XCHRX CHINA LIAONING LTD. v. NEW CENTURY (HOLDINGS) DEVELOPMENT CO. LTD.

1998, No. A20490

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. The plaintiff is taking proceedings against the defendant to recover the sum of US$439,129.60, with interest and costs. The statement of claim alleges a contract of sale dated 27 March 1997 by which the defendant contracted to pay US$798,912 for some air conditioning equipment. It is alleged that some payments have been made by the defendant leaving a balance due of US$439,129.60. The claim goes on to allege that, by a written undertaking dated 25 May 1998, and in consideration for the plaintiff agreeing to extend the date for payment of this balance to the end of June 1998, the defendant agreed to pay interest, but the defendant failed to fulfil this undertaking.

2. I now have before me a summons by the defendant in which it seeks and order that all further proceedings be stayed and referred to arbitration. I also have a summons by the plaintiff by which it seeks summary judgment against the defendant. For obvious reasons, I will consider the defendant's summons firstly.

3. Mr Li's main argument on the defendant's application is that, although the sales contract contains an arbitration agreement that might require me to refer the matter to arbitration if this were the plaintiff's only cause of action, the cause of action based on the undertaking dated 25 May 1998 is independent, self-standing and not subject to any arbitration agreement.

4. I accept Mr Li's contention that there is no reason why it should be said that this agreement by the defendant has incorporated within it the arbitration agreement that is part of the sales contract. There is no basis on which it can be said that the parties intended to incorporate the arbitration agreement into the new agreement. Indeed, the defendant says there was no such arbitration agreement because the sales contract on which the defendant relies is a forgery. It would be very strange to read a straightforward agreement to pay by a certain date, with interest, as including an arbitration agreement to refer any disputes arising from that to arbitration. The defendant wanted more time to pay. The plaintiff was prepared to give that time, subject to the defendant paying interest. In that context, it is not necessary to imply a further clause in that agreement that any disputes under it would be referred to arbitration.

5. The new agreement was preceded by a fax from the defendant dated 27 March 1997 saying "Please find enclosed the purchase contract and the sales contract and (we) should be grateful if you company can accord priority to verify the application form for opening of the letter of credit" (one of those agreements dated 27 March 1997 referred to the sale contract, and to this the defendant was clearly a party), an advice dated 1 April 1997 from the defendant evidencing a deposit of 20% by the defendant, a cheque drawn by the defendant in favour of the plaintiff in the sum of HK$41,961.60, a letter dated 15 April 1997 to the plaintiff by the defendant saying that the air conditioning units had arrived in Hong Kong and proposing payment by a cheque post-dated to 9 June 1997. On 9 June 1997, the defendant gave to the plaintiff a cheque in the sum of HK$4,953,254.40, but this was not presented for payment. On 11 June 1997, the defendant wrote to the plaintiff saying that it could not pay as promised, but that "We shall pay the outstanding amount to your company as soon as possible . . .". On 9 October 1997, the defendant paid the sum of US$200,000 through a company called American New Century Inc..

6. On 25 May 1998, the defendant executed the agreement relied upon by the plaintiff. In fact, two such undertakings were executed by the defendant, by two different persons. It is necessary to deal with only one of these. This recites the defendant's difficulties in getting payment from another company, refers to the sale contract, says that US$359,782.40 has been paid and that the balance is US$439,129.60. The agreement then says - "Our company will re-pay this amount by one or two payments before the end of June 1998. Interest (monthly interest) will be payable (thereon) at the rate of 1.25% and (we) make (this undertaking) as evidence.".

7. This new agreement is a completely enforceable agreement in its own right. It is not dependent on the sales contract for its enforceability. This can be tested by considering what be the result of litigation if the defendant were able to establish that nothing was due under the sales contract. It seems to me that this would not debar the plaintiff from recovering under the new agreement because that, in itself, is a promise to pay supported by consideration.

8. In the result, I find that the plaintiff's cause of action on which it is entitled to recover, if established, does not fall within the terms of Article 8 of the Model Law; it is not an "action . . . brought in a matter which is subject to an arbitration agreement . . .". Accordingly, the defendant's application fails and is dismissed, with costs to the plaintiff.

9. The plaintiff's summons for summary judgment cannot be seriously resisted. The defendant's evidence comes from Mr Yeung Kwong Ching (Mr Yeung), the defendant's manager. Mr Yeung says that the defendant's chop and signature on the sales contract are forgeries, that the defendant was merely an agent for another company, that the cheque for HK$4,953,254.40 was given "as security for loss and/or non-delivery of the goods" to its principal, that he was told by Mr Qi Zhaoxing, of the plaintiff, that its principal had paid only US$200,000, that Mr Qi "requested me to do him a favour by typing [the new agreement] so as to enable him to show his company that another party now assume liability. He further told me the said undertaking would not be used against the defendant.", that he trusted Mr Qi, who was a good friend of his, that "I did as requested and signed the said undertaking. . . . I informed [Mr Qi] that I had no permission from the defendant to sign it and the defendant would not be informed of it. [Mr Qi] assured me that it did not matter as it would not be used anyway." In his second affirmation, Mr Yeung says that the name of the person who he referred to as Qi Zhaoxing - his "good friend" - was in fact Yu Ensheng.

10. Quite apart from the fact that the defendant's story is inherently incredible, Mr Yeung does not even try to explain the defendant's fax dated 27 March 1997, the agreement dated 27 March 1997, which makes sense only if the defendant was a party to the sales contract, the advice dated 1 April 1997, the cheque of 15 April 1997, letter of 15 April 1997, the letter dated 11 June 1997 or the payment of US$200,000 by a company with a name similar to that of the defendant. In view of the fact that the defendant is represented by solicitors and has filed fairly detailed evidence, this must mean that the defendant is unable to explain those documents. They are utterly damning to the defendant's defence, and it is inconceivable that, if the defendant was able to explain them, it has not done so.

11. I have concluded that the defendant has no defence to the plaintiff's claim that is worthy of a trial. It is totally unbelievable.

12. In the result, I grant judgment for the plaintiff in the sum of US$439,129.60, together with interest thereon at the rate of 1.25%per month from 9 June 1997 to today, and thereafter at the judgment rate until date of payment, with costs of suit and this application.