank’s claim is on the basis of a written guarantee signed by the Debtor on 7 August 2003. (“the Guarantee”)

(4) The Award was made on 21 June 2005 against (among others) the Debtor.

(5) By a deed of assignment dated 10 September 2007, the Bank purported to (I say “purported to” because there is an argument as to precisely what was being assigned ‑ see below) assign the outstanding sums under the Award to 中國華融資產管理公司深圳辦事處 (“the Intermediate Assignee”).

(6) By a Deed of Assignment of the same date (“the Assignment”), the Intermediate Assignee purported to assign the outstanding sums under the Award to the Applicant.

3.  By summons dated 28 April 2011 the Debtor applied to set aside the Order of Saunders J.  The grounds, as crystallized by the Debtor’s skeleton arguments, are as follows:‑

(1) The Applicant, as an assignee and not one of the “persons between whom [the Award] was made”, did not have locus standi to enforce the award under the AO.

(2) By way of fallback, the Assignment did not assign the benefit of the Award, but only the benefits of the Loan Agreements made by the Bank to the borrower.

Discussion

4.  On the first point (the locus standi point), the Debtor referred to s 40B of the AO previously in force (under which this application is made).  It provides as follows:‑

“40B Effect of Mainland awards

(1) A Mainland award shall, subject to this Part, be enforceable in Hong Kong either by action in the Court or in the same manner as the award of an arbitrator is enforceable by virtue of section 2 GG.

(2) Any Mainland award which is enforceable under this Part shall be treated as binding for all purposes on the persons between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in Hong Kong, and any references in this Part to enforcing a Mainland award shall be construed as including references to relying on a Mainland award.”

5.  The Debtor submitted that s 40B(2) only provided for the effect of an award on persons between whom it was made.  And since the Applicant was not a party to the arbitral award, it has no locus to enforce the award under s 40B.

6.  However, I agree with Mr Kwong for the Applicant that s 40B(2) is not relevant to the scenario we are facing, which is one of enforcement.  S 40B(2) concerns recognition. The “enforcement” provision is s 40B(1) and it does not contain the equivalent language of “between whom it was made”.  As long as a person has obtained the benefit of an Award (say, by an assignment – on which there is a dispute and will discussed below), the Award can be enforced even though he was not the original party to the Award or even though he is not a “beneficiary” of an Award (in the sense that the Award, by its own terms, directed payment to him). 

7.  Any contrary ruling would be contrary to commercial sense.  The rights under an award is a chose in action and hence assignable.  Commercial discourse depends (among other things) on the ability to sell or assign valuable rights.  If the assignee of an award cannot enforce it in the same expeditious way as an original party, it will stifle commercial discourse.

8.  Different considerations apply to “recognition” (which is the subject matter of sub‑section (2) even though the word is not used in that subsection).  Ordinarily an Award is “recognized” by means of giving effect to findings of fact or law in the Award (so as to give rise to an issue estoppel).  I can understand why, in the context of “recognition” of an Award, recognition is to be limited to parties to an Award.  These are the parties who have had a chance to adduce evidence or make submissions on particular issues of law and fact and it is natural that the binding effect should only apply to them.  One can readily see why an assignee of the benefit of an Award (e.g. a simple duty to pay money) may not wish to be straddled with the detailed factual findings (e.g. that events X, or Y, did or did not happen) underpinning the Award. 

9.  At the hearing Mr Pun for the Debtor had referred me to the 3^rd edition of Redfern and Hunter: Law and Practice of International Arbitrations at §10-09 to §10-11.  After the hearing he provided me with the equivalent extract in the 4^th edition.  The relevant text is to the effect that an award may be recognized without being enforced but if it is enforced then it is necessarily recognized by the court which orders its enforcement.  The point is sought to be made that if subsection (2) limits recognition to immediate parties, then enforcement is likewise limited.  I disagree.  The relevant text is worded as part of a general discussion and not in the specific context of an attempt by the assignee to enforce an award.  I do not think it assists the Debtor.

10.  Mr Pun also submitted that the statutory regime provided for a process of summary enforcement of an Award and that only limited documentation is required to be produced in an application for leave to enforce.  Therefore a claim by an assignee was not contemplated.  However, the fact that the rules had stipulated for certain documents to be produced in support of an application for leave to enforce does not mean that other or further documents could not, or need not, be produced if and when the context and circumstances so require.  It certainly is not an indicator that the lawmaker had intended to limit the scope of the category of persons to the immediate parties (or “beneficiaries”) simply because the legislation had not required the supporting materials to include (say) other documents such as a copy of any relevant assignments. 

11.  I am reinforced in my decision by the recent decision by the Court of Final Appeal in Democratic Republic of Congo & others v FG Hemisphere, FACV 5,6 and 7 of 2010.  In that case the plaintiff, FG Hemisphere, claimed as assignee of the original claimant in an arbitration.  The case eventually turned on the law on sovereign immunity and no point was apparently taken on the position of an assignee.  At §9 of the judgment Bokhary PJ expressly referred to s 42 of the AO in force at that time which is materially the same as s40B(1). 

12.  It is of course trite that strictly speaking a case is not authority for a legal proposition which is assumed to be correct but which has not been explicitly raised or made the subject of adversarial argument.  But if the point is a good one at all, it would be extremely surprising that it would have escaped the attention of the array of talents whose presence had graced all three levels of Courts.

13.  During the course of the arguments, hypothetical scenarios were mooted such as what would happen if the Court were to grant leave to a claimant (in an arbitration) to enforce an award and then later an assignee were to turn up and make an application for leave to enforce the same award or vice versa.  I do not believe that such hypothetical examples, debated in the abstract, are such as to detract from my conclusion.  The law has a whole array of ammunition (requirement to give notice under the applicable law, ability of the “real” creditor to intervene, ability to set aside an order erroneously made and claw back a payment erroneously made, to name a few non‑exhaustive examples) against “double‑claim” scenarios such as those discussed and each case must be dealt with on its own facts as and when it arises. 

14.  Mr Pun referred to a decision of Burrell J in Sam Ming City Forestry Economic Company & another v Lam Pun Hing & another, HCMP 1220 of 2000; 6 July 2000; affirmed on appeal [2001] 3 HKC 573.    In that case the relevant award directed payment of money to the 2^nd plaintiff who was not a party to the arbitration agreement or the arbitration itself.  As part of the argument as to whether the 2^nd plaintiff had locus standi to seek enforcement of the award, Burrell J (judgment page 5) examined s 40B(2) and held that the award was made between the Debtors and the 2^nd plaintiff even though the latter was not a party to the arbitration agreement or the arbitration because s 40B(2) must include “beneficiaries” or recipients of awards.  This was upheld by the Court of Appeal.  As I understand it, the argument is that this shows that a party seeking to enforce an award must be a party to the arbitral award (the Debtor’s skeleton arguments  §10).  

15.  I do not accept this argument.  The decision did not concern an assignee.  It does not lay down any proposition of law that in order to be able to enforce an award, an applicant must always be able to show that he falls within the language of subsection (2) or that he was a “party” to the award.  The fact that the 2^nd plaintiff in that case resorted to s 40B(2) to derive an entitlement to enforce an award does not mean that an assignee of an award cannot derive an entitlement to enforce by some other means outside of s 40B(2).  Here, subject to the point I am going to turn to, the Applicant derives its entitlement from the simple fact that he was the assignee of the Award. 

16.  I now turn to the point about the subject matter of the assignment.

17.  The language of the relevant clauses of the two assignments is identical.  I take the Assignment (ie assignment from the Intermediate Assignee to the Applicant) by way of example. It states:-

“甲乙雙方經協商，就貸款轉讓事宜達成如下協讓：

(一) 甲方將其對借款人[佛山金聲電子有限公司]的貸款合同項下的[1] 筆債權及相關利，權益，利益，收益轉讓給乙方。截至[2007]年[5]月[31]日，該筆債權項下未償還本金餘額為人民幣 Y5,705,857.97 [大寫：人民幣伍佰柒拾萬伍仟捌佰伍拾柒元玖角柒分]。

具體債權本金金額見本協讓所附[轉讓債權明細單]。

（二） 本協讓所轉讓債權的收益和風險轉移時累點為[2007]年[8]月[31]日，此後所收回的收益歸乙方所有。

（三） 自債權轉讓之日起，與轉讓權的相關的全部從權利(包括但不限於保證權，扺押權，質押權) 也同時由甲方轉移至乙方。”

18.  There are certain notice requirements under Mainland law for an assignment to be effective.  The Debtor does not positively suggest that those requirements have not been satisfied.  Professor Lin, the Debtor’s Mainland law expert, qualified his opinion by saying that if the “Economic Daily” (the newspaper in which the advertisement was placed) was an influential paper nationally or provincially then the relevant requirement would have been satisfied.  However, no one from the Debtor’s side had positively asserted that the paper was not such an influential paper.

19.  Of course it may be said that the Applicant has not provided such an averment either.  However, the matter must be viewed in context.    The Applicant’s Mainland law expert referred to the placing of the advertisement at  §15 of his report.  In a judgment of the Guangdong court in (2008) 揭西法執字 443‑2 號 (more about it later) it was stated that the assignments had been notified by way of advertisements.  The Applicant’s case quite clearly is that the placing of the advertisements fulfilled the requirements of Mainland law.  If the Debtor wishes to raise an issue out of it, it is incumbent upon him to positively adduce evidence.    He has not done so.

20.  I therefore proceed on the basis that the assignments fulfilled the “advertisement” requirement under Mainland law. 

21.  The Debtor argued that the language of the Assignment was such that only the benefit of the underlying loan, but not of the arbitral award, has been assigned.  In the words of Professor Lin, the Debtor’s expert at §18‑19 of his report:-

“在法理上，該仲裁裁決具有和法院的判決同樣的法律效力，即對原貸款合同下債權債務關係和該合同相關的擔保合同所產生的從權利作出了終局決定。各方當事人對各自的權利義務的爭論已經由該矢裁裁決作出了終巨的決定。各方當事人在對原貸款合同下債債務關係和該合同相關的擔保合同所產生的債務關係已經被該仲裁裁決所確定的債權債務關係所代替。其結果是，由於原來的債權債務關係已經被仲裁裁決所確定的終局性的債債務關係所代替，各方當事人若要處分其債權債務的話，只能處分由仲裁裁決所確定的終局性的債權債務關係，而不能處分原來的債權債務了。

根據上述分析，我以為[仲裁裁決書]並非屬於本案的申請人與中國華融資產管理公司深圳辨事處於 2007年9月10日 簽訂的有關的債轉讓協議第体條所說的是‘原有借款合同，抵押合同等相關法律性文件。’而且在[仲裁裁決書]生效之後，原債權人，即深圳發展銀行佛山分行，只能轉讓[仲裁裁決書]所確定新的債權，而不能回過頭去轉讓原有借貸合同，擔保合同下的債權，給中國融資管理司深圳辨事處。”

22.  The Applicant, however, contended that the assignment of the loan carried with it the entitlement to enforce the arbitral award.  An Opinion from 廣東君和政通律師事務所 is relied on.  At first sight this may appear to be a case where the Court is faced with different opinions from Mainland experts on the effect of the assignments.

23.  My immediate reaction to Professor Lin’s view is that on his reasoning, the relevant parties would have gone to the lengths of executing legal documentation ‑ quite obviously intended to have legal effect ‑ but actually ended up signing documents with no legal effect because they had purported to assign the original rights under the loan documentation which had already been superseded by the Award (and hence could no longer be disposed of).  In my judgment, there is a strong argument that applying the maxim (in the absence of contrary evidence, I can presume that Mainland law has a similar concept – which is, after all, a matter of common sense) that a contract must usually be construed in such a way that it gives rise to an effective transaction (as opposed to an ineffective transaction), the subject matter of the assignments should be construed to mean, or include, the benefits of the Award.

24.  But I am relieved of the need to make a determinative ruling on the parties’ expert opinions because the matter has been the subject of decisions of the Mainland courts.  To put the discussion in context I should set out the relevant decisions.

25.  On 13 July 2005 (before the two assignments) the Bank applied to the Guangdong Provincial Foshan City Shancheng District People’s Court in (2005) 佛禪法執字 3040‑2 號 to enforce the Award. There had been partial satisfaction of the Award pursuant to a civil judgment of that court dated 14 September 2005.

26.  Then on 14 December 2007, the Guangdong Provincial Superior People’s Court issued an “appointed enforcement judgment” under (2007) 粵高法執指字 1516 號to a number of different courts, to the effect that enforcement proceedings in relation to (among others) the Award were to be carried out by the Guangdong Railway Transportation Court against the Debtor.  In this judgment, the applicant for enforcement was still stated to be the Bank, even though this was already after the Assignment.

27.  Then by another “appointed enforcement judgment” dated 27 May 2008, the Guangdong Provincial Superior People’s Court appointed the Guangdong Provincial Jie Xi County People’s Court to carry out enforcement proceedings in respect of (among others) the Award against the Debtor, in place of the Guangdong Railway Transportation Court (apparently because the latter court had too much workload).  Again, the applicant for enforcement was still the Bank.

28.  Then in a decision by the said Guangdong Provincial Jie Xi County People’s Court dated 1 September 2008 in (2008) 揭西法執字 443‑2 號 (I shall call this the “443‑2 Judgment”), the Court referred to the assignments, referred to the newspaper advertisements, referred to certain Mainland legislation and decided that the Applicant has become entitled to enforce the arbitral award in place of the Bank. 

29.  In two sequels to the 443‑2 Judgment namely (2008) 揭西法執字 443‑6 號and (2008) 揭西法執字 443‑7 號 443‑7, the same court made certain further directions as to enforcement, with the Applicant as the enforcing party.

30.  Leaving aside questions of res judicata (which is a point also taken by the Applicant), the decision of the Mainland Court (specifically, the 443‑2 Judgment) appears to me to place this case within Lam J’s decision in Guangzhou Green Enhan Bio‑Engineering Co Ltd & another v Green Power Health Products International Co Ltd.，HC 4651 of 2002, HCA A2802 of 2003, HCMP 74 of 2004; 21 August 2004 at  §2.  In particular I would refer to points (c) and (d) in that paragraph namely that in Hong Kong the court accepts the judgment of the courts of the Mainland as evidence of the law in the Mainland, and although there is no specific reference to a particular point in a foreign judgment, so long as the court is satisfied that the point could not have escaped the attention of the foreign court or the parties, the foreign court should be regarded to have decided that point as well.  

31.  In my judgment the 443‑2 Judgment had clearly decided that under Mainland law (the law agreed by the parties to be applicable in this case) the Applicant had taken over the right under the Award.  Otherwise there would be no basis to declare that the Applicant had become entitled to enforce.

32.  Mr Pun submitted that there was no reference to the Award in the text of the 443‑2 Judgment.  That may be so.  But the chain of the Mainland judgments referred to above must be viewed as a whole.  The very first judgment (namely the judgment dated 14 September 2005 (2005) 佛禪法執字 3040 號) plainly referred to the Award.  The other judgments simply flowed from that.   Further, the two sequels to the 443‑2 Judgment (namely 443‑6 and 443‑7) also referred to the Award. 

33.  Mr Pun also told me, from the Bar table, that his client had never seen the 443‑2 Judgment before (presumably until it was exhibited as part of the supporting evidence in this application) and at the end of the Judgment it was provided that it would take effect upon service.  But the 443‑2 Judgment has been included as part of the evidence since 23 December 2010.  The purpose of relying on the 443‑2 Judgment was plainly to rely on its effect.  In my view if any point is to be taken about lack of notice or service, positive evidence is needed.  I reject this submission.

34.  The Mainland Court referred to certain Mainland statutory provisions as the basis of its decision.  In his supplementary opinion, Professor Lin criticized the judgment as being “unreasoned”.  However, as he went on to point out at  §17, 最高人民法院關於人民法院執行工作若干問題的規定(試行) 第十八條第一款第二項 (mentioned in the 443‑2 Judgment), provided that “申請執行人是生效法律文書確定的權利人或其繼承人，權利承受人”.  In my view, read in context, this means that the Applicant was a successor to the rights of the Bank under the Award. Professor Lin went on to repeat his view that the Applicant had not succeeded to the rights of the Bank.  But in my view this point must have been decided by the 443‑2 Judgment.  Otherwise the reference to the provision cited above would make no sense.  The Mainland court must have implicitly decided that there had been a valid assignment of the benefit of the Award.  No attempt had been made to suggest how the 443‑2 Judgment can make sense if this were not the case.

35.  In any event, the Debtor was a party to the Mainland decision.  He had not advanced any evidence or arguments as to why he is not bound by it.  I therefore hold that he is bound by it as a matter of res judicata also.  This is strictly not necessary because of my ruling above that the 443‑2 Judgment has a self‑standing relevance as evidence of Mainland law as to the validity of the two assignments in assigning the benefit under the Award.  For the avoidance of doubt I accept the 443‑2 Judgment as such evidence and I find that the Applicant had been validly assigned the benefit of the Award.

36.  I should add that no point or evidence has been adduced before me that the decision is not a final one for the purpose of recognition.

37.  I therefore dismiss the Debtor’s summons dated 28 April 2011 with costs to the Applicant to be taxed if not agreed.