T v. W

CACV 20/2021

[2022] HKCA 95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 20 OF 2021

(ON APPEAL FROM HCA NO 366 OF 2020)

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REASONS FOR JUDGMENT

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Hon G Lam JA (giving the Reasons for Judgment of the Court):

1.  The question in this appeal is whether an action brought on a dishonoured cheque should be stayed because of an arbitration clause in the underlying loan agreement between the parties, under which the cheque had been provided as a post-dated cheque for repayment of the principal. At the conclusion of the hearing the appeal against the refusal of a stay was dismissed. These are the reasons for our decision.

Background

2.  The facts are straightforward and may be stated as follows.  By a written agreement dated 21 March 2017, the plaintiff agreed to lend $5 million to the defendant for one year ending on 21 March 2018, with interest payable each month at the rate of 2.5% per month.  The money was advanced and the defendant drew a cheque post-dated 21 March 2018 in the amount of $5 million for repayment of the principal.

3.  The loan was not repaid and, on 20 April 2018, the parties entered into a written agreement to extend the repayment date to 21 March 2019.  The date of the post-dated cheque was also amended to 21 March 2019.

4.  The loan was again not repaid in March 2019 and, on 16 May 2019, the parties entered into another agreement to extend the repayment date, this time for half a year, to 21 September 2019.  The defendant issued a new cheque in favour of the plaintiff for $5 million post-dated 21 September 2019 for repayment of the principal.  We shall refer to this as the “Loan Agreement” and the “Cheque”.  The Loan Agreement, which is written in Chinese and in the same terms, mutatis mutandis, as the earlier two agreements made in March 2017 and April 2018 respectively, provides as follows:

「 上述乙方 [XXX] 向甲方 [XXX] 借款，共借港幣五百萬元整，即HKD $5,000,000.00

借款期限為：半年，即由二零一九年三月二十二日到二零一九年九月二十一日止。

借款利息按每月以現金支付為每月2.5%即每月HKD $125,000.00

第一個月在二零一九年四月二十一日支付，之後每個月在二十一日支付一次，最後一次在二零一九年九月二十一日支付，共六次。

甲方出借人已發出中國銀行21-3-2017港幣五百萬元借款

支票號碼：630999（“出借人支票”），

乙方收到存入並未清還，現該借款繼續。

乙方借款人發出南商銀行港幣五百萬元二零一九年九月二十一日還錢期票

號碼：[000524]（“借款人期票”）。

上述借款人期票將會在借款限期到期日即二零一九年九月二十一日支付還款。

上述出借人支票和借款人期票副本分別已微信發給甲乙雙方作為憑證。

  未盡事宜，友好協商，此借據以香港法律為準，如有任何糾紛，會在香港以仲裁處理，此借據一式兩份，甲乙雙方各執一份。」

  English translation:

“ The above Party B, [XXX], borrows from Party A, [XXX], a total sum of Hong Kong dollars five million, namely HK$5,000,000.00.

Loan period: Half a year, namely from 22 March 2019 to 21 September 2019.

Interest on the loan is 2.5% per month, to be paid monthly in cash, namely HK$125,000.00 per month. The first monthly payment is to be made on 21 April 2019, and subsequent monthly payments are to be made on the 21^st day of each month. The last payment is to be made on 21 September 2019, making a total of six payments.

Party A, the lender, has already issued a cheque no. 630999 (“the lender’s cheque”)  of Bank of China 21-3-2017 for the loan in the sum of Hong Kong dollars five million.

Party B has received (it and)  deposited (it)  and made no repayment, and now the loan continues.

Party B, the borrower, has issued a post-dated cheque no. 000524 (“the borrower’s post-dated cheque”)  of Nanyang Commercial Bank for repayment in the sum of Hong Kong dollars five million dated 21 September 2019.

The above borrower’s post-dated cheque will be (used)  for repayment on the due date of the loan, namely 21 September 2019.

Copies of the lender’s cheque and the borrower’s post-dated cheque mentioned above have already been sent to Party A and Party B respectively via WeChat as proof.

Matters not covered shall be dealt with through friendly negotiation.  This loan agreement is subject to the laws of Hong Kong.  In case of any disputes, they shall be dealt with through arbitration in Hong Kong.  This loan agreement is made in duplicate, and each party has a copy.”

5.  The loan was still not repaid in September 2019.  Negotiations ensued and led eventually to the execution of what was called a provisional supplemental agreement between the same parties dated 21 January 2020 (“Supplemental Agreement”), which provides as follows:

「 2020年1月21日臨時補充協議及收據如下：

[XXX]（“[T]小姐”）與 [XXX]（“[W]總”）：—

就上述雙方原借貸合同到期日是去年2019年10月21日。

但到期[W]總未還，以原合同利率支付利息至2019年12月7日，但仍欠利息HKD125,000.00（12月8號至1月7號）及HKD52,500（1月8號至今天1月21號）共：HKD177,500.00，[W]總承諾在2020年2月4號用現金清還，並在不影響原合同的權益包括原支票五百萬元的訴訟權利，[T]小姐以此為據：

除在今年1月7號收取了[W]總港元伍拾萬元支票過了數外，今天1月21號再收到[W]總本票∕支票（入票後，以能過數為效）。為此立據：

簽署：簽名 （[XXX]））

確實：簽名 （[XXX]））

見証：簽名（[XXX]） ） 於2020年1月21日

  （備註： 若今天第二次伍拾萬元過數後，計算利息基礎將是港元四百萬元，即以每日HKD3,300由明天1月22日起計[W]總支付利息至全部還款日：暫定為上述2020年2月4日）」

  English translation:

“ Provisional supplementary agreement and receipt dated 21 January 2020 as follows:

[XXX] (“Miss T”)  and [XXX] (“General Manager W”): —

In respect of the original loan agreement between the above two parties, the due date is 21 October last year, 2019.

However, General Manager W did not make repayment when it was due. Interest was paid up to 7 December 2019 according to the interest rate of the original agreement. However, interest in the sums of HKD125,000.00 (8 December to 7 January)  and HKD52,500 (8 January to today, 21 January), totalling HKD177,500.00, is still outstanding. General Manager W undertakes to settle the repayment in cash on 4 February 2020. Without affecting the rights and interests in the original agreement, including the [litigation rights][1] in respect of the original five million dollars cheque, Miss T states the following as proof:

Apart from the cheque for five hundred thousand dollars, which has been honoured, received from General Manager W on 7 January this year, a cashier’s order / cheque (to be deemed effective if honoured upon presentation)  has been received from General Manager W today, on 21 January. This is prepared as proof accordingly:

Signed by: Signature of T ([XXX])  )

Confirmed by: Signature of W ([XXX]))

Witnessed by: Signature ([XXX])  )  on 21 January 2020

(Note: Upon the transfer of the second five hundred thousand dollars today, the basis for calculation of interest shall be four million dollars; that means interest of HKD3,300 per day is to be paid by General Manager W from tomorrow, 22 January, till the day of full repayment, which is tentatively fixed at 4 February 2020 as mentioned above.)”

6.  On 10 March 2020, the plaintiff presented the Cheque for payment but it was dishonoured.  After giving notice of dishonour, the plaintiff issued the writ in the action below on 19 March 2020 simply suing on the Cheque.  In response, the defendant applied to the Court of First Instance for an order staying all further proceedings in the action and referring the parties to arbitration, on the basis of the provision in the Loan Agreement – which we shall refer to as the “arbitration clause” – that:

「 未盡事宜，友好協商，此借據以香港法律為準，如有任何糾紛，會在香港以仲裁處理」

  English translation:

“ Matters not covered shall be dealt with through friendly negotiation. This loan agreement is subject to the laws of Hong Kong. In case of any disputes, they shall be dealt with through arbitration in Hong Kong”

7.  The defendant disputed the plaintiff’s claim, though he did not condescend upon particulars, except that he said one of the grounds was that he denied owing the plaintiff $5 million and thus the plaintiff had presented the Cheque for payment without his authority.  It was also said that the amount owed was only $4 million and the Cheque had become void and unenforceable.

8.  Under section 20(1)  of the Arbitration Ordinance (Cap 609), which gives effect in Hong Kong to Article 8 of the UNCITRAL Model Law, the court must refer the parties to arbitration if “an action is brought in a matter which is the subject of an arbitration agreement” and must make an order staying the action.  Further, it is not in dispute that the general approach of these courts is that unless it is clear that the dispute in question does not fall within the arbitration agreement, the matter should be stayed in favour of arbitration, for the arbitral tribunal to decide its own jurisdiction: PCCW Global Ltd v Interactive Communications Services Ltd [2007] 1 HKLRD 309, §60.

The decision below

9.  In her decision dated 18 November 2020 dismissing the defendant’s application,[2] Mimmie Chan J noted that the Cheque was a separate contract from the Loan Agreement and that bills of exchange were generally regarded as the equivalent of cash.  She noted that the Court of Appeal in CA Pacific Forex Ltd v Lei Kuan Ieong [1999] 1 HKLRD 462 held that there must be a plain manifestation in the arbitration clause that it is to apply to bills of exchange if the presumption against taking bills of exchange into arbitration is to be rebutted.  She rejected the defendant’s submission that the court should depart from CA Pacific and adopt the “one-stop shop dispute resolution presumption” following Fiona Trust & Holding Corporation & others v Privalov & others [2007] UKHL 40 and Uttam Galva Steels Ltd v Gunvor Singapore Pte Ltd [2018] 2 Lloyds Rep 152.  She held that if there was any conflict as to the significance to be placed on any presumption, she was bound by the decision in CA Pacific.[3]

10.  Construing the Loan Agreement as a whole, the judge found that the parties had intended the Cheque to act as security for the repayment of the loan on the due date and that the word “disputes” in the arbitration clause was to be construed to mean disputes relating to the Loan Agreement and the parties’ claims and liabilities thereunder only.  There was no sufficiently plain indication that the parties intended the arbitration clause to extend to claims under the Cheque.[4]

11.  The judge further held that even if one was to start with a presumption of one-stop dispute resolution, there were good commercial reasons for the parties, as rational business persons, to agree that disputes in relation to the Cheque were not to be resolved by arbitration.[5]  The judge considered that, if relevant at all, the Supplemental Agreement, by referring to “litigation rights” (訴訟權利), was more consistent with an intention that the claims and liabilities under the Cheque should be pursued in court proceedings rather than arbitration.[6]

12.  Subsequently, pursuant to section 20(9)  of the Arbitration Ordinance, the judge granted leave to appeal to this court.[7]

The parties’ contentions on appeal

13.  On this appeal, Mr Adrian Lai and Mr Kevin Lau, appearing for the defendant, submit as their primary position that CA Pacific is plainly wrong because the case of Nova (Jersey)  Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713, on which the Court of Appeal’s reasoning was based, was a decision on German law, not English law, and because CA Pacific has been overtaken by the subsequent decision in Fiona Trust with which it is inconsistent.  They invite this court to depart from CA Pacific and to adopt the position set out in Uttam.

14.  Alternatively, they submit that CA Pacific is plainly wrong to the extent that it directs consideration to the language of the arbitration clause alone to the exclusion of the other circumstances of the case.  They invite this court to depart from CA Pacific to the extent of holding that the presumption against taking bills of exchange into arbitration can be rebutted not only by manifestation of intention in the arbitration clause but also by reference to the circumstances of the case.  Thus construed, they submit that the arbitration agreement in this case applies to the claim on the Cheque.

15.  Thirdly, the defendant challenges the judge’s obiter conclusion that even if one was to start with a presumption of one-stop dispute resolution, the parties’ intention here was that a claim on the Cheque was not covered by the arbitration clause.  They submit that the factors in favour of upholding the one-stop dispute resolution presumption are stronger than those against it, and that if there is any uncertainty, the matter should be referred to arbitration.

16.  On the half of the plaintiff, Mr Wang submits that the presumption against taking bills of exchange into arbitration as articulated in CA Pacific is still good law and applicable in this case.  He points out that the Court of Appeal of New South Wales, Australia has declined to apply the Fiona Trust approach[8] and that the High Court of Australia has left open the question whether the Fiona Trust approach is correct.[9] He relies on Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] SGCA 53, where the Singapore Court of Appeal endorsed the reasoning in CA Pacific.  He submits that the defendant has not raised any dispute under the Loan Agreement and that there is nothing to be referred to arbitration under the arbitration clause.

Whether CA Pacific is plainly wrong

17.  Before going to the decision in CA Pacific, it is necessary to refer first to the English decision by the House of Lords in Nova (Jersey)  Knit.  In that case an English company sold certain machinery to its German partner company to be used in partnership operations, receiving in return a number of bills of exchange.  After some of the bills had been honoured, the German company refused further payments, alleging that the bills had been obtained by fraud.  The English company brought an action in England on the bills.  The German company applied to have the action stayed, on the basis of a clause in the partnership agreement that “[a]ll disputes arising from … or occasioned by (or in connection with)  the partnership relationship” should be decided by arbitration.  It was found that German law, which governed the question of construction, was to the effect that “a very plain manifestation of intention to extend an arbitration clause to claims under bills of exchange is needed to rebut the presumption that businessmen neither wish nor expect bills of exchange to be taken into arbitration.”[10]  Lords Wilberforce and Fraser and Viscount Dilhorne concluded on that basis that there was nothing to indicate that the parties intended the arbitration clause to be applicable to the claims on the bills.

18.  Lord Russell, however, whilst also agreeing with Lord Wilberforce’s analysis of the evidence of German law, considered the position under English law, stating:

“ … I conclude therefore that on the evidence of German law there is no ground established for any attitude other than that of English law to the question of the applicability of an arbitration clause to claims under bills of exchange accepted by a purchaser.

  This, my Lords, brings me to a consideration of English law in relation to such bills of exchange.  It is in my opinion well established that a claim for unliquidated damages under a contract for sale is no defence to a claim under a bill of exchange accepted by the purchaser: nor is it available as set-off or counterclaim.  This is a deep rooted concept of English commercial law.  A vendor and purchaser who agree upon payment by acceptance of bills of exchange do so not simply upon the basis that credit is given to the purchaser so that the vendor must in due course sue for the price under the contract of sale.  The bill is itself a contract separate from the contract of sale.  Its purpose is not merely to serve as a negotiable instrument, it is also to avoid postponement of the purchaser’s liability to the vendor himself, a postponement grounded upon some allegation of failure in some respect by the vendor under the underlying contract, unless it be total or quantified partial failure of consideration.  It is conceivable in theory that an arbitration clause in an underlying contract of sale should sufficiently clearly embrace liability under a bill of exchange, though it is not easy to envisage a clause so inconsistent with the nature and function of such a bill.  But there is no ground whatever in English law for attributing to clause 18 of the partnership agreement — nor itself even an underlying contract of sale — such potency.”

19.  In Hong Kong, CA Pacific was preceded by at least two first instance decisions to like effect by judges very experienced in arbitration cases.  In York Airconditioning & Refrigeration Inc v Lam Kwai-hung trading as North Sea A/C Elect. Eng. Co. [1995] 2 HKLR 256, Kaplan J refused to stay an action brought on a cheque issued in part payment of a liability under a contract of sale which contained a clause that required “any difference relating to the contract” to be submitted for arbitration,[11] and, after referring to Nova (Jersey)  Knit, stated:[12]

“ The bill of exchange does not contain an arbitration clause. I am not prepared to hold that the arbitration clause in this case is sufficiently widely drawn to cover a claim arising under a bill of exchange. Unusual though it may be, I accept that it is possible for an arbitration clause to be drafted wide enough to cover a claim made under a bill of exchange. It seems to me that the bill of exchange in this case creates a free standing contract separate and apart from the underlying contract between the parties which is the one which contains the arbitration clause. Mr. Faulkner says that the claim in respect of the bill of exchange is itself a ‘difference relating to the contract’. I respectfully disagree. In effect, one is dealing here with two contracts. One is the contract comprised in the bill of exchange and the other is the underlying sales contract between the parties. This point was expressed felicitously by Sykes & Pryles [on Australian Private International Law (3^rd ed)] at page 622 where they say:-

‘  There is a further fact that the piece of negotiable paper occupies a position of intrinsic significance so that dealings with it have a legal life of their own which tends to be divorced from the particular contracts which inspire them.’ ”

20.  In Koppen Yan Zimmermann (International)  Ltd v Mission Hills Holdings Ltd (HCA 2202 & 6266 of 1995, 9 December 1995), Leonard J similarly dismissed applications to stay two actions on dishonoured cheques, holding that York Airconditioning was not distinguishable, and added:

“ There are very strong commercial reasons, which are set out in Nova (Jersey)  Knit Ltd v Kammgarn Spinnerei GmbH, why the courts will continue to resist attempts to make inroads upon the principle that bills of exchange are in a special category and the scope of defences to claims on dishonoured bills should remain circumscribed. It will require the clearest wording in an arbitration agreement in an underlying contract to extend that agreement to claims on dishonoured cheques drawn in connection with the underlying contract.”

21.  In CA Pacific, under the forex trading agreement in question and the Leverage Foreign Exchange Trading (Arbitration)  Rules (Cap 451C), “any dispute between a client and a licensed trader relating to or arising out of a client agreement, a discretionary account agreement or any transaction that is regulated by the [Leverage Foreign Exchange Trading] Ordinance” shall, if the client so required, be referred to arbitration.  The dealer brought an action against the client on two dishonoured cheques, presumably issued by the client for the purpose of discharging his payment obligations resulting from forex dealing.  Findlay J dismissed the client’s application to have the action stayed for arbitration. On appeal, Seagroatt J, with whom Godfrey and Rogers JJA agreed, took the view that the approach to be adopted in Hong Kong law was no different from Nova (Jersey)  Knit, stating:[13]

“ … A bill of exchange is not valid if it incorporates an arbitration clause. To hold that an arbitration clause referring to disputes arising from the underlying agreement, applies to bills of exchange would make ‘a very substantial inroad upon the commercial principle on which bills of exchange have always rested.’ Accordingly there must be a plain manifestation in the arbitration clause that it is to apply to bills of exchange if the presumption against taking bills of exchange into arbitration is to be rebutted. As Lord Russell indicated, there is an inconsistency between the nature and function of such a bill and an arbitration cause. The weakness, with respect, of Lord Salmon’s argument is that he proceeds from a view that for the arbitration clause to be deemed not to apply, it needed to contain a specific exclusion of disputes arising from claims on bills of exchange (p.725). This view is inconsistent with his recognition of the status of bills of exchange as expressed at page 726 E-F and page 727 D-F.

It also offends what must in my respectful view be the logical consequence of the commercial principle – there must be an express inclusion of bills of exchange if such an arbitration clause is to bite in this way. Furthermore, as matter of business commonsense and efficacy, no right thinking merchant is going to agree to [forgo] his rights on a dishonoured cheque. They cannot be taken away by implication.

The terminology of the arbitration clause relied upon by the Appellants is ‘in relation to any dispute between the Dealer and the Client.’ Dispute is defined under rule 2 (Part 1)  of the Leveraged Foreign Exchange Trading (Arbitration)  Rules as ‘any dispute relating to or arising out of a client agreement or ... any transaction that is regulated by the Ordinance.’

  Applying the reasoning in all the cases considered and with a regard for the commercial principle governing bills of exchange, I have no doubt that the terminology of the clause is not precise and sufficiently encompassing to include bills of exchange such as the cheques in this case.  There is nothing in it to show the manifest intention that any claim by the payee on a dishonoured cheque, drawn as an unconditional order to pay, should be in effect removed from the courts which can provide swift and efficacious remedy, and be subject to an arbitration procedure.”

22.  CA Pacific was followed by Tang J in China Overseas Building Construction Ltd v Profit Nation Development Ltd & others (HCA 2008/2003, 9 June 2004), where the court again refused to stay an action on a dishonoured cheque on the basis of an arbitration clause in the underlying building contract.[14]  It was also applied by analogy in Xu Ziming v Ruifeng Petroleum Chemical Holdings Ltd (HCA 450/2013, 29 October 2014), which concerned the applicability of an exclusive jurisdiction clause contained in an underlying loan repayment agreement to a promissory note issued pursuant thereto.

23.  Under the doctrine of precedent, this court is bound by CA Pacific unless we are satisfied that it is plainly wrong: Solicitor (24/07)  v Law Society of Hong Kong (2008)  11 HKCFAR 117, §45.  This requirement is not met even where we find that the arguments against a previous decision of this court are more substantial and cogent than the contrary arguments in its favour, but only where this court is convinced that the contentions against its previous decision are so compelling that it can be demonstrated to be plainly wrong.[15] In this assessment we can take subsequent developments of the law into account, but the test is satisfied only if such developments have so substantially impaired the previous decision that it should now be regarded as plainly wrong.[16]  Having considered the arguments of counsel for the defendant, we are not satisfied that CA Pacific can be said to be plainly wrong in this sense.

24.  First, it is said that Nova (Jersey)  Knit was a decision based on German law.  It is true that the construction of the arbitration clause there was undertaken applying German law.  But the bills of exchange were governed by English law, and Lord Russell specifically considered the position under English law.  More importantly, none of this was lost upon the Court of Appeal in CA Pacific, who nevertheless decided, as a matter of Hong Kong law, that the approach was the same.

25.  The mainstay of the defendant’s argument is the subsequent decision in Fiona Trust.  There, Lord Hoffmann, with whom the other Law Lords agreed, considered that where businessmen have entered into an agreement with an arbitration clause, their purpose is to have the disputes arising from their relationship decided by a tribunal which they have chosen. A proper approach to the construction of an arbitration clause requires the court to give effect, so far as the language permits, to its commercial purpose.  In particular, he stated at §13:

“ In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction. …”

26.  The Fiona Trust approach to construction has been applied in many first instance decisions in Hong Kong.  It has been referred to by this court in Magnus Leonard Roth v Vitaly Petrovich Orlov [2021] HKCA 639 where the presumption was however found to have no application since the parties clearly intended otherwise.  It has not been submitted by Mr Wang, based on Rinehart v Welker or otherwise, that the Fiona Trust approach should not be adopted generally in Hong Kong.  But Fiona Trust is not a case concerned with bills of exchange, to which a competing principle is also applicable, as discussed in Nova (Jersey)  Knit and CA Pacific.  A bill of exchange is a separate and distinct contract from the underlying transaction.  An unliquidated cross-claim under the underlying agreement is no defence to an action on the bill.  A bill is treated as the equivalent of cash and moreover is so regarded generally.  While it may be said that rational businessmen are likely to intend to have a single forum for the resolution of any dispute arising out of the transaction they have entered into, it may also be said – and has been said in CA Pacific – that rational businessmen will not readily forgo their rights on a dishonoured cheque, which include the right to sue in court for judgment.  As a corollary a party who has given a bill of exchange may generally be taken to appreciate that its dishonour may be actionable in proceedings separate and independent from the underlying dispute.

27.  Fiona Trust is a subsequent decision, but there is no reason to think that the practical implications of there being potential parallel proceedings escaped the attention of the courts in Nova (Jersey)  Knit or CA Pacific. Indeed, in Nova (Jersey)  Knit arbitration proceedings in the cross-claim were already in progress;[17] yet it was specifically said there that a stay would be refused “notwithstanding the obvious convenience of having all claims between the parties dealt with together in the German arbitration”.[18]

28.  The existence of such parallel proceedings would be particularly unattractive if they raise the same or overlapping issues.  But to presume that a claim on a bill of exchange is covered by the arbitration clause in the underlying agreement in connection with which the bill has been issued, thereby mandating a stay of any action on the bill regardless of the character of the defence raised or indeed whether there is any defence, is not the only possible solution.  As suggested by Robert Goff J in Karim Jute Mills Ltd v General Produce and Fibres Ltd (unreported, 31 March 1980 QBD):

“ I recognise that, in a case where it is alleged that there is a defence to the bill, for example a total or partial failure to consideration, there may be some overlap between the defence to the bill of exchange and a cross-claim by the defendants under the underlying contract pursuant to which the bill has been furnished. But this practical difficulty cannot of itself be a good ground for departing from the proper construction of the arbitration clause in the underlying contract. Indeed, in such a case there may be practical means, for example by staying the action on the bills pending the hearing of the arbitration, whereby it can be ensured that common issues, which fall within the arbitration clause, can be decided by the arbitral tribunal before the Court makes its decision on the defence to the bills, thereby giving rise to an issue estoppel which will ensure that the common issues arising under the arbitration and the action are decided in the same way.”

29.  Whether such a “case management stay” may be appropriate in a particular case will of course depend on the circumstances of that case.  But there is unlikely to be any overlapping issue where the defence raised to the bill concerns the bill itself (such as the issue of time-bar of the bill in Karim Jute Mills)  or where the cross-claim is for unliquidated damages which does not fall within the recognised categories of available defences to a bill (as in Nova (Jersey)  Knit).  It would appear that when Lord Wilberforce in Nova (Jersey)  Knit dismissed the possibility of obtaining a procedural stay rather than one under the Arbitration Act, he had in mind the fact that the cross-claims there did not amount to the limited recognised defences to a bill of exchange.[19]

30.  It is notable that CA Pacific has been applied in Singapore, a jurisdiction that has adopted both the UNCITRAL Model Law and the Fiona Trust approach of presuming that all disputes between parties fall within the scope of the arbitration clause unless shown otherwise: Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA.  There, Rals had issued promissory notes to pay for equipment supplied under an agreement that contains an arbitration clause which provided that all disputes arising in connection with the agreement will be referred to arbitration.  The promissory notes were subsequently negotiated by the supplier to a bank.  When they were dishonoured upon presentation for payment, the bank brought an action against Rals on the notes, to which Rals responded by seeking a stay for arbitration. Although the action was brought by a third-party indorsee of the notes, the Court of Appeal expressly analysed the application for stay by reference to the position of the original payee, on the basis that the bank’s position could not be worse.[20] Rejecting the stay sought, the court stated:

“ 45.  … We endorse the view of the Judge,[21] following Seagroatt J in CA Pacific Forex Limited v Lei Kuan Ieong [1999] 1 HKLRD 462, that as a matter of commercial common sense, it is difficult to see why any right-thinking merchant would choose to give up his rights in respect of bills of exchange.  Although arbitration is sufficiently flexible to accommodate summary adjudication, up until the introduction of the Singapore International Arbitration Centre Rules 2016, there was nothing in the rules of most major arbitral institutions and, in particular, those of the International Chamber of Commerce Rules of Arbitration in force as from 1 January 2012 (“the ICC Rules”), that expressly provided for it.  Indeed, the availability of summary judgment procedures in international arbitration, and specifically under the ICC Rules, appears to be a matter of controversy in England: see, eg, Travis Coal Restructured Holdings LLC v Essar Global Fund Limited (2014)  155 Con LR 61 at [44].  This injects an element of uncertainty that is at odds with the unconditional nature of the obligation to pay under a bill of exchange that is prized by business people.  More importantly, as the Judge pointed out at [194] of the HC Decision, it restricts a holder’s and possibly his indorsee’s options as to the mode of dispute resolution that can be adopted.”

The court concluded that a negotiable instrument such as a promissory note is not governed by an arbitration agreement in an underlying contract unless the agreement has been expressly incorporated in that instrument.[22]

31.  Counsel for the defendant pray in aid the decision of the English High Court in Uttam Galva Steels, where Picken J applied the Fiona Trust presumption that rational businessmen will not contemplate fragmentation as regards dispute resolution and decided (obiter)[23] that an arbitrator had jurisdiction to deal with a claim on bills of exchange on the basis that the underlying contracts of sale contained an arbitration clause which provided that all disputes arising out of or in connection with the contracts were to be resolved by arbitration.  In so holding, the learned judge distinguished Nova (Jersey)  Knit as a case concerned with German law, and declined to follow CA Pacific and Rals.  He took the view that relief akin to summary judgment would be available in arbitration in an appropriate case and further that the availability of summary judgment procedures in court proceedings was counter-balanced by other benefits available only in arbitration.

32.  The defendant’s counsel submit that we should take judicial notice of the availability of summary determination procedures under modern arbitration rules.  We are prepared to accept that there is a trend in certain jurisdictions and internationally to include summary determination procedures in their arbitration regimes.  We are aware that, for example, in Hong Kong the HKIAC Administered Arbitration Rules were revised in 2018, one of the additions to which was a rule whereby an arbitral tribunal may decide a point of law or fact according to an “early determination procedure” if the point is “manifestly without merit”.[24] We are not in a position however to gauge the efficacy of these reforms or their attractiveness to potential disputants.  Suffice it to say that these developments do not denude Seagroatt J’s reference to the rights on a dishonoured cheque of all content, for a payee may still prize the right to sue on the cheque alone in the courts of an appropriate jurisdiction.

33.  The other overseas decisions cited to us do not appear to be directly relevant or to have dealt with the issue in depth and, without disrespect, we do not discuss them here.[25]  Counsel have also referred us to certain academic commentaries in favour of Uttam. We do not deny that reasonable arguments may be raised against the CA Pacific approach.  The question for us however is whether it is plainly wrong.  It has been applied by the Singapore Court of Appeal in Rals after Fiona Trust.  Academic opinion on the question is divided: see Lau Kwan Ho, Taking Bills of Exchange into Arbitration (2018)  134 LQR 548 at 551.  Ultimately neither approach represents an absolute substantive rule but merely a presumption of construction in the absence of clear indication in the parties’ agreement.  In our opinion the defendant has failed to demonstrate that CA Pacific is plainly wrong.  Nor are we satisfied that Fiona Trust represents a development of the law that has so undermined the foundations of CA Pacific that we can properly regard ourselves as being at liberty to depart from it.

Whether CA Pacific confines attention to the arbitration clause

34.  Drawing attention to the sentence in CA Pacific that “there must be a plain manifestation in the arbitration clause that it is to apply to bills of exchange if the presumption against taking bills of exchange into arbitration is to be rebutted”, the defendant’s counsel submit that the approach is in any event too restrictive in excluding examination of other circumstances of the case beyond the language of the arbitration clause.

35.  We do not think that CA Pacific has this alleged effect at all.  Whether or not an action on a bill falls within the scope of an arbitration clause in the underlying written agreement is a question of construction.  The clause has to be construed in the context of the agreement as a whole against the factual matrix which includes all relevant circumstances.  What Seagroatt J said simply reflects that in the ultimate analysis, the object of the exercise is to find the intention of the parties from their written agreement properly construed.

The construction of the agreement

36.  The defendant does not dispute that, applying the CA Pacific approach, there is no basis to construe the arbitration clause in the Loan Agreement as covering an action on the Cheque alone.  It is unnecessary to deal with the question of the scope and extent of the arbitration clause under the Fiona Trust approach, which does not arise.

37.  As regards the Supplemental Agreement, the judge considered that if relevant at all, it supported the plaintiff’s case because her litigation rights under the Cheque were reserved by the sentence “在不影響原合同的權益包括原支票五百萬元的訴訟權利”.[26] The defendant contends that the phrase “訴訟權利” should be taken to mean “right of action” rather than “litigation rights”, and prays in aid the Chinese version of Order 42 rule 1A(1)  of the Rules of the High Court (Cap 4A)  and the Court of Appeal’s judgment (issued in Chinese)  in Hong Chi Yung v Chung Ngai Kit & another (CACV 223/2016, 26 June 2017)[27] where the phrase “訴訟權利” is used in the sense of “right of action”.  Since this ground is not in the defendant’s notice of appeal and has not been dealt with by the plaintiff in her submissions, we shall not entertain it.

Conclusion

38.  For the above reasons, the appeal was dismissed.