天津津融投資服務集團有限公司 v. 濟南穆和企業管理有限公司 AND OTHERS

HCRE 70/2024

[2025] HKCFI 6182

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

RECIPROCAL ENFORCEMENT PROCEEDINGS NO. 70 OF 2024

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D E C I S I O N

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I. INTRODUCTION

1.  Before me is the Summons filed by the 3^rd Respondent on 28 April 2025 for setting aside Master Hui’s Order made on 27 February 2025 (the “Registration Order”) pursuant to section 5(1) of the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597) (the “MJREO”) as against the 3^rd Respondent. 

2.  By the Registration Order, the Judgment handed down by the First Intermediate People’s Court of Tianjin Municipality (the “Tianjin Intermediate Court”) on 22 December 2021 (the “First Instance Judgment”), and the judgment handed down on 26 June 2023 (the “Second Instance Judgment”) by the Higher People’s Court of Tianjin Municipality (the “Tianjin Higher Court”) were registered against the 1^st, 2^nd and 3^rd Respondents herein.  I shall refer to the two Judgments collectively as the “Mainland Judgments”, and the two Courts collective as the “Mainland Courts”.

II.      BACKGROUND

3.  On 29 June 2021:-

(1)             the Applicant and the 1^st Respondent entered into a “债权收益投资合同” (the “Investment Agreement”), whereby (a) the 1^st Respondent transferred its rights and interests in receivables (the “Rights and Interests”) to the Applicant for RMB300,000,000, and (b) the 1^st Respondent shall repurchase the Rights and Interests 9 months later (or later by agreement) at a consideration the amount of which shall be calculated in accordance with the terms set out in Clause 4 thereof (the “Repurchase Principal”);

(2)             the Applicant and the 1^st Respondent entered into a “应收账款质押合同” (the “Pledge Agreement”), whereby the 1^st Respondent pledged the Rights and Interests in favour of the Applicant as security for the 1^st Respondent’s obligation under the Investment Agreement;

(3)             the Applicant and the 2^nd Respondent entered into a “保证合同” (the “R2 Guarantee”), whereby upon the 1^st Respondent’s default under the Investment Agreement, the Applicant could demand the 2^nd Respondent to assume the 1^st Respondent’s liabilities; and

(4)             the Applicant and the 3^rd Respondent entered into a “差额补足协议” (the “R3 Guarantee on Shortfall”), the details of which are set out in the next paragraph.

4.  Since the Mainland Judgments as against the 3^rd Respondent, as shall be seen, were based on the R3 Guarantee on Shortfall, it is worth setting out its terms in some detail:-

“甲方：天津津容投资服务集团有限公司 [the Applicant]…

乙方： 世茂集团控股有限公司 [the 3^rd Respondent]…

鉴于：

…

 

3、为确保甲方按照《债权收益权投资合同》约定的权利能够实现，依据《中华人民共和国合同法》等法律规定，乙方同意按照本协议的条款和条件，对甲方依照《债权收益权投资合同》有权收取但未有收到的回购价款及违约金、赔偿金等的差额部份承担不可撤销的补足义务。

1. 差额补足义务

1.1 差额支付的启动条件

在以下差额支付启动事件发生时，则乙方应根据《债权收益权投资合同》及本协议的约定按照1.2条计算的金额履行差额支付义务：

根据《债权收益权投资合同》截至任何一个回购本金支付日、回购溢价款支付日、资金占用费支付日、违约金支付日，穆和保理 [that is, the 1^st Respondent] 未按照《债权收益权投资合同》约定进行支付的。

1.2 支付差额的计算

差额补足金额：…

1.3 乙方同意，差额支付的启动条件发生时，甲方有权直接向乙方进行追索…

2. 差额补足义务的承担方式...

本协议下的差额补足义务为持续的义务…

乙方在本协议下的差额补足义务不可撤销…

乙方在本协议下的差额补足义务只在穆和保理和/或乙方全部付清差额补足义务后才告终结...

甲方和其他合同签署方变更《债权收益权投资合同》的内容，除可能导致差额支付义务增加或扩大的变更以外，无需征得乙方同意…

…

4.2 如乙方违反本合同任何约定…甲方有权宣布穆和保理在《债权收益权投资合同》项下的债务全部或部份立即到期，要求穆和保理立即偿还<债权收益权投资合同>项下的全部债务；同时甲方有权要求乙方承担差额补足责任。

4.4 乙方不可撤销地以主债务人的身份:

 (ii) 根据本协议的条款和条件承担差额补足义务及弥偿责任...”

5.  The Investment Agreement and the Pledge Agreement were subsequently revised, but the revision has no bearing for the present purpose.

6.  On 22 December 2021, the Applicant commenced proceedings against the 1^st, 2^nd and 3^rd Respondents in the Tianjin Intermediate Court.  On 1 December 2022, the Tianjin Intermediate Court handed down the First Instance Judgment.  It made the following orders:-

“一、被告济南穆和企业管理有限公司 [that is, the 1^st Respondent] 于本判决生效之日起十日内向原告天津津融投资服务集团有限公司偿还回购本金291,309,197.1元;

二、被告济南穆和企业管理有限公司于本判决生效之日起十日内向原告天津津融投资服务集团有限公司支付自2022年4月1日起至实际清偿之日止的违约金(以291,309,197.1 元为基数，按0.3%/日的标准计算);

三、被告济南穆和企业管理有限公司于本判决生效之日起十日内向原告天津津融投资服务集团有限公司支付律师费200,000 元 ；

四、被告上海世茂建设有限公司 [that is, the 2^nd Respondent] 对本判决确定的被告济南穆和企业管理有限公司上述第一项、第二项、第三项给付义务承担连带保证责任，被告上海世茂建设有限公司在承担保证责任后，有权就已承担部份向被告济南穆和企业管理有限公司进行追偿；

五、被告世茂集团控股有限公司 [that is, the 3^rd Respondent] 对本判决确定的被告济南穆和企业管理有限公司上述第一项、第二项给付义务承担连带保证责任，被告世茂集团控股有限公司在承担保证责任后，有权就已承担部份向被告济南穆和企业管理有限公司进行追偿；

六、原告天津津融投资服务集团有限公司有权以被告济南穆和企业管理有限公司通过其与项目公司签署的《保理合同》而持有的《商品房买卖合同(预售)》项下的债权协议折价或者拍卖、变卖所得的价款在本判决第一项、第二项、第三项确认的债权范围内优先受偿...

七、…

如果未按本判决指定的期间履行给付金钱义务，应当依照《中华人民共和国民事诉讼法》第二百六十条之规定，加倍支付延迟履行期间的债务利息。

案件受理费1,566,550元、保全费5,000元，共1,571,550元，由济南穆和企业管理有限公司、上海世茂建设有限公司、世茂集团控股有限公司负担。”

7.  For convenience, I shall refer to the above. orders respectively as “Order 1”, “Order 2”, “Order 3” and so on.  I shall refer to the second last, unnumbered order in respect of the enhanced interests (the “Enhanced Interest”) pursuant to article 260 of the PRC Civil Procedure Law (《中华人民共和国民事诉讼法》) as the “Enhanced Interest Order”, and the last unnumbered order in respect of the acceptance fee (案件受理费) (the “Acceptance Fee”) and preservation fee (保全费) (the “Preservation Fee”) as the “Court Fee Order”.

8.  On 26 June 2023, the Tianjin High Court handed down the Second Instance Judgment upholding the First Instance Judgment. 

9.  On 4 January 2024, the Tianjin Intermediate Court issued a “执行裁定书” (the “Enforcement Judgment”) recording that the Applicant had applied for enforcement against the 1^st, 2^nd and 3^rd Respondents but only RMB969.95 was found in the name of the 2^nd Respondent.  The Enforcement Judgment also recorded, and recorded the Applicant’s confirmation, that there were no other assets for the enforcement.  At the end of the Enforcement Judgment, it was stated that the enforcement was ended (本次执行程序终结).

10.  On 27 February 2025, Master Hui granted the Registration Order.  On 11 March 2025, the Registration Order was sealed.  On 13 March 2025, Notice of Registration was issued to the 3^rd Respondent.

11.  The Registration Order provides:-

(1)             Against the 1^st and 2^nd Respondents, the Mainland Judgments be registered as judgments in the High Court for payment of the sum of RMB424,203,695.25; and

(2)             Against the 3^rd Respondent, the Mainland Judgments be registered as judgments in the High Court for payment of the sum of RMB423,982,205.25 against the 3^rd Respondent at the exchange rate of 1RMB: 1.06HKD as at 11 March 2025.

12.  The sum of RMB423,982,205.25 against the 3^rd Respondent consists of:-

(1)             The Repurchase Principal under Order 1: RMB291,309,197.10;

(2)             Liquidated damages pursuant under Order 2: RMB94,034,608.82;

(3)             Acceptance Fee pursuant under the Court Fee Order: RMB1,566,550;

(4)             Preservation Fee under the Court Fee Order: RMB5,000; and

(5)             Enhanced Interest under the Enhanced Interest Order: RMB37,066,849.33.

III.     GROUNDS OF APPLICATION TO SET ASIDE

13.  In its application to set aside, the 3^rd Respondent relies on section 18(1)(a) of the MJREO that the requirements specified in section 5(2)(a) to (e) for registering a Mainland Judgment are not satisfied, section 18(1)(b) that the Judgment has been registered in contravention of the MJREO, and section 18(1)(j) that the enforcement of the Judgment is contrary to public policy.  Originally, there were six grounds in support of the application.  Mr Louis Cheng, counsel for the 3^rd Respondent, confirms that upon the 3^rd Respondent’s concession that the Enhanced Interest Order is an order for payment of a sum of money, and upon the Applicant’s concession that the Enhanced Interest was wrongly calculated and should, instead, be RMB31,301,173.23, the specific grounds of the 3^rd Respondent’s application to set aside are the following four grounds only:-

(1)             Ground (1): The finding of the joint guarantee liability against the 3^rd Respondent under Order 1 is not an order for payment of a sum of money as required under section 5(2)(e) of the MJREO;

(2)             Ground (2): The Enhanced Interest is in the nature of a penalty;

(3)             Ground (3): The Court Fee Order is not enforceable by the Applicant against the 3^rd Respondent; and

(4)             Ground (4): The Acceptance Fee and the Preservation Fee are charges of a like nature to taxes.

IV.     GROUND (1)

14.  The legal principles in relation to the requirement that the order is an order for payment of a sum of money (section 5(2)(e)) have recently been set out by G Lam JA (delivering the judgment of the Court of Appeal) in Huzhou Shenghua Financial Services Co Ltd v Hang Pin Living Technology Co Ltd [2025] 3 HKLRD 447 at §§32-49:-

(1)             It is for a debt or definite sum of money (§32).

(2)             It is not necessary that the exact amount is directly specified in the foreign judgment[1]. “It is sufficient if the sum is ascertainable by a mere arithmetical calculation.” (§37)

(3)             “[W]here the sum due can theoretically be calculated but the plaintiff failed to show all the facts necessary for that calculation, the court may conclude that the judgment is not one that makes a sum of money payable”. (§37)

(4)             Facts outside the foreign judgment may be admitted to establish the amount to be paid. (§§48-49)

15.  In the present case, Mr Cheng, for the 3^rd Respondent, submits that the 3^rd Respondent’s liability under Order 5 is based on R3 Guarantee on Shortfall, and thus is in nature a liability to cover shortfall, and by article 520(1) of the PRC Civil Code, the extent of the liability can therefore be determined only by reference to:-

(1)             Any sums already paid by the 1^st and 2^nd Respondents to the Applicant;

(2)             Any amounts already recovered by the Applicant through enforcement or realisation against the 1^st, 2^nd and/or 3^rd Respondents; and

(3)             Any amounts recovered from the enforcement of any security including that under Order 6.

16.  Mr Cheng submits that there is no way for the 3^rd Respondent to ascertain, and there is no evidence on, whether the Applicant has enforced any security such as that provided under Order 6, and how much, if any, the Applicant has recovered from the 1^st and/or 2^nd Respondents.

17.  I might have agreed with Mr Cheng but for the Enforcement Judgment, which clearly stated that only RMB969.95 was recovered (as re-confirmed by the Applicant’s affirmation) and there was no asset available for satisfying the Orders (§9 above).  Such evidence is not traversed by any evidence, while the First Instance Judgment expressly explained that the guarantee liability of the 3^rd Respondent “不具有債務人應當先承擔責任” (page 17), and Mr Cheng also makes it clear that he is not saying that the Applicant has to exhaust other means before the Applicant can enforce the guarantee liability against the 3^rd Respondent. 

18.  However, Mr Cheng submits that the Enforcement Judgment concerns the 1^st, 2^nd and 3^rd Respondents only, while the Rights and Interests in the receivables are enforceable against the third-party debtors of those receivables.  He further submits that while the 3^rd Respondent raises in its supporting affirmation that it was not clear whether such receivables had been realised for the enforcement, the Applicant’s evidence in response is just limited to the 1^st, 2^nd and 3^rd Respondents without mentioning whether the third-party debtors of the receivables had paid anything to the Applicant.  Mr Cheng submits that this is a situation where the Applicant fails to “show all the necessary facts” for working out the amount as mentioned in Huzhou Shenghua Financial Services Co Ltd v Hang Pin Living Technology Co Ltd, supra, and therefore, I should find that the sum to be paid under Order 5 cannot be ascertained.

19.  With respect, I disagree with Mr Cheng for the following reasons:-

(1)             In Huzhou Shenghua Financial Services Co Ltd v Hang Pin Living Technology Co Ltd, supra, the liability to pay was only to the extent of 50% of the amount which the primary debtors were “unable to pay”.  It was the finding of fact at §55 that inability to pay means the debt unpaid after the execution of the debtor’s assets which can be executed. In that context, upon the evidence that there were indeed such assets not yet executed, and the value of those assets were uncertain, the Court of Appeal held that the sum was not ascertainable and thus the judgment was not registrable.

(2)             In the present case, the amount payable pursuant to the guarantee liability is certain and ascertainable, cross-referring to Orders 1 and 2, bearing in mind that there is no need to enforce other securities first.  The actual amount the 3^rd Respondent would have to pay may be reduced by the sums which the Applicant has managed to recover, and this is not the same as saying that the amount is uncertain and unascertainable.

(3)             Further and in any event, the Enforcement Judgment records what have been recovered, and upon that the actual amount is also certain and ascertainable.

(4)             Any suggestion that despite the Applicant’s application for the Registration Order with specified sums, the Applicant may have in its supporting affirmation fails to mention the full picture of enforcement (for example, there may have been successful enforcement of certain Rights and Interests in the receivables against some of the third-party debtors and other recoveries whether in the period between the Enforcement Judgment and the commencement of the application for the Registration Order) is, in my view, speculative.  As Mr Cheng fairly submits, he is not suggesting (and there is no evidence in any event) that the Applicant’s evidence in support of the application for the Registration Order was made in bad faith.  Given that such evidence is not made in bad faith, and viewing the matter pragmatically but not too technically, I find that the unsatisfied liability is that in Order 5 cross-referring Orders 1 and 2, and whatever the Applicant has managed to enforce as at the time of making the application for the Registration Order has already been stated in its affirmations.

20.  Therefore, on the evidence before me, there is no uncertainty as submitted by Mr Cheng on the amount under Order 5.

21.  For the sake of completeness, while Mr Cheng did not pursue this point, there seems to be some suggestion in the supporting evidence that Order 5 is a declaration but not an order to pay a sum of money.

22.  In this regard, I agree with Mr Jonathan Chan SC, leading Mr Eugene Kwan, counsel for the Applicant, that Order 5 is not a declaration but an order to pay a sum of money.  It is convenient to quote Order 5 here again:-

“五、被告世茂集团控股有限公司 [that is, the 3^rd Respondent] 对本判决确定的被告济南穆和企业管理有限公司上述第一项、第二项[that is, Order 1 and Order 2]给付义务承担连带保证责任，被告世茂集团控股有限公司在承担保证责任后，有权就已承担部份向被告济南穆和企业管理有限公司进行追偿” (emphasis added)

23.  Where there is no suggestion that the words carry any special meaning other than ordinary meaning, “as a bilingual judge, I regard myself as duty bound to use my knowledge in the Chinese language and legal training, insofar as permissible in accordance with the principles set out in Bishopsgate Investment to examine the relevant legislations, directives and other authorities …”: see Shenzhen Development Bank Company Limited v New Century Int’l (Holdings) Limited, HCA 2976/2001, 31 July 2002 at §27 per DHCJ Lam (as he then was).  In my view, one should not adopt too technical or pedantic approach to an order.  It is not necessary to require any magic phrase such as “should pay” and “liable to” before an order can be an order to pay a sum of money.  In my view, an order is for ordinary people to understand what to do, and thus one should construe an order with reference to ordinary language as understood by a reasonable person.  Here, Order 5 expressly cross-refers to the 1^st Respondent’s liability to pay under Orders 1 and 2, and expressly provides that the Applicant may claim (进行追偿) against the 3^rd Respondent.  It cannot be clear enough that this is an order to order the 3^rd Respondent to pay a sum for which the 1^st Respondent is liable to pay under Orders 1 and 2.  This understanding is also consistent with the PRC legal opinion of Professor Wang for the Applicant that “承担连带保证责任” is a standard phrase employed by Mainland courts, as a matter of judicial practice (司法實踐), to order a guarantor to pay under the relevant guarantee.  I do not see any dispute on this point by Professor Du, the PRC legal expert for the 3^rd Respondent.

24.  Therefore, Ground (1) fails.

V.      GROUND (2)

25.  Under section 5(2)(e), the sum cannot be “in respect of taxes of other charges of a like nature or in respect of a fine or other penalty”.  Further, a Hong Kong Court may refuse to enforce damages the purpose of which is to punish rather than compensate the defendant as contrary to public policy: see Dicey, Morris and Collins on The Conflict of Laws (16^th edition), §14-026, and this public policy ground is encapsulated in section 18(1)(j) of the MJERO on which Mr Cheng also relies in §18 of his Skeleton Submissions. 

26.  In Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679, a case on article 229 of the PRC Civil Procedure Law (2007), to which article 260 of the PRC Civil Procedure Law (2021) underlying the Enhanced Interest Order is equivalent, Kwan JA (as she then was) held that the double interest imposed under article 260, though not payable to the state or government, was a penalty not enforceable by the Hong Kong Courts.  I note that in that case, the MJERO was not in question but instead, in issue was the common law enforcement of a foreign judgment, and therefore the question was whether it was contrary to public policy to enforce the penalty. 

27.  Subsequently, following this Court of Appeal’s case, Mimmie Chan J in Foshan Nanhai Branch of Industrial and Commercial Bank of China Ltd v Foshan Ruifeng Petroleum and Chemical Fuel Co Ltd [2019] 2 HKLRD 478 also held that the double interest imposed under article 229 was a penalty not registrable under the MJREO because this “penalty” did not satisfy the requirement under section 5(2)(e).  Her Ladyship did not go on to say anything about whether it was contrary to public policy under section 18(1)(j) of the MJERO because this ruling was an obiter only, her Ladyship having already found that the foreign judgment in question was not an order for payment of a sum of money under section 5(2)(e) and therefore understandably, there was no need to go into too much detail of the penalty ground.

28.  Mr Chang submits that the facts in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, supra and Foshan Nanhai Branch of Industrial and Commercial Bank of China Ltd v Foshan Ruifeng Petroleum and Chemical Fuel Co Ltd, supra are distinguishable from the present case.  He submits that in the former case, there was no expert evidence on the nature of such enhanced interest, while in the latter case, such evidence was not admitted.  He submits that in the present case, Professor Wang’s opinion (on behalf of the Applicant) is that:

(1)             The Enhanced Interest serves both compensatory and punitive functions under the PRC law, as confirmed by the various secondary materials relied upon in the opinion, and this proposition is not seriously disputed by the 3^rd Respondent PRC legal expert Professor Du; and

(2)             The Enhanced Interest was to compensate the judgment creditor for losses resulting from delay in paying the judgment debt and to deter non-compliance with the Judgment. 

29.  Mr Chang submits that (1) and (2) above did not feature in those two previous cases. 

30.  To examine Mr Chang’s submissions in proper perspective, it is necessary for me to examine the reasoning leading to the Court of Appeal’s judgment in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, supra.

31.  As a matter of legal principles, to determine whether a sum is penalty or not, “this is to be determined according to the laws of Hong Kong, with regard to the attitude adopted by the courts in the foreign jurisdiction which ordered the penalty” (emphasis added): see §87.

32.  The reasons provided by counsel at §90 in that case, with which the Court of Appeal agreed at §91, were:-

“…The double interest bears no relation to any loss suffered by the defendant, nor was there any inquiry as to the loss. And as the defendant was already ordered by the PRC courts to pay interest according to the contractual terms and the interest rates set by the People’s Bank of China until the judgment debts have been fully discharged, the imposition of double interest cannot be protective, remedial or compensatory as far as the defendant is concerned.” (emphasis added)

33.  Such reasons exemplify how the Hong Kong law determines whether a sum is a penalty or compensation.  The essence is whether the sum bears any relation to the loss suffered.  According to both experts’ opinion, the PRC judicial and legislative attitude is that such interest is both compensatory and punitive.  It is compensatory in that because it would be difficult to prove and quantify the loss arising from the delay in paying the judgment debt, the judicial and legislative attitude is that a fixed interest rate is imposed.  It is punitive in that because the judgment debtor delays, he should be punished and deterred from any further delay.   In my view, while such interest is, from the PRC law perspective, said to bear some relation to the loss in that a fixed interest rate is imposed for loss regarded as difficult to prove and quantify, “according to the laws of Hong Kong”, the double interest is so high that it cannot be readily ascertained how this exactly bears any relation to the actual loss suffered, and there is no material before me as to how the double interest was determined by the legislature.  Having considered all these on the whole, and having considered the PRC’s attitude that such interest is both compensatory and punitive, with respect, I find that according to the Hong Kong law, for the purpose of enforcing a PRC judgment the Enhanced Interest is punitive in nature.

34.  Insofar as the punitive element of the Enhanced Interest is concerned, Mr Chang submits that the “penalty” mentioned in section 5(2)(e) of the MJREO must be of the like nature as “fine” because “penalty” is qualified by the word “other”, and that the Enhanced Interest have a punitive element does not necessarily mean that it is a “penalty” for the purpose of section 5(2)(e).  Mr Chang submits that because the Enhanced Interest was to be paid to a private party but not a state or a state agent, this punitive element lacks the feature of “fine” being usually payable to the state.  He refers me specifically to Autonomous Non-Commercial Organization “Organizing Committee of 2014 Sochi Winter Olympics” v Pico Projects (International) Ltd [2021] 5 HKLRD 754, submitting that this Court of Appeal case was decided after Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, supra and therefore the Court of Appeal in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, supra did not apply the correct legal test as elaborated in §§28-31 of Autonomous Non-Commercial Organization “Organizing Committee of 2014 Sochi Winter Olympics” v Pico Projects (International) Ltd, supra:-

“28. The crucial question is, in bringing this claim, whether the plaintiff is directly or indirectly doing an act which is of a sovereign character or which is done by virtue of sovereign authority, and whether the claim involves the exercise or assertion of a sovereign right extra-territorially. The resolution of this issue involves a question of characterisation. In doing so, the court looks at the substance of the matter and not the technical form of the claim.

29. Lex fori applies to the question of characterisation. It is for the Hong Kong court to decide by reference to Hong Kong conflict of laws rules…

30. As stated in Dicey at para.5-023, indirect enforcement is easier to describe than to define, and it is sometimes difficult to draw the line between an issue involving merely recognition of a foreign law and indirect enforcement of it…

31. The point of the rule is to look past the fact that the claim has been framed in a way that a claim might be framed between private parties, treating that as a matter for form, and to examine and identify the central interest served by the pursuit of the claim. The substance of the claim is determined by the central interest in bringing the claim of the sovereign by whom it is brought or in whose interest, directly or indirectly, it is brought. The mechanism by which harm is said to have been suffered, in respect of which the plaintiff pursues a claim, may be important in judging whether the central interest in bringing the claim is a sovereign (governmental) interest rather than a patrimonial (private law) interest.” (emphasis added)

35.  Mr Chang submits, as if the two Court of Appeal cases are conflicting, that had the above test been considered and applied in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, supra, with the expert evidence now before me that the Enhanced Interest is also compensatory, the Court of Appeal would have held that the enhanced interest in that case were not “a fine or other penalty” and were registrable. 

36.  With respect, Mr Chang’s submissions on the penalty in the phrase “a fine or other penalty” should be understood as a payment, directly or indirectly, to the state or government are too narrow.  In my view, one should approach this phrase with reference to the natural and ordinary meaning, and the important element of “fine or other penalty” is the punitive element.  In the provision, there is no requirement in the statutory provision that the ultimate recipient of the “fine or other penalty” must be the state or government, although no doubt this would be a material consideration the significance of which depends on the nature of the subject matter.

37.  In the two Court of Appeal cases, while the parties were all private parties, the subject matters in question were quite different. 

(1)             In Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, supra, the subject matter was the enhanced interest on the unpaid judgment sum awarded under a guarantee liability in respect of a loan.  In my view, because the enhanced interest was parasitic upon a principal judgment sum purely compensatory in nature, the focus was, therefore, on whether the enhanced interest had any relationship to the loss suffered as a result of the default in repaying the loan, such relationship being the touchstone of whether a sum is a penalty or compensation.  Although whether the enhanced interest was recoverable at the instance of a private party of a state was a factor to be considered, the Court of Appeal considered that in that case, the trial judge attached undue significance to this factor (§91).    This factor, in this context, in my view was relatively minor because the claim for the principal judgment was, viewed in any angle, a compensatory claim only, and therefore, anything more than that, whether or not at the instance of the state or government, could readily be found to be not compensatory but a penalty.

(2)             In Autonomous Non-Commercial Organization “Organizing Committee of 2014 Sochi Winter Olympics” v Pico Projects (International) Ltd, supra, the plaintiff transferred a sum to the defendant under two contracts, and the sum included profit tax payable by the plaintiff to the Russian government and thus the sum should have been withheld by the plaintiff.  The Russian Court held that the defendant should return that sum to the plaintiff.   Therefore, the subject matter in that case was a sum argued effectively to be a profit tax enforced indirectly by Russian government in Hong Kong.  It was in this context that the Court of Appeal focused its discussion on the exercise of sovereign right extra-territorially.  Even in that case, however, the Court of Appeal held that the plaintiff was recovering the sum from the defendant to repair the hole in its own pocket and so the sum was not an extension of the sovereign right to Hong Kong.

38.  Thus viewed, the two Court of Appeal cases are entirely consistent, just with different foci in different contexts.  In the present case, the Enhanced Interest is the same subject matter as in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, supra.  While the recipient is a private party, this is only one consideration in the determination.  In my view, the relationship between the double interest rate and the loss, if any, is a weightier factor to be considered in this context.

39.  Having considered all the above, the Enhanced Interest is, in my view, a penalty that is not registrable under section 5(2)(e) of the MJREO. 

40.  In any event, even if “penalty” has to be of a nature of a “fine” directly or indirectly at the instance of the state or government for the purpose of section 5(2)(e), I would hold that the Enhanced Interest is unenforceable as contrary to public policy under section 18(1)(j) of the MJERO.

41.  In short, Ground (2) succeeds.

VI.     GROUND (3)

42.  Ground (3) is in relation to the Court Fee Order.  It is convenient to quote the Court Fee Order here again:-

“案件受理费1,566,550元、保全费5,000元，共1,571,550元，由济南穆和企业管理有限公司、上海世茂建设有限公司、世茂集团控股有限公司负担。”

43.  Article 207 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the PRC (2022 Amendment) (最高人民法院关于适用《中华人民共和国民事诉讼法》的解释 (2022 修正)), to which both parties’ PRC legal experts refer, is pertinent:-

“判决生效后，胜诉方预交但不应负担的诉讼费用，人民法院应当退还，由败诉方向人民法院交纳，但胜诉方自愿承担或者同意败诉方直接向其支付的除外。”

44.  Both PRC legal experts also refer to the Notice of the Supreme People’s Court on the Application of the Measures for Payment of Litigation Costs, [2007] No 16 (最高人民法院关于适用《诉讼费用交纳办法》的通知，法发 [2007]16 号).  Article 3 of it provides that:-

“诉讼费用由败诉方负担，胜诉方自愿承担的除外。对原告胜诉的案件，诉讼费用由被告负担，人民法院应当将预收的诉讼费用退还原告，再由人民法院直接向被告收取，但原告自愿承担或者同意被告直接向其支付的除外。当事人拒不交纳诉讼费用的，人民法院应当依法强制执行。” (emphasis added)

45.  Further, article 29 of it provides that:-

“对原告胜诉的案件，诉讼费用由被告负担，人民法院应当将预收的诉讼费用退还原告，再由人民法院直接向被告收取，但原告自愿承担或者同意被告直接向其支付的除外。当事人拒不交纳诉讼费用的，人民法院应当依法强制执行。” (emphasis added)

46.  Mr Cheng’s stance for the 3^rd Respondent, supported by Professor Du, the PRC legal expert for the 3^rd Respondent, is that it is only upon the mutual agreement of both the paying party and the receiving party will then the paying party be liable to pay the receiving party direct; otherwise, it should be the Mainland Courts to pay the receiving party, and the Mainland Courts would claim the paying party.  There is no dispute that the 3^rd Respondent has not agreed to pay the Court Fee direct to the Applicant, and therefore, Mr Cheng submits, the Court Fee Order does not order payment of a sum of money as required under section 5(2)(e) against the 3^rd Respondent. 

47.  Diametrically, Mr Chang’s stance for the Applicant, supported by Professor Wang, the PRC legal expert for the Applicant, is that once the receiving party elects unilaterally that the paying party pay the receiving party direct, then will the paying party become liable to pay the receiving party direct.

48.  The determination of the dispute comes down to the statutory interpretation of the above two articles.  As mentioned in §23 above, where there is no suggestion that the words carry any special meaning other than the ordinary meaning, as a bilingual judge, I am bound to use my knowledge in the Chinese language and legal trainingto examine the relevant legislations, directives and other authorities referred to by the expert.

49.  In the present case, both experts refer to various decided decisions by various PRC courts to support their respective stances.  However, the PRC jurisdiction is not a common law jurisdiction and precedents do not have binding effect.  Rather, one starts with the text of the relevant statutes, and this starting point is especially important given the apparently conflicting decisions cited by the respective experts.  Mr Cheng submits that the winning party could agree for the losing party to pay it “同意被告直接向其支付”, there must have a priori the losing party’s offer or agreement to pay, for otherwise, there would be nothing for the winning party to agree (同意) in respect of the payment.  With respect, I disagree:-

(1)             Textually, the wording does not point to any “acceptance of an offer” or “agreement to the losing party’s agreement”. 

(2)             Contextually, one should read the phrase “原告自愿承担或者同意被告直接向其支付” as a whole – the first limb referring plainly to the winning party’s own voluntary assumption of the fee, a matter for the winning party to decide on its own.  In my view, contextually, the second limb referring to the winning party’s agreement should also be a matter for the winning party alone to decide.  

(3)             As a matter of logic, to agree for the losing party to pay it, it is not necessary for any pre-existing agreement or offer by the losing party.  The winning party can simply agree that the losing party should pay to it under the statutory provisions, like it can assume the fee under the first limb, and thereupon the losing party’s obligation to pay the winning party is triggered.

(4)             As a matter of common sense, it is unlikely that having fought a dispute to an end, a losing party would offer to pay to the winning party, or to agree with the winning party to pay to the winning party. Therefore, it would be absurd to require a mutual agreement as Mr Cheng submits.

50.  Professor Du’s legal opinion for the 3^rd Respondent (1) that according to  最高人民法院新民事诉讼法司法解释理解与适用, the risk of inability to enforce payment of litigation costs against the losing party is borne by the state, and (2) that the financial receipt issued for the litigation costs paid by the losing party to the Mainland Court is different from the proof of payment obtained when the paying party pays the costs direct is besides the point.  In my view, if the receiving party elects to receive payment direct from the paying party, then it assumes the risks itself.  I see no inconsistence between Professor Du’s legal opinion in this regard and the interpretation of the two articles to mean a unilateral election by the winning party.  In fact, even in the passage of 最高人民法院新民事诉讼法司法解释理解与适用 quoted by Professor Du in §24 of his 2^nd Opinion, that the risk is to be borne by the state is qualified by the phrase “unless the prevailing party voluntarily assumes them or agrees to accept direct payment from the losing party”.

51.  It remains for me to deal with Mr Cheng’s two more points.  The first point is made in reliance on the decided cases cited by Professor Du that an obligation on the losing party to pay would arise only with a PRC Court order expressing providing for that.  Those cases did not say so, but are cited as an example where the PRC Courts found that there was no such obligation when there was no such order.  As I said above, cases are of little value here, and I see no explanation why despite the lack of such requirement in the statutory provisions, there is such a requirement. Therefore, I do not accept Mr Cheng’s point in this regard.

52.  The second point is that there is no evidence of any time limit for the winning party to make the unilateral election between refunding by the PRC Court and going after the losing party, and therefore, Mr Cheng submits, it would be absurd if the losing party’s agreement would not be required.  This point, in all fairness to Mr Chang for the Applicant, is raised only for the first time.  In particular, the point that there is no evidence of any time limit cannot be fairly considered because time limit has not been an issue raised such that the parties’ respective experts would have any fair chance to research and consider whether or not there is really any time limit under the PRC law as Mr Cheng submits.  In any event, I do not see any absurdity or unfairness to the losing party even assuming that there is no time limit, when the winning party has been unable to recover the Court Fee and the losing party still has never paid any Court Fee to the PRC Courts.

53.  In the circumstances, I find that under the PRC law, the receiving party may unilaterally elect to recover the Court Fee direct from the paying party.

54.  I also find that the Applicant had, by the time of applying to register the Mainland Judgments, elected to recover the Court Fee from the 3^rd Respondent direct, having considered the following:-

(1)             The Applicant’s evidence that the Mainland Courts declined the Applicant’s request for a refund of the Court Fee and requested the Applicant to claim against the 1^st to 3^rd Respondents is not traversed. 

(2)             Consistently, there is no evidence that the Mainland Courts requested the 3^rd Respondent to pay the Court Fee more than 2 years after the handing down of the Mainland Judgments.

(3)             Most importantly, in the Applicant’s application for the Registration Order, the Court Fee was included in the application, and if (1) and (2) above were not sufficient to constitute the election, the inclusion of the Court Fee into the application must be, whether on its own or together with (1) and (2) above.

(4)             While there is evidence that the Enforcement Judgment also provided for the enforcement to cover the Court Fee, in this regard, Mr Cheng diligently works out the figures and submits that the Enforcement Judgment could not possibly cover the Court Fee.  This evidence in this area is not so clear, and so plays no part in my consideration.

55.  In conclusion, I prefer the Applicant’s stance, and therefore find that Ground (3) fails.

VII.    GROUND (4)

56.  Further or alternatively to Ground (3), the 3^rd Respondent’s position is that the Court Fee Order is not registrable also by reason that the Acceptance Fee and the Preservation Fee are charges of a like nature to taxes, which is not allowed by virtue of section 5(2)(e) reflecting the well-established common law principle that the Hong Kong Court would not entertain an action for enforcement of a revenue or other public law of another jurisdiction, whether directly or indirectly: see Dicey, Morris and Collins on The Conflict of Laws (16^th edition), §§8R-001, 8-002, 14-026; Law of Conflicts of Hong Kong (3^rd edition), §4.008. 

57.  In this context, the central question, as explained in §§34, 37 and 38 above, is whether the enforcement would involve the exercise of a sovereign right extra-territorially.

58.  Thus, in Nanus Asia Co Inc v Standard Chartered Bank [1988] HKC 377, though not a case on the MJREO or any statutory equivalent, the defendant bank had a branch in Hong Kong.  Various New York court orders had been made upon the Securities and Exchange Commission (SEC)’s applications pursuant to the Securities Exchange Act 1934 and the Insider Trading Sanctions Act 1984 to the effect that the bank account maintained by the plaintiffs therein with the defendant was frozen and the defendant was instructed to transfer the money in the account to the New York Court, where the president of the plaintiffs was convicted and faced a civil penalty and a disgorgement of funds.  The plaintiffs instructed the Hong Kong branch of the defendant to transfer money in the account to some others’ bank accounts, and the defendant refused to follow the instructions on the ground, among others, that they were not allowed to do so by the New York Court orders.  DHCJ Cruden held that the defendant bank could not rely on this ground to refuse to follow the instructions because allowing reliance on this ground would be a “[vindication] or [assertion of] the right of a foreign state” (394A).

59.  Similarly, in QRS 1 ApS v Frandsen [1999] 1 WLR 2169, where the defendant stripped of the plaintiff company of the company assets, and as a result, the plaintiff company was unable to pay taxes to the Danish government which then applied to wind up the Plaintiff company and as the sole creditor, appointed a liquidator, the English Court of Appeal held that the liquidator (on behalf of the plaintiff company) could not seek a remedy designed effectively to give extraterritorial effect to foreign revenue law.

60.  Does the enforcement of the Court Fee here involve exercise of the sovereign rights extra-territorially?  In my view, as Mr Chang submits, the time of the payment of the Court Fee is an important consideration.  The Applicant paid the Court Fee to the Mainland Courts before the handing down of the Mainland Judgments.  The Court Fee was in the revenue of the state.   While the default position is that the Mainland Courts are to refund the Court Fee to the winning party and to bear the risk of the inability to recover the Court Fee from the losing party, this default position is qualified, as explained by Professor Du (expert for the 3^rd Respondent), by the phrase “unless the prevailing party voluntarily assumes them or agrees to accept direct payment from the losing party” (see §50 above).  In the present case, as I have found above, the Applicant had elected to recover the Court Fee direct from the 3^rd Respondent.  In other words, the Applicant had assumed the risk on its own, and the Applicant’s claim to recover the Court Fee on its own risk means that it is a claim made on its own behalf, because by the assumption of the risk, if the Applicant fails to recover the Court Fee, it would be the Applicant to bear the loss, the loss being the Court Fee already paid to the Mainland Courts, and if the Applicant succeeds in recovering the Court Fee, it would be the Applicant to keep the Court Fee to itself.  Therefore, like the plaintiff in Autonomous Non-Commercial Organization “Organizing Committee of 2014 Sochi Winter Olympics” v Pico Projects (International) Ltd, supra, the hole is in the Applicant’s own pocket now. 

61.  Despite this, Mr Cheng submits that such claim would still be a claim made as a nominee on behalf of the state, like that in QRS 1 ApS v Frandsen, supra.  He reasons that the current situation was created by (1) the Mainland Courts not following the statutory articles strictly by refunding to the Applicant and bearing the risk to recover from the Respondents; and (2) the Mainland Courts prompting the Applicant to pursue the Court Fee against the Respondents on its own, and such situation, Mr Cheng continues to reason, would be a situation where the Mainland Courts effectively asks the Applicant to collect the Court Fee on their behalf.  Despite Mr Cheng’s eloquent submissions, I cannot agree – Mr Cheng’s such submissions cannot overcome the hurdle that as found above, upon agreeing to recover the Court Fee direct from the 1^st to 3^rd Respondents, the win or loss in respect of the Court Fee would be a matter solely for the Applicant, or it would be “a hole in the Applicant’s own pocket.  Viewed this way, the Applicant is not a nominee of the state for the present purpose.

62.  Professor Wang’s Opinion takes the view that the claim in such circumstances is a claim for unjust enrichment (不當得利) based on articles 122 and 985 of the PRC Civil Code, reasoning that the loss in terms of the Court Fee was suffered by the Applicant at the expense of whom the 3^rd Respondent was enriched unjustly in that it should have, but did not, paid the Court Fee to the Mainland Courts.  On my finding that the Applicant’s claim for the Court Fee is a claim on its own, and there being no opinion from the 3^rd Respondent to the contrary, I agree with Professor Wang’s opinion in relation to the cause of action.

63.  In other words, the Applicant’s claim for the Court Fee is a claim made by the Applicant on its own behalf based on the private cause of action of unjust enrichment under articles 122 and 985 of the PRC Civil Code for the loss suffered by the Applicant itself.  The Court Fee in such a claim is nothing of any taxes or the like and does not involve exercise of any sovereign rights extra-territorially.  Therefore, Ground (4) fails.

VIII.   DECLARATION OF DUTY OF EXPERTS NOT NECESSARY IN AFFIRMATIONS

64.  In the course of submissions, Mr Cheng lightly complains that there was no declaration of duty of experts in the initial PRC legal opinion exhibited to the affirmations in support of the application for the Registration Order.  Lack of such a declaration does not make the opinion inadmissible: see Re A Civil Matter Now Pending in United States District Court for the Western District of Washington at Seattle under No 2:13-CV-1034 MJP [2020] 5 HKLRD 30 at §69 per Lam VP (delivering the Judgment of the Court of Appeal), and there is no suggestion that the expert in the initial opinion did not observe the duty to the Hong Kong Court.  I also see no reason here why simply because of the lack of such a declaration, I should disregard the opinion.  Mr Cheng’s complaint does not give the 3^rd Respondent any mileage.

IX.     CONCLUSION

65.  In the premises, I only set aside the part of the Registration Order in relation to the enforcement of the Enhanced Interest Order against the 3^rd Respondent.  I direct the parties to agree to a draft order to reflect the above setting aside and file it with the Court within 14 days from today for my approval.

66.  The 3^rd Respondent succeeds only in Ground (2) out of the original six Grounds, two of which were no longer relevant at the hearing for reasons explained in §13 above upon each side’s sensible concessions.  As I said at the end of the hearing, I would make a costs order nisi in respect of the apportionment.  By a broad-brush approach, I make an order nisi that the 3^rd Respondent shall pay the Applicant 60% of the Applicant’s costs.

67.  For the summary assessment of costs and certificate for counsel, I heard parties’ argument during the hearing.  I order that there shall be certificate for one counsel only, and summarily assess the whole amount of the Applicant’s costs at HK$850,000.

68.  It remains for me to thank Mr Chang, Mr Kwan and Mr Cheng for their able assistance.

(Gary CC Lam)

Deputy High Court Judge

Mr Jonathan Chang SC and Mr Eugene Kwan, instructed by Benjamin Au & Billy Chan, for the Applicant

Mr Louis Cheng, instructed by Grandall Zimmern Law Firm, for the 3^rd Respondent