RE SUN FUNG TIMBER CO LTD

CACV 22/2019

[2022] HKCA 1655

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 22 OF 2019

(ON APPEAL FROM HCCW 313 OF 2017)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

1.  By our judgment dated 8 November 2021 (“the Judgment”)  ([2021] HKCA 1660), this court (Kwan VP, Yuen JA and Barma JA)  dismissed the petitioner’s appeal against the judgment of Chung J (“the Judge”)  dated 19 December 2018 by which the Judge dismissed a winding-up petition issued by the petitioner, 广东顺德展炜商贸有限公司, against Sun Fung Timber Company Limited (“the Company”). The debt underlying the petition arose from an arbitral award issued by the Zhanjiang Arbitration Commission on 19 May 2017 (“the Award”)  in favour of the petitioner in an arbitration between the petitioner and the Company.

2.  The facts and issues in the substantive appeal, as well as the court’s reasons for dismissing it, are set out in the Judgment.  We will not repeat them here.

3.  The petitioner applied by a Notice of Motion filed on 6 December 2021 for leave to appeal to the Court of Final Appeal against the Judgment.  The leave application is opposed by the opposing contributory, New Intertrades Foods Co, Limited.

4.  The petitioner had also obtained leave to enforce the Award by an order dated 28 June 2019.  However, such leave was set aside by Mimmie Chan J on 29 December 2021 with indemnity costs against the petitioner (“the Setting Aside Decision”)  (see [2022] 1 HKLRD 441, [2021] HKCFI 3823).  On 12 January 2022, the petitioner applied in the court below for leave to appeal against the Setting Aside Decision.  This application was dismissed on 22 February 2022 (see [2022] HKCFI 551), again with indemnity costs.  The petitioner does not appear to have renewed its application for leave to appeal to this court.

5.  Written submissions in respect of this application were lodged by the petitioner on 3 March 2022, and by the opposing contributory on 16 March 2022.

6.  Having considered the Notice of Motion and the parties’ written submissions, we see no reason to depart from the usual practice of determining an application of this kind on the papers.  We have therefore determined the petitioner’s application on the basis of the documents filed.

The present application

7.  The Notice of Motion identified a single question (“the Question”)  which is said to be a question of great general or public importance (“GPI”):

“Where a party opposes a winding-up petition based on an arbitral award on the ground that the award was obtained by fraud, should the Court apply the same test for resisting enforcement of the award in Hong Kong, namely whether a ‘real prospect of success’ of establishing fraud can be shown?”

8.  The Question arises out of Ground 1 in the substantive appeal (see [20] of the Judgment), by which the petitioner contended that the “real prospect of success” test should have been applied to determine whether the winding-up petition should be dismissed, rather than the “bona fide dispute on substantial grounds” test which is usually applied to the consideration of winding-up petitions.

9.  The petitioner’s arguments in relation to the Question are essentially as follows:

(1)  there is no direct authority on deciding the proper test to be applied where a winding-up petition is based on an arbitral award and which is opposed on the ground that the award was obtained by fraud, and the Court of Final Appeal’s ruling on the Question would serve as “useful guidance” on the proper exercise of the winding-up jurisdiction in the context of winding-up proceedings based on non-payment of arbitral awards;

(2)  in considering whether there is a bona fide dispute on substantial grounds as to the petitioning debt (where the debt, or in this case the Award, was said to have been obtained by fraud), the court should in substance consider whether a “real prospect of success” of establishing fraud can be shown.

10.  It is noted that the petitioner has formulated the Question, and based its arguments, on a scenario in which the arbitral award, on which the winding-up petition is based, is said to have been obtained by fraud. 

11.  At the outset, we must point out that leave to appeal to the Court of Final Appeal will not be granted where the question said to arise, however important it may appear in its formulation, is academic as between the parties, wholly lacking in any practical impact or would not affect the outcome of the appeal.  See Deacons v White & Case Limited Liability Partnership & Others (2003)  6 HKCFAR 322 at [34] to [35]; Tin Lik v Deutche Bank AG & ors, unrep., CACV 145/2016, 20 October 2017 at [21] to [22]; Re PCCW Limited, unrep., CACV 85/2009, 26 August 2009 at [3].

12.  In the Setting Aside Decision, Mimmie Chan J considered the materials and evidence before her and held that the petitioner was party to a collusive scheme by which the Award was orchestrated and obtained, and that it would be “shocking to the conscience of the court” and contrary to public policy to permit enforcement of the Award, which had been obtained by a misuse of the arbitral process (see [41] and [58] of the Setting Aside Decision).

13.  As noted above, the petitioner did not seek to renew its application for leave to appeal against the Setting Aside Decision to this court, thereby rendering the refusal of leave by Mimmie Chan J final and conclusive.

14.  Thus, we have a situation where the earlier order giving leave to enforce the Award has been set aside on the basis that it was obtained by collusion or abuse of the arbitral process.

15.  In the Judgment, we referred to the court’s jurisdiction to go behind a judgment upon which a petition is based, as explained in Re Tam Mei Kam, unrep., CACV 87/2012, 8 May 2013 and Re Phoon Lee Piling Co Ltd [2003] 2 HKLRD 391, which arises where there is evidence that the judgment had been obtained by fraud, mistake, collusion or that there has been some miscarriage of justice. The basis on which the court may inquire into the validity of a judgment debt is thus not confined to cases of fraud, but extends to cases where there has been “some miscarriage of justice”, which is “something from which the court can conclude that had there been a properly conducted judicial process it would have been found, or very likely would have been found, that nothing was in fact due to the claimant” (see [32] of the Judgment).

16.  Mr Wong for the petitioner does not appear to take issue with the applicable principles above, nor, in our view, do his arguments in the petitioner’s submissions appear to engage with this court’s reasoning at [31] to [37] of the Judgment.

17.  In the light of the Setting Aside Decision (which is not being taken further), it is clear that the threshold for going behind a judgment or award has been met, and that even if the Question were answered as the petitioner suggests it should be, the ultimate outcome would be the same, with the winding up petition being dismissed.  We therefore agree with the submission of Mr Anson Wong SC (leading Mr Martin Kok)  for the opposing contributory that the proposed Question in respect of the suitable test for opposing a winding-up petition, on the basis of a debt arising from an arbitral award obtained by fraud, is completely academic as between the parties.  The present application for leave to appeal is liable to be dismissed on this basis alone.

18.  Further, quite apart from the latest findings of fraud or collusion on the part of the petitioner by Mimmie Chan J in the Setting Aside Decision, we had also identified various additional matters which cast significant doubt over the genuineness of the relevant agreement between the Company and the petitioner (see [36] of the Judgment)  – and therefore gave rise to doubt as to whether the Award was valid or due at all – which led us to conclude, in agreement with the Judge, that there was in this case sufficient evidential basis to go behind the Award ([37] of the Judgment).

19.  Accordingly, however the proposed Question, which is formulated in terms limited to arbitral awards obtained by fraud, is to be answered, it does not assist the petitioner and would not impact upon or affect the outcome of the appeal. 

20.  Further, while we have considerable doubt as to whether the Question amounts to one of GPI, even assuming that it might, we do not consider it to be arguable on appeal.

21.  At [23] to [28] of the Judgment, we explained why the threshold test for determining an opposition to a winding-up petition is properly the “bona fide dispute on substantial grounds” test.  We agree with Mr Wong SC for the opposing contributory that the petitioner has failed to put forward any sound basis or justification for this court to “adjust or modify” the test of “bona fide dispute on substantial grounds” in the case of petitions based on arbitral awards.

Disposition and costs

22.  Thus, for the reasons given above, we dismiss the petitioner’s application for leave to appeal to the Court of Final Appeal.

23.  We see no reason why costs should not follow the event.  Mr Wong SC submits as the present application had, following the Setting Aside Decision, become completely academic and was bound to fail, costs should be awarded to the opposing contributory on an indemnity basis.  We agree. Despite this, the petitioner failed to reconsider its position and pressed ahead with this application, resulting in an unjustifiable waste of time and costs.

24.  We therefore order that the petitioner should pay the opposing contributory’s costs of this application on an indemnity basis, and assess those costs on a gross sum basis at HK$262,550.