GD v. HY

HCCT 76/2021

[2021] HKCFI 3900

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 76 OF 2021

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D E C I S I O N

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1.  On 15 September 2021, this Court granted leave to the Applicant (“GD”) on its ex parte application to enforce an award of the emergency arbitrator (“Award”) whereby emergency relief was granted, restraining the Defendant (“HY”) from removing, encumbering, dissipating or otherwise disposing of his property, and to make disclosure of his assets, until further order or award is made in the arbitration commenced by GD against HY in Hong Kong (“Arbitration”), or upon the termination of the Arbitration (“Enforcement Order”). On 30 September 2021, HY applied to set aside the Enforcement Order, on the grounds that firstly, the arbitration agreement relied upon by GD is not valid, and secondly, that HY was not given proper notice of the appointment of the arbitrator or of the Arbitration or was unable to present his case. The second ground was not pursued by the time of the hearing before this Court.

2.  The Arbitration was commenced in respect of a Loan Agreement made on 30 January 2016 (“Loan Agreement”) between GD on the one part as Lender, HY and SD as Borrowers, and 2 companies AEHL and HYL as “Covenantors” or guarantors.  GD is a licensed money lender in Hong Kong, and the Loan Agreement evidenced that GD made a loan of HK$303 million (“Loan”) to HY and SD, which Loan the Borrowers and Covenantors agreed and covenanted, jointly and severally, to repay with interest, on the terms set out in the Loan Agreement.  The Loan was stated in the Loan Agreement to be repayable in 9 months, on 5 November 2016, and was secured (inter alia) by a legal charge over the entire issued capital of HYL which was wholly owned by AEHL.

3.  The dispute resolution clause in the Loan Agreement provided for disputes in relation to or arising out of the Loan Agreement to be resolved by litigation in the courts of Hong Kong.  The Loan Agreement further contains a variation clause (in clause 15), which states:

“This Loan Agreement shall not be amended, supplemented or modified except by written instrument signed by the Parties hereto or their respective duly authorized representatives.”

4.  A Supplemental Agreement to the Loan Agreement was signed by the same parties on 22 February 2016, whereby the schedule of instalment payments of the Loan Agreement was revised.

5.  The repayment date of the Loan under the Loan Agreement was extended 4 times, from the original due date of 5 November 2016, respectively to 5 May 2017, 5 May 2018, 5 May 2019 and then 5 May 2020, as evidenced by letters issued and signed by GD and countersigned by HY and SD.  Each of these letters attached a document under the heading “Repayment Schedule” (還款過程表) (“Schedule”), setting out the details of the Loan and the dates for payment of the amounts payable, which was signed by both HY and SD.

6.  On 3 June 2021, GD issued a letter to HY and SD (“5^th Extension Letter”), referring to their request for further extension of the time for repayment of the outstanding Loan and accrued interest to 5 August 2021.  A Schedule setting out details of the Loan and dates for payment was attached.  The 5^th Extension Letter contained, for the first time, the arbitration clause relied upon by GD (“Arbitration Agreement”), which states (in essence) that “notwithstanding any provision in the Loan Agreement”, the Borrowers and the Covenantors irrevocably agreed that they had the liberty to choose to refer any disputes, differences or claims relating to or arising out of the Loan Agreement and the related guarantees to arbitration in Hong Kong.

7.  The 5^th Extension Letter and the Schedule thereto were countersigned by HY, but not by SD, AEHL or HYL.

8.  HY seeks to set aside the Enforcement Order on the basis that there was no valid arbitration agreement between GD and HY, as the 5^th Extension Letter was not signed by all the parties to the Loan Agreement, and was not a valid variation under the Loan Agreement.

9.  In the Award, the arbitrator considered the question of the 5^th Extension Letter not having been signed by SD, but considered that it was not relevant to GD’s application for the injunction and relief sought.  He concluded that he had jurisdiction to grant the Award.  This is the matter disputed by HY, and the Court must review and be satisfied of the correctness of the arbitrator’s ruling on his own jurisdiction (S Co v B Co [2014] 6 HKC 421).

10.  The Loan Agreement was signed by GD, HY, SD, AEHL and HYL.  Clause 15 of the Loan Agreement expressly provides that it “shall not be amended, supplemented or modified except by written instrument signed by the Parties hereto or their respective duly authorized representatives”. Counsel for HY highlighted the fact that the Loan Agreement further states that “the Lender, the Borrowers and the Covenantors” shall collectively be referred to as “Parties” and each individual as a “Party”.  The term “Parties” by definition therefore refers to GD as Lender, HY and SD as Borrowers, and AEHL and HYL as Covenantors.

11.  “Parties” and “Party” are referred to in clauses 13, 15, 16 and 18 of Schedule 1 to the Loan Agreement, and in the dispute resolution clause of the Loan Agreement. Clause 13 deals with communications between the Parties and the confidentiality obligations of the Parties, whereas clause 18 deals with notice or demands to be served and delivered under the Agreement.

12.  Having considered the terms of the Loan Agreement as a whole, in the context of the nature of the Loan Agreement and the obligations of the Borrowers and Covenantors thereunder, I accept the submissions made on behalf of HY, that as a matter of construction and objective interpretation, the meaning and effect of clause 15 is that the Loan Agreement cannot be amended or supplemented except by written instrument signed by all the Parties, named and defined as including not only HY, but also SD, AEHL and HYL.

13.  The case of Raja v Rubin [2000] Ch 274 does not assist GD in this case.  Raja only states that in a multilateral contract, it is open to some of the parties to agree a variation of their rights as between themselves, if they can do so without affecting the rights of the other parties.  That is not disputable as a general statement. However, there was no variation clause which applied to and governed the parties in Raja, and the decision cannot be relied upon as authority for the proposition that parties can vary their rights in breach of a contract which requires such variation to be in writing signed by the relevant parties.

14.  The meaning of “Parties” and “Party”, as defined and contended by HY, is consistent with the presumed intention of the parties as to the meaning to be placed to and the purpose of clauses 13 and 15. Clause 13 deals with communications between the Parties collectively, ie communications amongst the Lender, Borrowers and Covenantors, and information and material supplied to or received by any of them from the other Party, and refers to the release of any of the Parties from the Loan Agreement.  Likewise, notice to be served under the Loan Agreement is required by clause 18 (a) to be served and signed by the individual Party giving the notice, ie by any of the Parties to the Loan Agreement as may be individually serving the notice.

15.  By referring in the dispute resolution clause to the submission of the “Parties” to the jurisdiction of the Hong Kong courts, the Lender, Borrowers and Covenanters expressed their collective agreement on jurisdiction.

16.  On my construction, by using “Parties” in the collective sense, clause 15 requires any amendment and modification of the Loan Agreement to be in writing signed by the Lender, Borrowers, and Covenantors collectively, in order to be valid and binding on them.

17.  I do not agree that the attestation clause in the Loan Agreement contradicts the meaning of “Parties” as contended by HY. “Parties” are defined to mean the Lender, Borrowers and Covenantors collectively, and the Loan Agreement was indeed executed “by all Parties”.

18.  It is of course indisputable that an arbitration agreement is separate to and severable from the underlying contract.  The underlying contract is the Loan Agreement.  There is no dispute that the Arbitration Agreement relied upon by GD is only contained in the 5^th Extension Letter, signed by HY.  It was argued that as between GD and HY, there was a valid Arbitration Agreement signed by the two of them.

19.  It has to be borne in mind in this case that the Loan Agreement contains a dispute resolution clause whereby the Parties, including GD and HY, submitted to the non-exclusive jurisdiction of the courts of Hong Kong.  The Arbitration Agreement relied upon by GD is thus a variation of the dispute resolution provision of the Loan Agreement, agreed between (inter alia) GD and HY.  In my judgment, GD and HY are bound by clause 15 of the Loan Agreement, such that if they wished to vary the dispute resolution mechanism, such variation has to be by written instrument signed by the “Parties” to the Loan Agreement, defined to mean GD as Lender, HY and SD as Borrowers, and AEHL and HYL as Covenantors.  As the 5^th Extension Letter was only signed by GD and HY, it was not a valid variation of the dispute resolution provision of the Loan Agreement, and hence, there is no valid Arbitration Agreement.

20.  Counsel for HY pointed out that the Arbitration Agreement itself refers to the Covenantors as well as the Borrowers, and their agreement to submit their disputes to arbitration.  The 5^th Extension Letter also provides for the confirmation by AEHL and HYL, to be signed by them, by way of their acknowledgment and agreement to the amendments to the Loan Agreement and the provision for arbitration.  This supports the construction that the parties had intended the 5^th Extension Letter to be signed by all the defined Parties.

21.  As a commercial agreement, the construction of “Parties” as contended by HY makes commercial sense.  The named Parties have rights amongst themselves, and would wish and expect any variation of the terms of the Loan Agreement to be disclosed to and agreed by each of them, and for all disputes amongst themselves to be resolved together, in one forum.

22.  Whether or not the unauthorized variation or amendment to the Loan Agreement discharges or affects the rights of either AEHL, HYL or SD under the underlying Loan Agreement, or gives a defence to any of them, is a separate question to whether there was a valid arbitration agreement constituted by a modification or amendment in writing to the dispute resolution clause, which is signed by the necessary parties.

23.  The language of clause 15 does not make distinction between material variations which affect or prejudice the rights of the parties, and those which do not.  All amendments and variations have to be “by written instrument signed by the Parties”.

24.  For the above reasons, I accede to HY’s application and set aside the Enforcement Order on the ground that there was no valid arbitration agreement between GD and HY.  The order nisi is that GD is to pay to HY all the costs of and incidental to the application to set aside (including any costs reserved), with certificate for Counsel.