BANK OF CHINA LTD v. YANG FAN

HCMP 1797/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1797 OF 2015

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D E C I S I O N

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Introduction

1.  This is the hearing of the Plaintiff’s summons dated 27 July 2015 applying to continue an ex parte Mareva injunction (the “Continuation Summons”) granted by Chow J on 24 July 2015 as extended by Mimmie Chan J on 31 July 2015; and the Defendant’s summons taken out on 15 September 2015 to discharge the above injunction (the “Discharge Summons”).  By consent, the two summonses were ordered to be heard together. 

2.  The injunction restrains the Defendant from disposing of his assets in Hong Kong up to the value of RMB 500 million pursuant to section 21M of the High Court Ordinance in support of five sets of proceedings commenced by the Plaintiff in the Shandong Provincial Higher People’s Court and the Rizhao Intermediate People’s Court. 

The background

3.  The Plaintiff is the Bank of China Limited.  Its hierarchical structure is made up of provincial branches, city branches, and sub-branches.  It is suing in the name of its Rizhao Branch, a city branch under the Shandong Provincial Branch.  The Plaintiff, its Shandong Provincial Branch, its Rizhao Branch and two of its sub-branches, namely the Weihai Sub-branch and the Haiqu Sub-branch, are collectively referred to as the “Bank”. The Weihai Sub-branch and the Haiqu Sub-branch, advanced funds to Lianghe Group Co Ltd (“Lianghe”) and Shandong Chenghua Group Co Ltd (“Chenghua”)under two loan agreements guaranteed by the Defendant, his wife and others.  These loan agreements are respectively, the Lianghe Agreement and Chenghua Agreement.

4.  The Defendant is a resident of the People’s Republic of China (the “PRC”) and legal representative of Chenghua.  He was, until 19 May 2015, the chairman and executive director of National United Resources Holdings Ltd (“NURH”), a company listed on the Stock Exchange of Hong Kong Limited.  He, his wife and others, are guarantors of the Lianghe Agreement and the Chenghua Agreement.  Neither of them are directors or shareholders of Lianghe.

5.  Under the Lianghe Agreement dated 6 September 2013, the Weihai Sub-branch provided a credit line to Lianghe totalling RMB 200 million.  By a guarantee agreement of the same date, the Defendant and his wife guaranteed Lianghe’s liability under the Lianghe Agreement (the “Lianghe Guarantee”). 

6.  Under the Chenghua Agreement dated 28 December 2014, the Weihai Sub-branch advanced a loan of RMB 291.6 million to Chenghua. By a similar guarantee agreement of the same date, the Defendant and his wife guaranteed Chenghua’s liability under the Chenghua Agreement (the “Chenghua Guarantee”).

7.  Both Lianghe and Chenghua defaulted under their respective loan agreements.  The Defendant also failed to honour his obligations under the respective guarantees. 

8.  On 15 January 2015, the Weihai Sub-branch obtained three property preservation orders from the Rizhao Intermediate People’s Court to freeze the bank deposits of Lianghe, Chenghua, the Defendant, his wife and others in the amount of RMB 31 million, RMB 49.5 million and RMB 49.5 million or their property of equivalent value.  But the Defendant did not have substantial assets located in the PRC to meet the preservation orders. 

9.  On 2 March 2015, the Weihai Sub-branch commenced three actions at the Rizhao Intermediate People’s Court against, inter alia, Lianghe, Chenghua, the Defendant and his wife under the Lianghe Agreement and the Lianghe Guarantee in respect of three loans under three invoices in the total sum of RMB125 million.

10.  On 12 May 2015, the Rizhao Branch commenced another action in the Rizhao Intermediate People’s Court against, inter alia, the Defendant for a debt of RMB 67.26 million under the Lianghe Agreement and the Lianghe Guarantee.  This action was brought under the name of the Rizhao Branch instead of the Weihai Sub-branch due to a change in the Bank’s policy which no longer authorised sub-branches to bring legal actions in their own name.

11.  On 28 May 2015, the Rizhao Branch filed another claim with the Shandong Higher People’s Court against, inter alia, Chenghua, Lianghe, the Defendant and his wife for a debt of RMB 291.6 million under the Chenghua Agreement and the Chenghua Guarantee.

12.  On 1 June 2015, the Rizhao Branch obtained from the Rizhao Intermediate People’s Court a property preservation order freezing the Defendant’s bank deposit in the sum of RMB 80 or property of equivalent value.

13.  In June 2015, unknown to the sub-branches, the Shandong Provincial Branch entered into the following arrangement with Shandong Province Financial Assets Management Company Limited (“Shandong Assets Management”), an asset management company, to dispose of its and its sub-branches’ non-performing assets.  By an agreement dated 29 June 2015 (the “Batch Assignment”), the Shandong Provincial Branch assigned a batch of non-performing assets including the debts under the two loan agreements and guarantees (the “Subject Debts”) to Shandong Assets Management.  In turn, by an agreement dated 2 July 2015 (the “Subject Debts Assignment”) Shandong Assets Management assigned the Subject Debts to Rizhao Steel Holding Group Co Ltd (“Rizhao Steel”).  By an earlier agreement dated 24 June 2015 (the “First Authorisation”), Rizhao Steel authorised the Rizhao Branch to collect the Subject Debts in its own name by way of legal proceedings.

14.  On 24 July 2015, the Rizhao Branch obtained an ex parte Mareva injunction from Chow J. The application was supported by affirmations filed by Li, the Weihai Sub-branch manager, and Zang, the Plaintiff’s PRC lawyer representing the Rizhao Branch in its civil actions in the PRC against the Defendant and others.  At the ex parte hearing, the assignment of the Subject Debts was unknown to both Li and Zang and was therefore not disclosed to the court.  The case was presented on the basis that the Rizhao Branch had the right to sue for the Subject Debts as lender.  The order granted at the ex parte hearing was continued by the order of Mimmie Chan J on 31 July 2015.

15.  Upon reporting the progress of the Hong Kong proceedings to the Rizhao Branch, Li was informed by the deputy manager of the Rizhao Branch that the Subject Debts had been assigned by the Shandong Provincial Branch to Rizhao Steel and of the arrangement under which Rizhao Steel authorised the Rizhao Branch to collect the Subject Debts on its behalf. It is common practice of the Bank to deal with bad debts by assigning them to an asset management corporation.  Such assignments are handled in strict confidence at head office and branch level and are usually not disclosed to the sub-branches.

16.  On 6 September 2015, the Bank and Rizhao Steel entered into a second agreement to confirm the principal terms of the First Authorisation of 24 June 2015 (the “Second Authorisation”).

17.  On 10 September 2015, the Plaintiff filed an affidavit prepared by its solicitor (“Green’s 1^st Affidavit”) in performance of its continuing duty of full and frank disclosure by informing the court of the assignment of the Subject Debts.

The applicable legal principles

18.  The cases have shown that the following principles are applicable to an application for interim relief in aid of foreign proceedings under section 21M of the High Court Ordinance.

19.  First, proceedings have been or are to be commenced in a place outside Hong Kong: Pacific King Shipping Holdings Pte Ltd (In Compulsory Liquidation) v Huang Ziqiang[1].

20.  Second, such proceedings are capable of giving rise to a judgment which can be enforced in Hong Kong: Pacific King Shipping Holdings Pte Ltd (In Compulsory Liquidation) v Huang Ziqiang and Beyonics Technology Ltd v Goh Chan Peng[2]. As the proceeding is interlocutory in nature, the applicant seeking this relief is only required to show a good arguable case that the foreign judgment to be obtained will be final and conclusive without having to actually prove that such judgment will be final and conclusive: see the fourth principle set out below.  That more onerous burden is to be discharged when actually seeking to enforce the foreign judgment in Hong Kong: see Chiyu Banking Corp Ltd v Chan Tin Kwun[3]and Lee Yau Wing and Lee Shui Kwan[4].

21.  Third, under section 21M(4) of the High Court Ordinance, the relief may be refused if the court is of the opinion that the fact that it has no jurisdiction apart from this section makes it unjust or inconvenient to grant the relief: see Beyonics Technology Ltd v Goh Chan Peng.

22.  Fourth, the court has to be satisfied that the basic requirements for granting the relief were met, if the substantive proceedings were brought in Hong Kong: see Pacific King Shipping HoldingsPte Ltd (In Compulsory Liquidation) v Huang Ziqiang and Beyonics Technology Ltd v Goh Chan Peng.  In the case of a Mareva injunction application, these requirements involve demonstrating a good arguable case, that the Defendant has assets within the jurisdiction, a real risk of dissipation of assets which would render any judgment obtained nugatory, and balance in favour of granting the relief in that it is just and convenient to do so.  The strict duty of full and frank disclosure also applies. 

23.  Fifth, the court has to consider whether it is unjust or inconvenient to grant the interim relief sought: see Refco Inc & Anor v Eastern Trading Co & Ors[5]. The court has to bear in mind that the relief sought is in relation to and in aid of foreign proceedings.  The considerations generally revolve around judicial comity, potential conflict as to jurisdiction, potential conflict in inconsistent or overlapping orders, etc.  Such considerations do not arise on the facts of the present case.

24.  Lastly, the Defendant must have assets within the jurisdiction.

Whether the parties had entered into a choice of Mainland court agreement

25.  The principal basis of the Plaintiff’s application is that the five on-going actions brought against the Defendant in the PRC courts will give rise to a judgment which may be enforced in Hong Kong under the Mainland Judgments (Reciprocal Enforcement) Ordinance, Cap 597 (the “Ordinance”) or at common law.  Mr Wong, argues that they are not for want of an exclusive jurisdiction clause in favour of any PRC court in the loan agreements or the guarantees.

26.  Under section 5(1) of the Ordinance, a judgment creditor under a Mainland judgment may apply to the Court of First Instance within a certain time limit to have the judgment registered in the Court of First Instance.  The Court of First Instance shall order the Mainland judgment to be registered if it meets the requirements set out in subsection (2).  Under section 14, a registered Mainland judgment shall, for the purpose of execution, be of the same force and effect as if it had been a judgment originally given in the Court of First Instance and entered on the day of registration.  For the purpose of the present application, two requirements under section 5(2)(b) and (c) are pertinent.  These are, respectively, that the parties had entered into a choice of Mainland court agreement; and that the Mainland judgment is final and conclusive as between the parties to that judgment.

27.  A “choice of Mainland court agreement” is defined by section 3(2) of the Ordinance to mean “an agreement concluded by the parties to a specified contract and specifying the courts in the Mainland or any of them as the court to determine a dispute which has arisen or may arise in connection with the specified contract to the exclusion of courts of other jurisdictions.”

28.  The Plaintiff relies on clause 13 of the Lianghe Agreement and clause 15 of the Chenghua Agreement as the choice of Mainland court agreement.  The relevant parts of these clauses are identical.  Clause 13 of the Lianghe Agreement provides as follows:

「 除當事人另有約定外，本協議、單項協議適用中華人民共和國法律。

除當事人另有約定外，在本協議、單項協議生效後，因訂立、履行本協議、單項協議所發生的或與本協議、單項協議有關的一切爭議，雙方可協商解決。協商不成的，任何一方可以採取下列第3種方式加以解決：

1. …

2. …

3.       依法向有管轄權的人民法院起訴。」

(Translation:

“Unless otherwise agreed by the Parties, this Agreement and individual agreement shall be governed in accordance with Chinese law.

Unless otherwise agreed by the Parties, after this Agreement and individual agreement become effective, where any dispute arises out of the establishment and performance of this Agreement, individual agreement or related to this Agreement and individual agreement shall be resolved through negotiation. Where negotiation fails, both parties agree to resolve the dispute by the [third of the following methods]:

1. …

2. …

3. File a lawsuit to the people’s court with jurisdiction.”)

(My amendment of the translation highlighted in bold print; my emphasis underlined.)

Clause 15 of the Chenghua Agreement provides:

「本合同適用中華人民共和國法律。

在本合同生效後，因訂立、履行本合同所發生的或與本合同有關的一切爭議，雙方可協商解決。協商不成的，任何一方可以採取下列第3種方式加以解決：

1. …

2. …

3. 依法向有管轄權的人民法院起訴。」

(Translation:

This Contract adopts Law of the People’s Republic of China.

Both parties could settle all disputes in compromise which are resulted from concluding and performing this Contract or related to this Contract. Any party can choose the third way below to settle the case if there is no agreement upon negotiations:

1. …

2. …          

3. Submit the case to the People’s Court which has the jurisdiction.”)

(My emphasis underlined.)

The translation of the two clauses provided by the Plaintiff’s solicitors is inconsistent.  For the same phrase “可以”, it is translated as “agree to (resolve)” in one clause and “can choose … to (settle)” in another.  The translation in Clause 13 of the Lianghe Agreement was nonsensical and necessitated my amendment highlighted in bold print above.  In either case, the effect of these clauses is that upon failing to negotiate a settlement, the parties may or can institute proceedings in the PRC court which has jurisdiction.

29.  The Plaintiff also relies on clause 14 of the Lianghe Guarantee and clause 12 of the Chenghua Guarantee as the choice of Mainland court agreement in its action against the Defendant in respect of his liability under the guarantees for the Subject Debts owed by Lianghe and Chenghua respectively.  These clauses are identical and provide as follows:

「本合同適用中華人民共和國法律。

凡因履行本合同而產生的一切爭議、糾紛，雙方可先通過協商解決。協商不成的，雙方同意採用與主合同之約定相同的爭議解決方式。」

(Translation:

“This contract shall be governed in accordance with the Law of the People’s Republic of China.

Where any dispute arises out of the performance of this contract, both parties shall resolve such dispute through negotiation. Where negotiation fails, both parties agree to resolve the dispute by the same method stipulated in the Master Contract.”)

In either case, there is express agreement that the parties shall adopt the same means to resolve their dispute as provided for under the Lianghe Agreement and Chenghua Agreement. 

30.  Thus, the question of whether the parties had entered into a “choice of Mainland court agreement” boils down to whether clause 13 of the Lianghe Agreement and clause 15 of the Chenghua Agreement give the PRC court jurisdiction over the parties’ disputes to the exclusion of courts of other jurisdictions.  This is a question of construction. 

31.  The thrust of Mr Wong’s argument is that the word “可以(may)” is permissive, not imperative, and does not confer exclusivity to any PRC court.  Despite the inconsistency in the translation, I would treat in favour of the Defendant that the words “可以” should be translated as “may” or “can”.  In ordinary usage, “may” or “can” is permissive whereas “must” or “shall” is imperative.  In accordance with such usage, the phrase “可以” will not generally be construed to be imperative.  This is only the prima facie meaning.  There are numerous examples where the word “may” is construed as imperative, and the word “must” or “shall” is construed as permissive even in statues, not just in documents or contracts.  All depends on the context in which the word is used.  Ultimately, it is a question of what is the intention of the parties who drafted the document.

32.  The applicable principles in construction of document have been summarised by Lord Hoffmann in Investors Compensation Scheme Ltd and West Bromwich Building Society [1998] 1 WLR 896 at 912-913 as follows: 

“The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749.

(5) the ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] A.C. 191, 201:

         ‘… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’ ”

These principles were repeated by Lord Hoffmann NPJ when delivering the judgment of the Court of Final Appeal in Jumbo King Ltd v Faithful Properties Ltd & Ors[6].  The first, fourth and fifth principles quoted above are particularly pertinent to the present case.

33.  The question for this court is to ascertain the meaning which the loan agreements and guarantees would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, ie the factual matrix, and having regard to the ordinary meaning of the word “may”.  The factual matrix is as follows.  The parties are PRC parties.  The Plaintiff is a bank residing and operating in the PRC.  The borrowers, ie the parties primarily liable, are residing and carrying on business in the PRC.  The Defendant is a PRC resident residing in Rizhao, Shandong.  The two loan agreements and the two guarantees were all executed in the PRC.  The parties’ contracted place of performance and the place of breach are in the PRC. The governing law of the loan agreements and guarantees is PRC law. 

34.  Like most contracts with PRC parties, the contracting parties would agree to resolve their disputes by mediation or negotiation and only upon failing that would they resort to litigation.  Here, the parties specified the third of three means of dispute resolution as the manner in which their disputes are to be resolved.  The first one is to submit to arbitration by an arbitration committee.  The second one is to institute legal proceedings against the plaintiff in a PRC court.  This option is only available to the Defendant and is inapplicable to the present case.  The third one is to institute legal proceedings in a PRC court which has jurisdiction. Against the above factual matrix and the three means set out in the loan agreements, prima facie, it must be the parties’ intention that the third means is the only means of dispute resolution agreed between the parties if they cannot resolve their dispute by mediation.  This intention could be tested by asking what if one party wishes to proceed by the third means but the other party wishes to proceed by the first or second means or an unspecified means such as litigation in a jurisdiction outside the PRC.  The first and second options must have been impliedly excluded by reason of the parties consciously choosing the third option only out of the three specified options, whereas any other unspecified options would render the entire clause superfluous and meaningless.  To litigate outside the PRC does not make sense in the light of the factual matrix.  As submitted by Ms Lok, counsel for the Plaintiff, the Defendant’s argument that these clauses are not exclusive jurisdiction clauses is artificial and disingenuous.  If the Defendant genuinely takes the position that the clauses are non-exclusive jurisdiction clauses, he should forthwith confirm whether his solicitors have instruction to accept service such that proceedings can be commenced against him in Hong Kong where his assets are principally located.  In the context of the two loan agreements, I am well satisfied that it was the parties’ intention that they shall resolve their dispute by the third means.  The phrase “可以” should be construed as having the imperative meaning as “shall”.  Accordingly, I find that clause 13 and clause 15 of the Lianghe Agreement and Chenghua Agreement are exclusive jurisdiction clauses.

35.  The parties’ intention under the two guarantees could not be any clearer.  The prima facie intention as expressed by the words “同意 (agreed)” is that the means of dispute resolution as set out in the two loan agreements shall be adopted in respect of any dispute under the two guarantees.  There is no other contrary meaning.  Accordingly, I also find that clause 14 and clause 12 of the Lianghe Guarantee and Chenghua Guarantee are exclusive jurisdiction clauses.

Whether PRC judgment to be obtained will be final and conclusive

36.  Whether a foreign judgment is final and conclusive has to be determined in accordance with the law of the jurisdiction in which the judgment is sought to be enforced: Nouvion v Freeman & Another[7].  Under Hong Kong law, to be final and conclusion a judgment must, in the words of Lord Watson in Nouvion v Freeman & Another, be final and unalterable in the court which pronounced it.  The test is not whether the judgment is subject to appeal.  In that case, Lord Herschell said[8]:

“… it must be shown that in the court by which it was pronounced conclusively, finally, and for ever established the existence of the debt of which it is sought to be made conclusive evidence in this country, so as to make it res judicata between the parties. If it is not conclusive in the same court which pronounced it, so that notwithstanding such a judgment the existence of the debt made between the same parties be afterwards contested in that court, and upon proper proceedings being taken and such context being adjudicated upon, it may be declared that there exists no obligation to pay the debt at all, then I do not think that a judgment which is of that character can be regarded as finally and conclusively evidencing the debt, and so entitling the person who has obtained the judgment to obtain a decree from a court for the payment of that debt.”

His Lordship continued[9]:

“… Although an appeal may be pending, a court of competent jurisdiction has finally and conclusively determined the existence of a debt, and it has nonetheless done so because the right of appeal has been given whereby a superior court may overrule that decision. There exists at the time of the suit a judgment which must be assumed to be valid until interfered with by a higher tribunal, and which conclusively establishes the existence of the debt which is sought to be recovered in this country. That appears to be in altogether a different position from a ‘remate’ judgment where the very court which pronounced the ‘remate’ judgment (not the Court of Appeal) may determine, if proper proceedings are taken, that the debt for which this ‘remate’ judgment is sought to be used as conclusive evidence has no existence at all.”

37.  Lord Watson also said[10]:

“… but no decision has been cited to the effect that an English court is bound to give effect to a foreign decree which is liable to be abrogated or varied by the same court which issued it. All the authorities cited appeared to me, when fairly read, to assume that the decree which was given effect to had been pronounced causa cognitâ, and that it was unnecessary to enquire into the merits of the controversy between the litigants, either because this had already been investigated and decided by the foreign tribunal, or because the defendant had due opportunity of submitting for decision all the pleas which he desire to state in defence. In order to its receiving the fact here, a foreign decree need not be final in the sense that it cannot be made the subject of appeal to a higher court; but it must be final and unalterable in the court which pronounced it; and if appealable, the English court will only enforce it, subject to conditions which may save the interest of those who have the right to appeal.”

38.  Both parties produced expert evidence on the issue of finality and conclusiveness of the PRC judgment.  The Plaintiff filed three affirmations by Mr Zang, the PRC lawyer who handled the Plaintiff’s litigations in the PRC (the “Plaintiff’s expert”).  The Defendant’s solicitor filed an affirmation exhibiting a report by Mr Liu, also a PRC lawyer (the “Defendant’s expert”).

39.  Mr Wong, counsel for the Defendant, criticises the reliability of opinion of the Plaintiff’s expert on the basis that there is no indication that he had read the code of conduct in Appendix D as mandated by Order 38 rule 37B of the Rules of the High Court (“RHC”) and queried his independence or impartiality as he is the Plaintiff’s lawyer instructed to handle the PRC proceedings.  He submits that the evidence of the Plaintiff’s expert should not be admitted or, if admitted, should be given little weight. In reply, Ms Lok argues that the requirements of giving the expert declaration in Appendix D and the statement of truth apply only to expert witnesses who are called to give oral evidence or expert reports and is not applicable to witness affirmations made under oath pursuant to Order 38, rule 36(2).  I agree with that submission.  As is stated in Hong Kong Civil Procedure 2015[11], filing of an affidavit and its service on the other parties is as effective a means of securing the disclosure of expert evidence as is provided by Part IV of Order 38; and moreover, it would be highly impracticable to apply the provisions of Part IV of the Order to interlocutory proceedings in which evidence is normally given by affidavit.  As for the question of impartiality, it is indeed a question of weight. 

40.  Though the Defendant’s expert’s reports were not given by affidavit and without prior leave having been sought pursuant to Order 38, rule 36(1), Ms Lok does not raise any serious challenge to their admissibility.  In the exercise of my discretion, I admit them in evidence. 

41.  The opinions of the two experts are conflicting.  I tested their opinion against each other’s and against the authorities they cited.  Despite having borne in mind Mr Wong’s submission on impartiality, I prefer the Plaintiff’s expert’s opinion which is generally supported by the authorities whereas the Defendant’s expert’s opinion appears to be made up of bald assertions.

42.  It is common ground between both experts that the PRC courts adopt a “two tier adjudication system（兩審終審制）”.  This is so provided by articles 10 of 《中華人民共和國民事訴訟法》(《Civil Procedure Law of the People’s Republic of China (2012) 》) (“the Code”). Articles 155 and 175 are pertinent.  These articles provide: 

「10. 人民法院審理民事案件，依照法律規定實行合議、迴避、公開審判和兩審終審制度。」;

「155. 最高人民法院的判決、裁定，以及依法不准上訴或者超過上訴期沒有上訴的判決、裁定，是發生法律效力的判決、裁定。」;

「175. 第二審人民法院的判決、裁定，是終審的判決、裁定。」

(Translation:

“10.     When adjudicating civil cases, the people’s courts shall apply the systems of collegial panel, recusal, public trial, and “two trials and the second one is final.”

“155. All judgments and rulings rendered by the Supreme People’s Court, as well as judgments and rulings against which shall not be appealed according to law or have not been appealed within the prescribed time limit, shall be legally effective.”

“175. The judgments and rulings of a people’s court of second instance shall be final.”)

The adjudication system of the PRC admits of only one appeal against a judgment of a court of first instance to a court of one level higher within the prescribed time limit.  No further appeal is available upon conclusion of that appellate proceeding in the court of second instance.  No appeal will be entertained upon expiry of time allowed for appeal.  The judgments and rulings of the court of second instance and those of the court of first instance, if not appealed against, shall be legally effective.  As the test of finality is not whether the judgment is subject to appeal, no argument has been advanced that a PRC judgment given by the court of first instance is not final and conclusive by reason of its being subject to appeal. 

43.  The thrust of the Defendant’s expert’s argument that PRC judgments lack finality is founded on the People’s Procuratorate’s right to lodge a protest （抗訴）against a judgment under the adjudication supervision regime（審判監督制度）available under the Code.  He opines that once this protest is invoked, the court that gave the judgment or ruling may have to re-try the case.  Hence, He argues that PRC judgments are clearly not final and conclusive for the purpose of enforcement under Hong Kong law.  The Plaintiff’s expert argues that a re-trial by the court which passed the judgment does not necessarily follow a protest as matter of course. 

44.  Under the Code, apart from the appellate procedure, a legally effective judgment, against which no appeal is available, is amenable to review under the adjudication supervision system by the president of the relevant people’s court or the Supreme People’s Court under article 198, by the Supreme People’s Procuratorate at the request of the local people’s procuratorates under article 208 or the parties themselves under article 199, if certain requirements are met.  The review by the people’s courts and procuratorates is initiated by those bodies on their own initiative upon discovery of errors in the judgment or ruling.  The review by the parties is initiated by the parties if they believe there is an error in the judgment or ruling.  They have to petition to the court of the next higher level.  The review by the parties may only be made under thirteen circumstances specified in article 200.  These circumstances are essentially insufficiency of evidence, error in law, violation of statutory procedure which has affected the correctness of the judgment or ruling and misconduct of judicial members in trying the case.  The review by procuratorates may only be made under those thirteen circumstances and circumstances involving endangering national interest or social public interest. 

45.  Articles 198, 199 and 208 are relevant.  They provide as follows:

「 198. 各級人民法院院長對本院已經發生法律效力的判決、裁定、調解書，發現確有錯誤，認為需要再審的，應當提交審判委員會討論決定。

最高人民法院對地方各級人民法院已經發生法律效力的判決、裁定、調解書，上級人民法院對下級人民法院已經發生法律效力的判決、裁定、調解書，發現確有錯誤的，有權提審或者指令下級人民法院再審。

199.  當事人對已經發生法律效力的判決、裁定，認為有錯誤的，可以向上一級人民法院申請再審；當事人一方人數眾多或者當事人雙方為公民的案件，也可以向原審人民法院申請再審。當事人申請再審的，不停止判決、裁定的執行。」;

「 208. 最高人民檢察院對各級人民法院已經發生法律效力的判決、裁定，上級人民檢察院對下級人民法院已經發生法律效力的判決、裁定，發現有本法第二百條規定情形之一的，或者發現調解書損害國家利益、社會公共利益的，應當提出抗訴。

地方各級人民檢察院對同級人民法院已經發生法律效力的判決、裁定，發現有本法第二百條規定情形之一的，或者發現調解書損害國家利益、社會公共利益的，可以向同級人民法院提出檢察建議，並報上級人民檢察院備案；也可以提請上級人民檢察院向同級人民法院提出抗訴。

各級人民檢察院對審判監督程序以外的其他審判程序中審判人員的違法行為，有權向同級人民法院提出檢察建議。」

(Translation:

“198. If the president of a people’s court at any level discovers that a legally effective judgment, ruling or mediation agreement made by his court indeed contains an error and deems it necessary to have the case retried, he shall refer it to the judicial committee for discussion and decision.

If the Supreme People’s Court discovers that a legally effective judgment, ruling or mediation agreement made by a local people’s court at any level indeed contains an error, or if a people’s court at a higher level discovers that a legally effective judgment, ruling or mediation agreement made by a people’s court at a lower level indeed contains an error, they shall have the power to bring the case up for trial by themselves or direct the people’s court at a lower level to conduct a re-trial.

199. If the parties concerned believe that there is an error in a legally effective judgment or ruling, they may apply to the people’s court at the next higher level for a re-trial. If one party to the case comprises a large number of persons, or both parties to the case are citizens, they may also apply to the people’s court of original instance for re-trial. However, the execution of the judgment or ruling shall not be suspended during the application.”

“208. If the Supreme People’s Procuratorate discovers that a legally effective judgment or ruling made by a people’s court at any level involves any of the circumstances under Article 200 of this Law, or if a people’s procuratorate at a higher level discovers that a legally effective judgment or ruling made by a people’s court at a lower level involves any of the circumstances under Article 200 of this Law, or the mediation agreement endangers the national interest or the social public interest, the Supreme People’s Procuratorate or the said people’s procuratorate at a higher level shall lodge a protest.

If a local people’s procuratorate at any level discovers that a legally effective judgment or ruling made by a people’s court at the same level involves any of the circumstances specified under Article 200 of this Law, or the mediation agreement endangers the national interest or the social public interest, the people’s procuratorate may raise procuratorial suggestions to the people’s court at the same level and report them to the people’s procuratorate at the higher level for record-filing, or request the people’s procuratorate at a higher level to lodge a protest to the people’s court at the same level.

The people’s procuratorates at all levels shall have the right to raise procuratorial suggestions to the people’s courts at the same level regarding any illegal acts of judicial officials in judicial procedures other than the trial and supervision procedure.”)

46.  Having set out these statutory provisions, I now turn to the authorities referred by Mr Wong which he says the courts have expressed reservations over the finality of PRC judgments in the context of summary judgment applications.  It should be noted that the statutory provisions cited above are effective on 1 January 2013, some seven to seventeen years after the authorities referred to by Mr Wong.

47.  In Chiyu Banking Corp Ltd v Chan Tin Kwun[12], the plaintiff obtained a judgment from the Fujian Intermediate People’s Court against the defendant under a guarantee.  The Defendant’s appeal to the Fujian Higher People’s Court was dismissed.  He presented a petition to the Fujian People’s Procuratorate seeking a re-trial by the intermediate court.  The procuratorate presented a report to the Supreme People’s Procuratorate requesting it to lodge a protest.  In the meantime, the plaintiff sued under the PRC judgment in Hong Kong.  The Defendant applied to stay the action because the protest procedure had been invoked.  At the time, the Ordinance was not in force in Hong Kong. The issue was whether at common law, the PRC judgment was final and conclusive.  Cheung J (as he then was), held it was not and stayed the application. He made the following observation about the protest by the procuratorates[13]:

“Under the legal system in PRC, another state organ, the Procuratorate exercises a supervisory function over civil adjudication by the courts: Article 14 of the Civil Procedure Law of 1991 ("the Civil Procedure Law"). Under Article 185, the Procuratorate may lodge a protest to the court in respect of a judicial decision. The circumstances in which the protest may be lodged are set out in art.185, namely,

(i) the main evidence to substantiate the original judgment or ruling was insufficient;

(ii) the law which was applied in the original judgment or ruling was incorrect;

(iii) the People’s Court was in violation of the statutory procedure which have affected the correctness of the judgment or ruling;

(iv) the judicial members in trying the case committed embezzlement, accepted bribes, practised favouritism or make a judgment that perverted the law.

It is for the Supreme People’s Procuratorate to lodge the protest but under Article 185, the Fujian People’s Procuratorate is entitled to refer the matter to the Supreme People’s Procuratorate for it to lodge a protest.

Under art 187, the court, upon receipt of the protest, is required to conduct a re-trial of the action.”

After referring to the test of finality in Nouvion v Freeman & Another and the above dicta of Lord Herschell and Lord Watson, Cheung J held that the judgment of the intermediate people’s court was not final and conclusive.  He said[14]:

“Based on the material before me, the supervisory function of the Supreme People’s Procuratorate and the protest system are not simply an appeal process. The intermediate court judgment is final in the sense that it is not appealable and it is enforceable in China, but it is not final and conclusive for the purpose of recognition and enforcement by the Hong Kong courts because in the words of Lord Watson, it “is not final and unalterable in the court which pronounced it”.  It is liable to be altered by the intermediate court on a re-trial if the Supreme People’s Procuratorate lodge a protest in accordance with the Civil Procedure Law.  If upon protest being made, rare the circumstances may be, a Chinese court has to re-try the case, then, clearly it retains the power to alter its own decision.  As Lord Watson said at page 13 of Nouvion:

“There is no real difference in principle between the case of a court retaining power to alter a decree by an order in the same suit and the case of its retaining power to defeat the operation of that decree by an order pronounced in another suit relating to the same debt.”

Mr Kerr referred to Colt Industries Inc v Sarlie (No.2) [1966] 1 WLR 1287 in which Lord Denning, M.R. at page 1291 held that:

“The appeal itself does not render it not final and conclusive, nor should the possibility of leave to appeal. It seems to me that the proper test is this: is the judgment a final and conclusive judgment of a court of competent jurisdiction in the territory in which it was pronounced. The relevant territory here is the State of New York. Applying this test, there was here a final and conclusive judgment.”

In my view, Lord Denning’s decision does not in any way contradict the principle in Nouvion.

Although no protest has been lodged yet, the procedure had actually been invoked.  This demonstrated that the judgment is not final and conclusive.  To allow the present action to continue would not be satisfactory because the plaintiff is not suing on the guarantee but on the judgment itself which is not final and conclusive.  There is a possibility that the judgment may be varied if the application to the Supreme People’s Procuratorate is successful, and the debt for which the present judgment is sought to be used as conclusive evidence may have no existence at all.”

(My emphasis underlined.)

48.  This is a clear ruling by the High Court that despite the PRC judgment was not appealable, it nevertheless was not final and conclusive because the protest procedure had been invoked and there was a possibility that the judgment may be altered by the court pronouncing it upon re-trial.  However, Cheung J is far from saying that the protest procedure by itself renders any PRC judgment not final and conclusive.  

49.  Indeed, in his later decision in Lee Yau Wing and Lee Shui Kwan[15] in which the plaintiff also sued on a PRC judgment, Cheung JA sitting in the Court of Appeal expressly acknowledged that this issue has not been authoritatively determined by the Court of Appeal, and he cited five Court of Appeal decisions[16] to that effect.  He concluded in paragraphs 23 to 27 by saying that whether a PRC judgment may be rendered not final and conclusive solely by reason of the protest regime or by the regime and some factual circumstances has not been authoritatively decided and is an important issue involving important public interest which could not be determined by interlocutory proceedings on paper without hearing oral evidence from PRC law experts.  He said, after referring to Nouvion v Freeman & Another, that the House of Lords has neither clearly stated that the existence of a regime whereby a Spanish “remate judgment” may be set aside was sufficient to determine whether the judgment was not final and conclusive.  He said[17]:

「  24. 本席認為本案最具爭議性的議題是內地的判決是否純是因為審判監督制度的存在而令判決不能成為最終及不可推翻的判決，抑或是需要視乎實際情況才可以決定有關的裁決是不是屬於這類的裁決。如果法庭要視乎實際的情況來作出判決，它應如何規範或界定這個情況？舉一個例子，如果就某一宗案件，所有審判監督制度內的渠道已經被運用而內地法院最終維持原審的判決，但同時有證據顯示有關權力機構對某個法庭在某段期間所判決的案件重新調查及命令重審，而當事人的案件亦是該法庭在該段期間作出判決的，當事人雖然未能在兩年的期限之內要求有關權力機構重新處理這些案件，但本港法庭在這情況下是否仍因當事人未能符合王教授所指有關制度新運作的規定而裁定內地裁決是一項最終及不可推翻的裁決？若果本港法庭需要考慮案件的實際情況， 本港法庭應以甚麼標準來界定內地近期司法解釋文件提出涉及就兩年期限的‘正當理由’？

25. 在Nouvion v Freeman (1890) LR 15 App Cas 1一案，法庭沒有清楚說明到底是不是只要存在着一個可以推翻‘remate判決’的制度，法庭就已具備穩固的基礎去裁定這類判決不是最終及不可被推翻的判決。

26. 本港法庭需要考慮實際情況才作出決定的觀點無疑是有它的優點，但這樣做會出現該裁決可能和內地可使用審判監督權力的機關的實質決定有所不同，畢竟本港法庭只能就當時雙方提供的證據來作出法庭認為正確的判決。這正突顯了本港法庭採用這方式處理案件的難處，也突顯了一個原則性的議題即是本港法庭應否單方面認為在內地判決敗訴的一方再沒有可能依賴有關的審判監督制度去推翻有關的判決，就因而裁定這判決是一項最終及不可推翻的判決？鑒於內地審判監督制度的存在及內地法制沒有一項條文規定內地判決若在外地執行會在甚麼時間或情況下才被視為最終及不可推翻的判決，香港法庭應否作出一個價值判決來裁定一宗案件在內地已經是沒有‘正當理由’來啟動‘審判監督’制度。在現階段，本席不需要深入探討這些問題或者作出確定性的裁決，因為本上訴只是一項有關簡易判決的上訴。

27. 本案涉及的議題明顯是一項具有公眾重要性的議題。雖然王教授對本席提供了珍貴的意見，但這也只是訴訟一方所提供的專家的書面意見。袁大律師作為法庭之友對案件持中立態度，他是以專業知識協助法庭，雖然他不是內地法律專家，但本席認為他對王教授的意見所作出的回應並不是泛泛之言，王教授是應該出庭作證、接受盤問及全面解釋他的意見。」

(My emphasis underlined.)

In the end, the Court of Appeal, by a majority, held that the issue whether the PRC judgment was final and conclusive could not be determined in interlocutory proceeding and ordered the case to proceed to trial.

50.  In Wu Wei（伍威）對 Liu Yi Ping（劉一萍）[18], the defendant sought to rely on a PRC judgment to support her application to stay the execution of a Hong Kong judgment against her.  Tang VP affirmed the Court of Appeal’s decision in Lee Yau Wing and Lee Shui Kwan that whether a foreign judgment is final and conclusive is an issue of important public interest involving complicated legal questions which could not be decided in interlocutory proceedings without hearing evidence from experts on PRC law.

51.  Despite the conclusions reached in Chiyu Banking Corp Ltd v Chan Tin Kwun, Lee Yau Wing and Lee Shui Kwan and Wu Wei（伍威）對 Liu Yi Ping（劉一萍）, the question whether a PRC judgment is final and conclusive, or more precisely whether a PRC judgment is rendered not final and conclusive by reason of the regime of protest by the procuratorate remains open. 

52.  It should be noted that the decision in Chiyu Banking Corp Ltd v Chan Tin Kwun which was endorsed by the other two Court of Appeal decisions was made twenty years ago.  Lee Yau Wing and Lee Shui Kwan and Wu Wei（伍威）對 Liu Yi Ping（劉一萍）were determined nine and seven years ago respectively. PRC law has undergone tremendous changes in the past twenty years.  Notably, the Code now operative was promulgated on 31 August 2012 and took effect on 1 January 2013.  While the provisions of the Code referred to in Chiyu Banking Corp Ltd are similar to the ones I quoted above, the article numbers have changed significantly.  The PRC legal expert opinion adduced before Cheung J was that there were five grounds upon which a protest may be lodged under article 185 and that under article 187, the people’s court upon receipt of protest from the procuratorate is required to conduct a re-trial.  The five grounds in article 185 have been expanded to thirteen grounds under article 200.  More importantly, article 211 of the present Code which is equivalent to article 187 under the former Code provides:

「 211. 人民檢察院提出抗訴的案件，接受抗訴的人民法院應當自收到抗訴書之日起三十日內作出再審的裁定；有本法第二百條第一項至第五項規定情形之一的，可以交下一級人民法院再審，但經該下一級人民法院再審的除外。」

(Translation:

“211. With respect to a case against which a people’s procuratorate lodges a protest, the people’s court that has accepted the protest shall make a decision on whether or not to re-try the case within 30 days after receipt of the protest. Under any of the circumstances prescribed in Items (1) to (5) of Article 200 of this Law, the people’s court may transfer the case to a lower court for re-trial, unless the case has already been retried by the said lower court.”)

(My emphasis underlined.)

53.  Though not so argued by the two experts, it is apparent that the protest regime and the adjudication supervision regime have undergone substantive changes since 1 January 2013.  Many more articles have been inserted between article 200 and article 211 whereas formerly there was only one intervening article between article 185 and 187.  It appears from article 211 of the current Code that under the present protest regime re-trial by the court protested is not a matter of course upon receipt of a protest.  First, the people’s court which accepts the protest is usually one level higher than the court the decision of which is protested against.  It has 30 days to decide whether to entertain the protest by ordering a re-trial or to dismiss the protest.  It may or may not order a re-trial.  If it dismisses the protest, that is the end of the protest.  Second, if it orders a re-trial, it may conduct the re-trial itself or order it to be tried by a lower level court or the court protested.  It may conduct the re-trial itself, except where the protest was made in circumstances under paragraphs (1) to (5) of article 200, ie matters relating to insufficiency of evidence.  In that light, the protest regime is more like an appellate regime.  The protest by the procuratorate is just another avenue of appeal, except that it is initiated by a non-party.  But the result is no different from an appeal by a party.  The protest is to be adjudicated by the higher level people’s court.  The remedies, if successful, are no different from those available under the appellate system in the PRC. Those remedies are also similar to the remedies under our system.  The appellate court may set aside the judgment of the original court, re-hear the case itself and reach its own decision or remit it to the court appealed or protested against to continue hearing with further directions or for re-trial de novo.  There is no doubt that judgments of our courts under our system are final and conclusive.  Thus, equally, it can be argued that PRC judgments under a system containing a protest regime as set out in article 211 is final and conclusive.  My understanding of Lord Watson’s dictum in Nouvion v Freeman & Another is that a judgment is final and conclusive if it is unalterable voluntarily (my emphasis) by the court pronouncing it.  The court becomes functus officio and has no jurisdiction to reopen or amend its decision on its own volition.  Hence, it is final and conclusive as far as the court pronouncing it is concerned.  Under our law, the fact that the pronouncing court’s jurisdiction is revived by an appellate court does not render its original decision not final and conclusive.  Applying the same rationale, there is no reason why, if jurisdiction is revived by a protest by the procuratorate resulting in the same remedies available under the appellate system in that foreign jurisdiction, the original decision should be treated as not final and conclusive. 

54.  In my view, the current Code has significant impact on the question whether a PRC judgment is not final and conclusive by reason only of the protest regime.  Article 187 which was referred to Cheung J in Chiyu Banking Corp Ltd might or might not be identical to article 211 under the current Code.  If it was, Cheung J had been seriously misled to the belief that a re-trial follows a protest as a matter of course, such that the decision was not final and unalterable by the court pronouncing it.  If it was not, the law might have changed significantly and suggests that the three decisions I referred to above may no longer be relevant.  Those three decisions were decided many years before the current Code and are distinquishable from the present case by reason of the apparently substantial changes in the Code.  In any event, the Court of Appeal has never held that PRC judgments are not final conclusive by reason only of the protest regime.  It has expressly left that issue open.  For the purpose of the present application, I am not required to answer that question.  The issue in these proceedings is whether the Plaintiff seeking relief in aid of a foreign judgment has proved an arguable case or a serious issue to be tried that it will likely obtain a judgment in the foreign court and that such judgment will likely be final and conclusive for the purpose of the Ordinance.  In view of the above analysis of the Code, I would be slow to hold that PRC judgments are rendered not final and conclusive by reason of the protest regime.  I consider I am bound the Court of Appeal decisions that in view of its complicated nature and public importance, that question could not be determined in interlocutory proceedings without hearing evidence from expert witnesses.  However, I am well satisfied for the purpose of the present interlocutory application that the Plaintiff has discharged its burden of showing an arguable case that such judgment, if obtained, is final and conclusive for the purpose of the Ordinance.

Good arguable case – Plaintiff’s locus to sue under PRC law

55.  Lianghe and Chenghua had taken steps to dispute the jurisdiction of the PRC courts.  However, no substantive defence has been proffered.  The Defendant has openly admitted in his affirmation that Chenghua has breached its repayment obligation since 2015 and further admitted that Chenghua is in such dire financial situation that it has failed to pay any of its employees’ salaries since April or May 2015.  He has to date failed to proffer any substantive defence.  There is overwhelming evidence that Lianghe and Chenghua have breached their obligation as borrowers and the Defendant has breached his obligation as guarantor in respect of the two loan agreements.  The only argument taken by Mr Wong is that the Plaintiff has lost its locus to sue after the debts were assigned to Rizhao Steel, both as a matter of PRC law and Hong Kong law.

56.  On the fact, the Plaintiff assigned the Subject Debts along with other non-performing assets to Shandong Assets Management under the Batch Assignment on 29 June 2015, which then assigned the Subject Debts to Rizhao Steel under the Subject Debts Assignment on 2 July 2015.  It is the opinion of the Defendant’s expert that the First Authorisation dated 24 June 2015 authorising the Rizhao Branch to collect the Subject Debts on behalf of Rizhao Steel which pre-dated the Subject Debts Assignment has no legal effect because the Subject Debts were still owed to the Plaintiff at the material time.

57.  This opinion is neither here nor there as it confuses the question of who owned the Subject Debts and who has locus to sue. According to the Plaintiff, the Batch Assignment, Subject Debts Assignment and Authorisation formed one global arrangement under which the Bank’s non-performing assets were assigned together with the condition that the Plaintiff’s Rizhao Branch would continue to render services or assistance to the assignee in recovering the Subject Debts.  For compliance reasons under PRC law, the Plaintiff assigned the non-performing assets to an asset management holding company first, which then sub-assigned the Subject Debts to Rizhao Steel.  The intention of the parties as reflected in the preamble of the Subject Debts Assignment was to sign the First Authorisation after the execution of the Subject Debts Assignment.  However, as it took time to go through the internal administrative procedures, the execution of the documents took place in the reverse order.  The anomaly was rectified under the Second Authorisation signed on 6 September 2015.

58.  The Plaintiff’s expert relies on article 51 of the《中華人民共和國合同法》(《Contract Law of the People’s Republic of China》) in support of his opinion that the validity of the Authorisation is nevertheless saved by the Second Authorisation and hence the Rizhao Branch has authority to take legal action to recover the Subject Debts on behalf of Rizhao Steel.  Article 51 of 《Contract Law of the PRC》 provides:

「 無處分權的人處分他人財產，經權利人追認或者無處分權的人訂立合同後取得處分權的，該合同有效。」

(Translation:

“Where a person without the right of disposal disposes of another’s property, upon ratification by the obligee or if the person without the right of disposal obtains the right of disposal after making the contract, the contract shall be effective.”)

On the face, this article supports the opinion of the Plaintiff’s expert, whereas the opinion of the Defendant’s expert is unsupported by any authority.  I accept the opinion of the Plaintiff’s expert.

59.  Next, the Defendant’s expert argues that the Second Authorisation is also ineffective because as a state owned bank, the Plaintiff is in no position to become Rizhao Steel’s debt collecting agent.  Again, he cited no authority to support his opinion. 

60.  The Plaintiff’s expert exhibits the particulars of the Rizhao Branch registered with the Commerce and Industry Bureau showing that it is authorised to carry out all businesses permitted to be carried out in accordance with laws and regulations within the scope of the licence issued by中國銀行業監督管理委員會 (China Banking Regulatory Commission).  His opinion is that the scope of businesses permitted by the licence does not prohibit the Rizhao Branch from collecting debt on behalf of Rizhao Steel.  The Defendant’s expert offered nothing to contradict this opinion.  I prefer the Plaintiff’s expert’s opinion.

61.  Next, the Defendant’s expert opines that as notice of assignment of the Subject Debts had been given to the Defendant through Green’s 1^st Affidavit filed in this proceeding, the assignment is binding on Chenghua and Lianghe as debtors and the Plaintiff has lost the right to continue the proceedings in the PRC.  There is no dispute that before commencement of proceedings in the PRC, no notice of assignment had been given to Lianghe and Chenghua.  The Plaintiff’s solicitor’s affirmation was filed in performance of the Plaintiff’s duty of full and frank disclosure after commencement of proceedings in the PRC.  The Plaintiff’s expert is therefore of the opinion that Green’s 1^st Affidavit is not notice of assignment.  The assignment is binding only as between the Plaintiff as assignor and Rizhao Steel as assignee and has no relevance as between Lianghe and Chenghua on the one part, and the Plaintiff and Rizhao Steel on the other.  Both opinions are not supported by any authorities.  I prefer the Plaintiff’s expert’s opinion as more logical and reject the Defendant’s expert’s opinion as rather strained. In any event, even if the affirmation constituted adequate notice, the Plaintiff has locus to sue under the Second Authorisation.    

Good arguable case – Plaintiff’s locus to sue under Hong Kong law

62.  Mr Wong refers to Bowstead & Reynolds[19], and Malayan Banking Berhad v China Insurance Co Ltd[20] and submits that as a matter of Hong Kong law, an agent must sue in the name of his principal.  This is to protect a defendant being vexed twice by different parties in respect of the same subject matter.  He submits that even though the Plaintiff might have standing to sue under PRC law as Rizhao Steel’s agent, it cannot obtain the Mareva relief sought in these proceedings under Hong Kong law without joining Rizhao Steel as a plaintiff in these proceedings. 

63.  In reply, Ms Lok submits that this argument wholly subverts the ancillary nature of the section 21M proceedings.  The Plaintiff is not asserting a substantive cause of action in the Hong Kong courts.  This court is only asked to assist the PRC actions and under that forum where the substantive dispute is tried, it is not necessary to join Rizhao Steel.  I agree. 

Risk of dissipation

64.  The Defendant had 588,186,432 shares in NURH on 1 December 2014.  On his own admission on three occasions between 31 March and 25 June 2015 he had disposed of 55,770,000 shares with a market value of $32 million, representing a reduction of the Defendant’s shareholding from 18.69% to 9.496%.  The Plaintiff relies on these disposals as evidence of risk of dissipation of the Defendant’s assets.  There was another disposal of 15,000,000 shares on 1 December 2014 which has not been explained by the Defendant, other than by Mr Wong that the transactions took place before commencement of the PRC proceedings. 

65.  The Defendant’s answer is that the reduction was insignificant in absolute terms, being about 56 million shares out of more than 588 million, ie 9.52% only.  He also explained that the sales were for the purpose of settling the interest payable for the margin facilities.  Mr Wong submits that there is nothing sinister or untoward in such sales.  He also argues that it is difficult to see why the Defendant’s shareholding as of 1 December 2014 should be taken as the reference point in assessing the risk of dissipation when the PRC proceedings only commenced much later in 2015.

66.  I have examined the Defendant’s share trading account maintained with Get Nice Securities Limited for the months of March to June 2015.  It was a margin trading account with a debit balance of $30 million and 588,186,432 NURH shares on 1 December 2014.  Between March to June 2015, there were sales of NURH shares as price surged from $0.26 to $0.9 which turned the debit balance to a credit balance of $193,869.65.  There were also deposits of about $59.58 million, resulting in a credit balance of about $59.59 million and 532,416,432 NURH shares in the account.  The activities in the account, though in the nature of disposal, are consistent with a trader maintaining his margin account, selling his pledged shares as the price surged to take profit. By themselves, these activities were neutral and inconsistent with dissipation of assets for the purpose of preventing the Plaintiff from enforcing any judgment to be obtained against the Defendant.

67.  However, these activities have to be viewed against the factual matrix.  The Defendant was, until 19 May 2015, the chairman and executive director of NURH. As at 1 December 2014, he held 588,186,432 of its shares, representing 19.66% of its issued share capital.  Just five months prior, Chenghua, of which he was the legal representative and person in control, failed to repay the loans advanced by the Haiqu Sub-branch.  On 28 December 2014, on behalf of Chenghua, he entered into the Chenghua Agreement to refinance Chenghua’s indebtedness.  Under clause 10.2(11) of that agreement, Chenghua promised that its person in control, ie the Defendant, would not dispose of his shares in NURH at will and if he intended to dispose of any of his shares he would first obtain prior approval from the Haiqu Sub-branch and transfer all proceeds of sale to the Haiqu Sub-branch.  He also signed the Chenghua Guarantee on the same day.  The disposals should be viewed against the above background.  In the light of the circumstances, the Defendant’s shareholding on 1 December 2014 must have been at least one of the material considerations for which the Haiqu Sub-branch entered into the Chenghua Agreement and the Chenghua Guarantee.  Hence, his shareholding on that date is the appropriate starting point to consider the risk of dissipation.

68.  The Defendant never informed the Bank of the above disposals and the proceeds of sale were only applied to reduce his own margin liability instead of being applied to repay Chenghua’s debts in accordance with the undertaking in clause 10.2(11).  Not only did he blatantly fail to honour his personal guarantee under the Chenghua Agreement, he now resorts to argue that he was not a party to that agreement.  Despite the fact that the Defendant is indeed not a party to the Chenghua Agreement and despite the principle of separate corporate personality, the Chenghua Agreement, the Chenghua Guarantee, and his shareholding in NURH formed one composite against which the Defendant’s conduct or commercial morality has to be measured.  He was the legal representative and person in charge of Chenghua which was in debt.  He negotiated on behalf of Chenghua with the Haiqu Sub-branch for refinancing and offered his personal assets as an assurance, if not a formal security, for Chenghua’s indebtedness.  On top of all that, he entered into a proper formal Chenghua Guarantee to repay Chenghua’s debts.  How can he now refuse to honour that guarantee and turn around to say that the undertaking in clause 10.2(11) is not binding on him?  That undertaking is at least binding on his moral.  Though his shares in NURH are not security for Chenghua’s indebtedness, it must have been on the strength of his personal undertaking as the legal representative and person in charge of Chenghua that he will not reduce his shareholding in NURH and his assurance that any proceeds of sales of his shares in NURH will be applied to reduce Chenghua’s indebtedness that the Haiqu Sub-branch entered into the Chenghua Agreement with Chenghua and accepted his guarantee under the Chenghua Guarantee as sufficient security for Chenghua’s indebtedness.

69.  Thus, despite the fact that the transactions in his margin account appear to be regular, that the proceeds of sales of the NURH shares were only applied to reduce his margin indebtedness and that he put in additional funds into the account, his failure to honour the undertaking under clause 10.2(11) of the Chenghua Agreement which he caused Chenghua to give, his expressly denouncing any obligation under that clause and his failure to honour the Chenghua Guarantee suggest that he is a person of low commercial morality.  When his attitude is viewed in the round, the inference is that he has no intention to honour the Chenghua Guarantee and would do whatever he could to protect his assets so as to prevent the Plaintiff from successfully executing any judgment which may be obtained against him.  He could easily withdraw funds from the margin account resulting in a debit cash balance.  He could therefore reduce the net asset value in the account to such minimum level as could be supported by the value of the shares in the account, leaving the Plaintiff with little net asset to levy execution on.  The value of the shares and cash in the account as at 30 June 2015 was $360 million, which was less than the amount restrained under the injunction. I am satisfied that the Plaintiff has demonstrated a real risk of dissipation.  There is no update of the net asset value in the account, but from available information from the Stock Exchange of Hong Kong the price of the NURH shares has reduced by two thirds as of the date of this decision.  All funds in this account should be restrained.

Balance of convenience

70.  The Defendant has so far failed to advance any substantive defence to the Plaintiff’s claims.  He only argues that there are other guarantors under the two loan agreements and that the Plaintiff has applied for and obtained a number of pre-litigation property preservation orders from the PRC courts against him and other parties.  In relation to the debts under the Lianghe Agreement, orders freezing bank deposits of RMB 49.5 million and RMB 80 million and real estate to the value of RMB 10 million have been obtained against the Defendant and others.  In relation to the debts under the Chenghua Agreement, an application for pre-litigation property preservation was made.  There is no update on the progress of that application.  In addition, the Defendant argues that the Plaintiff has claimed as against Lianghe and Chenghua account payables in the amount of RMB 248 million and certain stock rights.  Notwithstanding these preservation orders, the Plaintiff has been unable to identify any significant assets held by the Defendant and others in the PRC.  The other guarantors have failed to honour their obligations.  The limited security provided under the loan agreements is insufficient.  The Plaintiff has to resort to litigation and to look to the Defendant’s assets outside the PRC. There is nothing in the Defendant’s argument which could tilt the balance in his favour.

71.  On the other hand, as the Defendant has advanced no substantive defence to the claims and as there are no assets available to satisfy judgment, the balance must tilt in favour of maintaining the injunction than discharging it.

Non-disclosure

72.  Lastly, the Defendant complains of material non-disclosure in three respects.

73.  First, Mr Wong criticizes the Plaintiff for having failed to inform the ex parte judge (i) that the Plaintiff has the burden of showing that the PRC proceedings are capable of giving rise to a judgment which may be enforced in Hong Kong; (ii) how this can be shown in the present case; and (iii) what potential arguments the Defendant may raise on this point.  He submits that on the basis of the skeleton argument presented to the court before the ex parte judge there was a complete failure on the part of the Plaintiff to address these fundamental issues.

74.  The Plaintiff was represented by another counsel at the ex parte stage.  In his skeleton submission, he referred the court to sections 21M and 21L of the High Court Ordinance.  He referred to all the requirements which have to be satisfied in an application for Mareva injunction in aid of foreign proceedings.  He has referred specifically to the requirement that the foreign proceedings must be capable of giving rise to a judgment which may be enforced in Hong Kong.  But he has not gone into the depth as suggested by Mr Wong.  It is, of course, desirable that counsel should have addressed the ex parte judge on those mattes.  It appeared that counsel has taken that issue for granted.  That was an unfortunate omission.

75.  However, it has no impact in the present case.  Enforcement of PRC judgment is not uncommon in Hong Kong in view of Hong Kong’s close economic and geographical ties with the PRC.  I do not think it is an issue which is unfamiliar to any civil judge in the Court of First Instance, of which Chow J is one and a very experienced one.  He would have no doubt held the same views as I do that a PRC judgment is on the face final and conclusive and that the applicant is only required to show a serious issue to be tried in this interlocutory application.

76.  Second, Mr Wong criticizes the Plaintiff’s failure to disclose to the ex parte judge the assignment of the Subject Debts and the authority issue raised by such assignment.  I have dealt with those issues and am satisfied that they have no impact on the PRC judgment to be obtained.  Although it is difficult to argue in theory that the Weihai Sub-branch as part of the Plaintiff did not have the knowledge of its superior Rizhao Branch and Shandong Provincial Branch, I accept that was indeed what happened.  The court cannot turn a blind eye to that reality.  However, upon realizing the true position and in the discharge of its continuing duty of full and frank disclosure, the Plaintiff promptly filed an affidavit revealing the situation well before the Defendant filed his affirmation in opposition for the inter partes hearing.  Accepting that there was material non-disclosure, I am satisfied that the failure to disclose in the circumstances was unintentional, has no impact to the case and was excusable.

77.  Third, Mr Wong refers to the skeleton submission before the ex parte judge in which counsel referred to sales of the Defendant’s shares in NURH from 1 December 2014 (mistakenly written as “1 December 2015”) which reduced his shareholding from 19.66% to 14.46%.  He criticizes the Plaintiff for painting a misleading picture exaggerating the extent of the Defendant’s disposals of his shares as the reduction was mainly due to dilution caused by issue of new shares. Dilution was one reason, but there was nevertheless about 10% reduction in real terms.  At that stage, the Plaintiff could only assess the Defendant’s shareholdings based on his own disclosures to the Stock Exchange of Hong Kong. It might have failed to notice the increase in issued share capital of NURH which led to the exaggeration.  But as I analyzed, the disposal, though of a lesser extent, nevertheless supports the existence of a risk of dissipation. Such non-disclosure was neither intentional nor material.

78.  In conclusion, the material non-disclosure was trivial, unintentional, has no impact to the decision of the ex parte judge and ought fairly be excused. 

Conclusion

79.  For the above reasons, the balance of convenience is in favour of maintaining the injunction.  There was some trivial material non-disclosure.  Technically, the injunction should be discharged for material non-disclosure.  However, the overriding question is what the interest of justice requires in the circumstances.  There is no substantive defence advanced on behalf of the Defendant.  All his arguments are technical.  The non-disclosure has no impact on the case, was trivial, unintentional and ought fairly be excused.  Having regard to proportionality and all the circumstances, I am satisfied that justice requires that the injunction be maintained.  It is therefore appropriate to discharge the injunction and to make a re-grant on similar terms.

80.  Accordingly, I allow the Defendant’s Discharge Summons and discharge the Mareva injunction but make no order as to costs; and allow the Plaintiff’s Continuation Summons by ordering a new injunction on similar terms with costs to the Plaintiff.