BOND TAK (HOLDINGS) LTD v. KING FAME TRADING LTD

HCA 2129/2018

[2020] HKCFI 1509

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2129 OF 2018

________________________

________________________

________________________

D E C I S I O N

________________________

I.  Introduction and Background

1.  This is an application by the defendant by summons dated 8 May 2019 to dismiss or permanently stay the action and the plaintiff’s claim on the grounds that: (1) the dispute is subject to an arbitration agreement and should be submitted to arbitration; or (2) alternatively, the action should be stayed on the grounds of forum non conveniens and in favour of the Intermediate People’s Court of Guangzhou City in Mainland China (the “Guangzhou Court”).

2.  The background to the action is straightforward and not in serious dispute. For convenience, I adopt with minor modifications and supplementation the summary of facts from the respective skeleton arguments of Mr Erik Shum[1], counsel for the defendant, and Mr Billy Poon, counsel for the plaintiff.

3.  The plaintiff and the defendant are both Hong Kong incorporated companies. The plaintiff was the 99.99% shareholder and beneficial owner of a company known as Bond Tak Properties Ltd (“Bond Tak Properties”) which had acquired rights to develop a project in Guangzhou known as GuangXin Chun Lan Garden (春蘭花園) pursuant to an agreement dated 17 December 1992 with Guangdong Province Trust Real Estate Development Limited (the “Project”).

4.  On 8 March 2010, the plaintiff and the defendant entered into a written agreement in Chinese entitled, “股權與項目益轉讓協議書” (the “Transfer Agreement”), whereby the plaintiff agreed to transfer to the defendant its 99.99% shareholding in Bond Tak Properties, including the development rights, interests and liabilities in the Project, for a consideration of RMB 112,864,000. The Transfer Agreement further provided inter alia that:

(1)  The defendant shall pay the consideration to the plaintiff in five instalments (Clauses 2 and 3);

“任何關於本協議的理解、效力、履行及糾紛處理等，均適用中國法律。但就關於根據本協議進行奔置業權由乙方過戶給甲方或甲方需退還、回售及過戶給乙方，則適用香港特別行政區法律。”

(English translation) “Any matters in relation to the understanding, validity, performance and dispute settlement of this agreement shall be governed by the law of Mainland China. However, conveyance of title carried out in accordance with this Agreement shall be governed by the law of the HKSAR including title transfer from Party B [the plaintiff] to Party A [the defendant] or Party A has to return, sell back and transfer the title to Party B.”

(Clause 9(1)) (the “Governing Law Clause”);

(2)  “如本協議雙方發生與本協議有關的任何爭議，則其應盡其全部合理努力、以真誠合作原則為基礎、友好解決該爭議。如未能友好解決該爭議，任何一方可將該爭議提交廣州仲裁委員會申請仲裁。”

(English translation) “Any dispute between the parties relating to this agreement shall be settled through friendly (negotiation) by both parties on the basis of making their best endeavor and sincere cooperation. If the friendly (negotiation) fails, the dispute may be submitted by either party to China Guangzhou Arbitration Commission for arbitration.”

(Clause 9(2)) (the “Arbitration Clause”);

5.  On 22 March 2010, the defendant paid the plaintiff the first instalment of RMB 30 million under the Transfer Agreement. On 24 October 2012, the parties entered into a written supplemental agreement in Chinese entitled “修改和補充協議” (the “Supplemental Agreement”) whereby the Transfer Agreement was amended and varied such that, inter alia, (1) the consideration would be increased to RMB 121,494,000; and (2) the balance of the consideration shall be payable by 3 further instalments: (a) RMB 30 million within 5 working days from the date of execution of the Supplemental Agreement (the “Revised Second Instalment”); (b) RMB 30 million within 60 working days after the plaintiff entered into an agreement to terminate its contractual relationship with certain named third parties (the “Revised Third Instalment”); and RMB 31,494,000 within 10 working days after the defendant has obtained actual control over the land of the Project (the “Revised Fourth Instalment”).

6.  In October 2012, the defendant paid the plaintiff the Revised Second Instalment pursuant to the Supplemental Agreement. However, payment of the Revised Third Instalment was RMB 23 million short, and on 10 March 2016, the parties entered into a further written agreement in Chinese entitled, “和解協議” (the “Settlement Agreement”).

7.  The recital of the Settlement Agreement read as follows:

“甲, 乙双方就春兰花园权益转让第三期款項支付后续問题, 经友好协商, 双方达成如下和解协议…”

(English translation) “Concerning the follow-up matters arising from the payment of the third instalment regarding the transfer of the interest of [the Project], Party A and Party B have reached the following Settlement Agreement…”

The terms of the Settlement Agreement provided that, inter alia:

(1)  A further revised payment schedule in relation to the balance of the Revised Third Instalment - RMB11.5 million was to be paid on or before 12:00 noon 18 March [2016] and a further RMB11.5 million was to be paid within 15 days thereafter; (Clause 1)

(2)  “本協議簽訂後，如果乙方無法按照上述約定時間支付上述轉款，則按應付未付款項以月息兩分計算由乙方向甲方支付利息（包括但不限於第三及第四期轉讓款項）”

(English translation) “After entering into this agreement, if Party B [the defendant] fails to make the abovementioned payment in accordance with the above time schedule, then Party B shall pay Party A [the plaintiff] an interest at the monthly rate of 2% of the unpaid amount including but not limited to the third and fourth instalments for the transfer”;

(Clause 2)

(3)  “乙方未按約定時間支付以上本項目轉讓款, 由此致使甲方損失的, 乙方同意調高 “春蘭花園” 項目轉讓款數額, 以補償甲方損失”

(English translation) “If Party B fails to make the above payment for transfer of this project in accordance with the agreed time schedule and thus causes loss to Party A, then Party B agrees to increase the amount of payment for transfer of the [the Project] in order to compensate the loss suffered by Party A”

(Clause 3)

(4)  “本協議簽訂後，甲乙雙方在 “春蘭花園” 項目再發生任何爭議的，先協商解決，協商不成可向香港法院起訴”;

(English translation) “Any further disputes arising from [the Project] after Parties A & B have entered into this agreement shall be settled through friendly negotiation first. If the negotiation fails, the dispute may be submitted to the Court in Hong Kong for legal action”;

(Clause 4) (the “Jurisdiction Clause”)

(5)  “本協議未約定事項仍按雙方原來簽訂的合同、協議執行，如本協議與原來簽訂的合同、協議出現不同，則以本協議為準。”

(English translation) “Matters not agreed in this agreement shall be executed in accordance with the original contract or agreement. If there is any conflict between this agreement and the original contract or agreement, this agreement prevails.”

(Clause 5)

8.  By 13 June 2016, the plaintiff completed payment of the Third Instalment in accordance with the Settlement Agreement. The plaintiff claims in this action, however, that in breach of the Supplemental Agreement, the defendant failed to pay the Revised Fourth Instalment.

II.  The Evidence

9.  In support of the summons, the defendant relies upon the 1^st and 2^nd affirmations of Pang Yongjiang (“Mr Pang”). In opposition, the defendant relies upon the affirmation of Chang Yan Hao Jeff (“Mr Chang”) and a revised expert report from Zhong Yuming (“Mr Zhong”), a Mainland Chinese lawyer with a law firm in Guangzhou, on the construction and effect of the Jurisdiction Clause as a matter Mainland Chinese law (the “Revised Expert Report”). The Revised Expert Report, which was exhibited to an affirmation filed by the plaintiff’s solicitor, is a revised version of an earlier report exhibited to Mr Chang’s affirmation which had omitted to include a statement of truth and a declaration of compliance with an expert’s duty to the court pursuant to RHC Order 38 r.37C. On 1 November 2019, Master Hui directed that the plaintiff “do have leave/be at liberty to refer to [the Revised Expert Report]” at this hearing.

10.  Mr Shum submitted, however, that the Court should nonetheless refuse to admit the Revised Expert Report as Master Hui’s order was concerned solely with the filing of the Revised Expert Report, and not whether expert evidence should be permitted under RHC Order 38 r.36(1). Further, as Mr Zhong did not himself make an affirmation exhibiting either the Revised Expert Report or the original report, it should be omitted from consideration or given little weight.

11.  With respect, there is little merit to either point. First, RHC Order 38 r.36(2) specifically provides that r.36(1) has no application to evidence which is permitted to be given by affidavit (as in the present case). Second, whilst it would have been preferable for Mr Zhong himself to have made an affirmation exhibiting his report, this is a matter which goes to weight. Significantly, the defendant has not filed any expert evidence in response to the Revised Expert Report (or the original version) nor has it challenged Mr Zhong’s qualifications or expertise, and hence, Mr Zhong’s opinion on Mainland Chinese law in the Revised Expert Report is uncontroverted. Moreover, it seems to me any complaint as to admissibility of the Revised Expert Report should have been made before Master Hui, and it is not open to the defendant to relitigate the matter now.

12.  On the substance of the summons, Mr Shum’s primary case is that the action should be stayed in favour of arbitration on the grounds that there is at least a prima facie case that the dispute in this action falls within the Arbitration Clause, which remains binding on the parties. He submits, therefore, that the court has no discretion but to refer the matter to arbitration pursuant to section 20(1) of the Arbitration Ordinance (Cap 609) (the “AO”) (see e.g. Lin Meng v Chen Shu Quan [2012] 2 HKLRD 547 at §25). Alternatively, Mr Shum contends that if the court were to find that the Arbitration Clause was no longer binding on the parties, the action should nonetheless be stayed in favour of the Guangzhou Court on the grounds that Hong Kong is not the appropriate forum.

III.  Whether action to be stayed in favour of arbitration

13.  Mr Poon does not dispute that (1) the Arbitration Clause was a valid arbitration clause; (2) the clause was binding on the parties until the Settlement Agreement; and (3) the plaintiff’s claim in this action for the Revised Fourth Instalment would have fallen within the ambit of the clause had it been still binding on the parties. The plaintiff’s case, however, is that the Arbitration Clause was superceded by the Jurisdiction Clause in the Settlement Agreement and was therefore no longer valid or binding.

14.  In response, Mr Shum submits that the Jurisdiction Clause must be read in the context of the Settlement Agreement as a whole. Mr Shum places particular emphasis on the recital of the Settlement Agreement to argue that it is concerned only with disputes arising from the Revised Third Instalment. Since there is no dispute that that instalment has been fully paid, the Settlement Agreement, including the Jurisdiction Clause, is nothing more than “a matter of history” and has no application to the plaintiff’s claims in this action. He further submits that there is in any event lack of certainty as to the parties to the Settlement Agreement, which named甲方 (“Party A”) as “奔德集团（投资）有限公司” rather than the correct Chinese name of the plaintiff ( “奔德集团（控股）有限公司”).

15.  I shall first dispose of Mr Shum’s latter argument as to the proper parties to the Settlement Agreement.

16.  In his affirmation, Mr Chang explained that the incorrect name of “Party A” in the Settlement Agreement, i.e. “奔德集团（投资）有限公司”, was merely a typographical or clerical error and there can be no doubt that the parties to the Settlement Agreement were the plaintiff and the defendant. Significantly, the plaintiff’s company chop, with the correct name of the plaintiff clearly printed in Chinese, was affixed to the Settlement Agreement on behalf of Party A.

17.  It is clear from the terms of the Settlement Agreement that it is concerned with the performance of the obligations under the Transfer Agreement and the Supplemental Agreement, both of which had been entered into solely between the plaintiff and the defendant. The defendant does not suggest that the true counterparty in either of those agreements, or indeed the Settlement Agreement, was in fact “奔德集团（投资）有限公司”, rather than the plaintiff. Indeed, Mr Chang pointed out in his affirmation that from searches conducted by the plaintiff’s solicitors, there is in fact no company registered in Hong Kong known as “奔德集团（投资）有限公司”, a fact which has not been challenged by the plaintiff. Moreover, the defendant does not dispute that it paid the Third Instalment to the plaintiff in accordance with the terms of the Settlement Agreement.

18.  In my view, there can be no serious dispute that the proper parties to the Settlement Agreement were the plaintiff and the defendant.

19.  Mr Shum points out that the plaintiff has not sought rectification of the name of “Party A” in the Settlement Agreement in this action. Whilst I agree that out of completeness it may be sensible to do so, this does not detract from the fact that the Settlement Agreement is binding on the plaintiff and the defendant for the reasons above.

20.  The main point of contention between parties, therefore, is whether the Arbitration Clause has been superceded, as contended by the plaintiff, by the Jurisdiction Clause.

21.  In this regard, Mr Shum submits that at this stage, the defendant needs only to establish a prima facie or arguable case that the Arbitration Clause is or remains binding on the parties, in which case, the court has no discretion but to refer the matter to arbitration under Article 8(1) of the UNCITRAL Model Law, as incorporated into section 20 of the AO. It will then be for the plaintiff to raise the issue of jurisdiction in the arbitration and for the arbitral tribunal to rule on its own jurisdiction under Article 16, as incorporated into section 34 of the AO, either as a preliminary question or in an award on the merits. Depending on the course chosen by the tribunal, the plaintiff may have recourse to this court under Article 16 (in the case that the tribunal rules as a preliminary question that it has jurisdiction), or alternatively, under Article 34 as incorporated into section 81 of the Ordinance (in the case that the tribunal rules that it has jurisdiction as part of its award on the merits).

22.  As to the approach to be adopted at this stage, Mr Shum referred me to the decision in Pacific Crown Engineering Ltd v Hyundai Engineering & Construction Co Ltd [2003] 3 HKLRD 440 at §§6-12, where Burrell J reviewed the authorities and held that the onus is on the defendant to demonstrate to the court that there is a good prima facie case, or a plainly arguable case, that a valid arbitration clause exists between the parties – once this is established, the court shall refer the dispute to arbitration and allow the arbitral tribunal to determine the issue of jurisdiction (if raised before it). Mr Shum also referred the court to the decision of the Court of Appeal in Private Company ‘Triple V’ Inc v Star (Universal) Co Ltd and Anor [1995] 2 HKLR 62, where Litton VP (as he then was) said with the concurrence of the other members of the court at 65(5)-(15):

“The judge said this:

‘There is prima facie evidence of a dispute between the plaintiff and D1 in relation to contract 93RV-1034HK and an arbitrator ought to be appointed to arbitrate their dispute. It will be for the arbitrator to decide the effect, if any, of the alleged subsequent agreement cancelling the contract.’

I agree. If the judge were to go into the matter more deeply, he would in effect be usurping the function of the arbitrator. Whilst, clearly, the judge had to make a judgment as to whether there existed an underlying agreement to arbitrate, he could do no more than to form a prima facie view.”

23.  However, in my view, Pacific Crown Engineering and Private Company ‘Triple V’ Inc should be read together with PCCW Global Limited v Interactive Communications Service Limited [2007] 1 HKLRD 309, where the Court of Appeal, whilst reminding itself of the dictum of Litton VP in Private Company ‘Triple V’ Inc cited above, observed at §§52-56:

“In relation to the submission that the court should stay these proceedings to an arbitrator who can then determine whether or not he has jurisdiction, the judge said at para 43:

“43. While I accept that is a possible course, it does not strike me as appropriate here. A decision by an arbitrator on his jurisdiction would still be open to challenge before this Court. The matter would simply return to me. Where (as here) a question of construction is involved and little (if any) extrinsic evidence is sought to be adduced in aid of construction, it would be conducive to saving time and cost to determine the question of jurisdiction now.

44. The writ was issued in December 2004. It is presently December 2005 and a Defence has yet to be filed. Given my views on clauses 4.3, 5, 11.2 and 11.3, it would be wrong to refrain from deciding the jurisdictional issue now. To remit the question to an arbitrator would only lead to unjustifiable delay and expense.”

Support for the judge can be found in Ahmad Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyd’s Law Rep. 522, a decision of the English Court of Appeal.

At that time, in England, O. 73, r. 6(2) of the Rules of the Supreme Court provided that:

“Where a question arises as to whether an arbitration agreement has been concluded or as to whether the dispute which is the subject matter of the proceedings falls within the terms of such agreement, the court may determine that question or give directions for its determination, in which case it may order the proceedings to be stayed pending the determination of that question.”

We do not have a similar provision in Hong Kong. But what Waller LJ said at page 524 is applicable here. He said:

“… if it is clear on the evidence that a contract did or did not exist then the court should so decide for it cannot be right either to direct an issue pursuant to order 73, rule 6(2) or to leave the ‘dispute’ to be determined by an arbitral tribunal.”

The judge regarded the point as clear. He held there was no agreement to arbitrate at all. There was not a prima facie or arguable case otherwise. If so, the judgment must be upheld.”

24.  In the light of the above, the proper approach to be adopted in this case is to determine whether it is clear on the evidence and the construction of the agreements that the Arbitration Agreement has been superceded by the Jurisdiction Agreement. If so, it would be inappropriate for me to leave the matter to the arbitral tribunal, which would only result in unjustifiable delay and expense. On the other hand, if the matter is less than clear or is fact sensitive, then the matter must be referred to the arbitral tribunal for determination, at least in the first instance. In this regard, whilst the court will consider any challenges as to jurisdiction on a de novo basis, it is well established that the court will be “…cautious not to stray into the merits of findings of fact and law made by the tribunal, on issues unrelated to or not necessary for the question of jurisdiction” (see e.g. X v Jemmy Chien [2020] HKCFI 286, 4 March 2020, at §6).

25.  Despite Mr Shum’s persuasive submissions, it is clear in my judgment that the Jurisdiction Clause has superceded the Arbitration Clause, or put another way, the defendant has failed to show a prima facie or arguable case that the Arbitration Clause remains valid and binding on the parties:

(1)  The starting point must be the Jurisdiction Clause itself, where it is provided that after the signing of the Settlement Agreement, any disputes arising from the Project shall first be resolved by negotiation, failing which, the parties may commence an action in the Hong Kong courts;

(2)  The reference to any disputes arising from the Project is unequivocal – it is plainly not referring to merely disputes concerning the Third Instalment or the Settlement Agreement, but rather the Project as a whole, that is, all three agreements;

(3)  Although the recital - in particular, the words, “第三期款項支付后续問题” could perhaps have been more felicitously drafted, it is tolerably clear that it was referring to matters concerning and following from the Revised Third Instalment. In any event, the recital cannot, as a matter of construction, override the plain and unequivocal meaning of the Jurisdiction Clause explained above;

(4)  Moreover, as Mr Poon pointed out, the provisions of the Settlement Agreement were not concerned solely with the Revised Third Instalment - clause 2 provided for interest payable not only on the Revised Third Instalment in the event of default but also on the Revised Fourth Instalment, and clause 3 potentially impacted upon the entire consideration payable for the Project;

(5)  More significant, however, is clause 5, which provides that where matters have not been agreed to in the Settlement Agreement, the parties shall remain bound by the “原來簽訂的合同、協議” (which must be a reference to the Transfer and Supplemental Agreements), and in the event of inconsistency between the Settlement Agreement and those prior agreements, the Settlement Agreement shall prevail. It is plain, therefore, that the parties intended the Settlement Agreement to apply not only to their obligations concerning the Revised Third Instalment, but also those contained in the Transfer and Supplemental Agreements;

(6)  Although the Settlement Agreement did not itself contain a governing law clause, Mr Shum does not seriously dispute that the Jurisdiction Clause is to be interpreted in accordance with Mainland Chinese law. In my view, this must be correct. First, the Settlement Agreement is directly concerned with the parties’ obligations under, inter alia, the Transfer Agreement, which contains the Governing Law Clause.  Further, on Mr Shum’s own case (in support of his argument on forum non conveniens), the transaction is closely connected with Mainland China where the Project is situated (see e.g. paras 7-002 & 7-003, Chitty on Contracts – Hong Kong Specific Contracts, citing Coast Lines Ltd v Hudig & Veder Chartering NV [1972] 2 QB 34, CA).

(7)  As Mr Zhong opined in the Revised Expert Report, as a matter of Mainland Chinese law, the Jurisdiction Clause is an exclusive jurisdiction clause in favour of the Hong Kong courts. As mentioned above, the Revised Expert Report is uncontroverted. Mr Shum fairly accepted in the circumstances that he was not in a position to challenge Mr Zhong’s opinion, which I accept to be correct;

(8)  There is thus an obvious conflict between the Jurisdiction Clause and the Arbitration Clause, and only one of these provisions can govern the relationship between the parties. It is clear from clause 5 of the Settlement Agreement that in such circumstances, the Jurisdiction Clause must prevail over the Arbitration Clause.

26.  Mr Shum submitted that the court should be cautious to come to a conclusive interpretation of the agreements at this stage in the absence of the court being apprised of the entire “factual matrix”, which would be a matter for the arbitral tribunal. As mentioned above, however, the onus is on the defendant to show a prima facie case that Arbitration Clause remains valid and binding on the parties – that must include, in my view, any factual circumstances or extrinsic matters which the defendant contends would influence the meaning of the clear words of the Jurisdiction Clause. Having read Mr Pang’s affirmations, however, I do not find anything in his evidence that would impact upon the clear meaning of the Jurisdiction Clause explained above.

27.  Out of completeness, I should also mention Mr Shum’s submission that although the plaintiff pleaded the Jurisdiction Clause in the Statement of Claim, the cause of action relied upon by the plaintiff, i.e. the non-payment of the Revised Fourth Instalment, is solely for breach of the Transfer and Supplemental Agreements rather than the Settlement Agreement itself. Therefore, he submits, the Jurisdiction Clause has no application to the present dispute. This cannot be correct. As mentioned above, I have found that the Jurisdiction Clause has superceded the Arbitration Agreement in relation to any dispute arising from the Project, i.e. all three agreements.

IV.  Whether action to be stayed in favour of Guangzhou Court

28.  As mentioned above, I have found in the absence of any expert evidence to the contrary that the Jurisdiction Clause is an exclusive jurisdiction clause in favour of the Hong Kong courts. Moreover, as the defendant is a Hong Kong incorporated company, the plaintiff issues the present action against the defendant as of right in Hong Kong.

29.  Notwithstanding Mr Shum’s arguments that the action may be more conveniently tried in the Guangzhou Court, which I have considered and do not think it necessary to set them out here, there is plainly no arguable basis for depriving the plaintiff of its contractual right to commence and pursue the present action in Hong Kong. In his oral submissions, Mr Shum sensibly did not press this point, and relies principally on his primary submission on the Arbitration Clause, which for the reasons above, I have rejected.

V.  Conclusion and Costs

30.  For the reasons above, I dismiss the defendant’s summons. There is no reason why costs should not follow the event, and I therefore make an order nisi that the defendant do pay the plaintiff’s costs of the summons, including any reserved costs, to be summarily assessed on paper (if not agreed). I also direct that the plaintiff submit its skeleton bill of costs within 7 days of this Decision, and for the defendant to file its list of objections within 7 days thereafter.

31.  Last but not least, I thank both counsel for their assistance.