XCHRX SAM MING CITY FORESTRY ECONOMIC CO. v. LIU YUK LIN AND ANOTHER

HCMP1220/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1220 OF 2000

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J U D G M E N T

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BACKGROUND

1. The 1st plaintiff and the defendants were parties to a joint venture agreement signed in 1993. A dispute arose which went to arbitration in the Mainland in 1998. An award, dated 18 March 1998 was made in which the sum claimed, 2.9 million RMB, was awarded to the 2nd plaintiff. The 2nd plaintiff was not a party to the joint venture agreement or the arbitration but, as it was the actual joint venture company, it was at the heart of the proceedings and was, but for a small sum awarded to the 1st plaintiff relating to costs, the sole beneficiary of the award. In these proceedings, it is accepted that the award to the 2nd plaintiff was within the learned arbitrator's jurisdiction. The 2nd plaintiff was put into liquidation on the Mainland in June 1998.

2. In November 1998 the 1st plaintiff issued proceedings in Hong Kong by way of a writ of summons claiming the awarded sum be paid to the joint venture company. A Defence was filed in January 1999. This is the "1998 action".

3. Following amendments to the Arbitration Ordinance which made provision for Mainland arbitral awards to be enforced in Hong Kong, the plaintiff successfully applied ex parte to this court for leave to enforce the award. The order included judgment in favour of the 2nd plaintiff in the sum of 2.9 million RMB .

4. The plaintiffs' summons was dated 3 March 2000. On the same day, they issued a summons for leave to discontinue the 1998 action. Arising out of these events, the defendants now apply to set aside the ex parte judgment and oppose the plaintiffs' summons for leave to discontinue.

LEAVE TO DISCONTINUE THE 1998 ACTION

5. Mr C.Y. Li for the defendants conceded that this was a technical point. His submission is that over a year has passed since the Defence was filed and no further action was taken. Therefore, under Order 3 rule 6, it was incumbent on the plaintiff to give the defendant notice of intention to proceed. This, it is submitted, is a pre-requisite to taking any further action after the passage of one year, even an application for leave to discontinue.

6. I do not agree. Order 3, rule 6 says "the party who desires to proceed" must give notice. I interpret "proceed" as meaning a party who wishes to carry on with the action. There is no requirement, in my judgment, for a party who wishes to discontinue the action, to serve a notice of an intention to proceed. I therefore grant leave to the plaintiffs to discontinue the 1998 action with costs.

DEFENDANTS' SUMMONS TO SET ASIDE THE EX PARTE ORDER

Out of time?

7. Mr Lo for the plaintiffs submits the defendant's summons is out of time. Order 73, rule 10(6) permits a defendant to apply to set aside an ex parte order "within 14 days" after the service of the order. The order is dated 20 March 2000. The plaintiff's affirm that they served it by ordinary post on 28 March. If it was received on 30 March, the 14 day period would expire on 13 April. In fact, the defendants' summons to set aside is dated 18 April. The plaintiffs say they are out of time.

8. The defendants' affirmation states they did not receive the order until 5 April and are therefore in time. The plaintiffs dispute that it took eight days to deliver it through the Hong Kong mail. It seems very unlikely that it took eight days, but I am not prepared to conclude that the affirmation is untruthful. I do not therefore find against the defendants on this ground. The summons should be determined on the more important issues which follow.

9. Mr Li submits the ex parte order should be set aside for four reasons :-

(a) No locus standi

10. It is submitted that because the 2nd plaintiff was a party neither to the joint venture agreement nor the arbitration, it cannot be a party to the enforcement proceedings in Hong Kong. The fact is that it could not have been a party to either because it was the very joint venture company which the agreement created. Although it was not, and could not have been, a party to the arbitration, it was the only interested party in the claim. The relevant section of the Arbitration (Amendment) Ordinance is section 40B(2) :-

" (2) Any Mainland award which is enforceable under this Part shall be treated as binding for all purposes on the persons between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in Hong Kong, and any references in this Part to enforcing a Mainland award shall be construed as including references to relying on a Mainland award."

11. This section does not say an award shall be binding for all purposes on the parties to the arbitration. It says the award shall be binding on all persons between whom it was made (emphasis added). Persons should not be construed as being restricted to parties. One must ask between whom was it (the award) made? The award ordered the defendants to pay the 2nd plaintiff money. The award was made between the defendants and the joint venture company, the 2nd plaintiff. Section 40B(2) must include beneficiaries or recipients of awards.

(b) The name of the 2nd plaintiff

12. The 2nd plaintiff in the summons is named as "Sam Ming City Hing Ming Mushroom Company Limited (in Liquidation)". The 2nd plaintiff was wound up on 1 June 1998. Mr C.Y. Li submits that the 2nd plaintiff is not entitled to take any action in its name simply by adding the words "in liquidation". He relies on the legal opinions from Mainland lawyers which are exhibited to affirmations. An extract from the plaintiffs' Chinese legal opinion states :-

"'... When a body corporate is declared bankrupt, the People's Court should organize the relevant bodies and personnel to set up a liquidation team for the liquidation work'. 'The liquidation team is an organization set up in accordance with the law for the purpose of disposing of the assets and liabilities of the body corporate. It is responsible for the preservation, completion, evaluation and payment of the financial assets of the dissolved body corporate. The liquidation team can sue or to be sued in its own name'. 'A body corporate may be struck off but is not dissolved. If a liquidation team is in place, such liquidation team will be the subject party; if not, the organization determining the striking off will be the subject party'. Accordingly, since the setting up of the Sam Ming City Hing Ming Mushroom Company Limited Special Liquidation Committee on 1st June 1998, it has acquired a legal status of a civil subject and can undertake civil activities and exercise litigation rights in its own independent capacity as a civil subject. The winding up activities so undertaken are in line with the Chinese laws and regulations and are lawful and valid."

This opinion is to the effect that actions taken by the Liquidation Committee in carrying out their function on the Mainland are valid and proper. However, the company in liquidation retains a legal identity of its own. A later opinion from the same lawyer stated :-

"... 'During the process of liquidation, the Special Liquidation Committee shall represent the joint venture concerned in initiating legal action or responding thereto.' Thus, although Sam Ming City Hing Ming Mushroom Company Limited is still in existence, the Company should cease its business activities. During the liquidation period, the rights of the Company should be executed by the Sam Ming City Hing Ming Mushroom Company Limited Special Liquidation Committee."

13. The proper party in a Hong Kong case would be as described in this summons. The words "in liquidation" are simply added. The inference must be that the Liquidation Committee adopted the Hong Kong nomenclature for the purposes of the proceedings in Hong Kong. In my judgment, it was proper and correct for them to do so. In my judgment, there is no merit in the argument that the 2nd plaintiff has no locus in Hong Kong because it is described as being "in liquidation" whereas the proceedings should be in the name of the Mainland Liquidation Committee.

(c) Material non-disclosure

14. Mr Li submits that because the affirmation which accompanied the application for an ex parte order did not disclose the existence of the 1998 action, there has been a material non-disclosure and the court should accordingly set it aside. The point loses some of its force at the outset because the court has granted the plaintiffs' summons for leave to discontinue which was issued at the same time. The plaintiffs plainly did not intend to pursue that action. Its relevance therefore disappears. Thus, even if it had been disclosed, the court would also have known there was no intention to proceed with it. As such, its disclosure would not have made any difference to the making of the order. Accordingly, its non-disclosure cannot be said to be material. It was clearly not intended to mislead. I find it to be an innocent, non-culpable, non-material non-disclosure.

(d) Defendant's allegation of fraud

15. Section 40E of the Arbitration (Amendment) Ordinance sets out the circumstances in which Mainland awards may not be enforced in Hong Kong. An award must be enforced unless one of the circumstances in section 40E is made out. None of the situations in section 40E(2)(a) to (f) apply. The defendants rely on section 40E(3) which states that a Mainland award "may also be refused if .... it would be contrary to public policy."

16. The fact upon which the defendants rely is their complaint of fraud against the two individuals who ran the plaintiff's companies in the People's Republic of China. The formal complaint was made in April 2000, after judgment had been entered ex parte. No allegations of fraud were made either against these individuals or the plaintiffs' companies during the arbitration. Moreover, the complaint, according to Chinese law, does not affect the validity of the award and is not against the parties to the arbitration. These factors persuade me that the allegation, first made only in April this year, was more tactical than genuine and I therefore exercise my discretion not to refuse enforcement on this ground.

17. Although, carefully and succinctly argued by Mr Li, I find in the plaintiffs' favour on all four of the grounds advanced. Accordingly, the applications to set aside the ex parte order and judgment are refused with costs.