ARJOWIGGINS HKK2 LTD v. SHANDONG CHENMING PAPER HOLDINGS LTD

HCCT 53/2015

[2021] HKCFI 1877

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 53 OF 2015

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DECISION

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A.   Introduction

1.  On 7 August 2020, Master Hui made a Garnishee Order to Show Cause (“Nisi Order”) upon an ex parte application made by the Judgment Creditor (“HKK2”).  The Garnishee is Hong Kong International Arbitration Centre (“HKIAC”). 

2.  The hearing to determine whether the Nisi Order was to become absolute was to be heard on 21 September 2020.  The Judgement Debtor (“Chenming”) by its summons dated 14 September 2020 applies to strike out, set aside and/or discharge the Nisi Order on the grounds that all proceedings pursuant thereto constitute an abuse of process, disclose no reasonable cause of action and/or are frivolous and vexatious.  Chenming also says that the HKK2 failed to make full and frank disclosure in its ex parte application for the Nisi Order.  On 18 September 2020, Master Chow gave directions for the filing of evidence by HKK2 and Chenming, and directed both applications to be heard together.  These cross applications are the subject matters of the hearing before me. 

3.  At the hearing, HKK2 was represented by Mr Laurence Li SC and Mr Chow Ho Kiu and Chenming by Mr Victor Joffe and Mr Alexander Tang.  HKIAC adopted a neutral stance on the cross applications and was excused from attendance. 

4.  For the purpose of these cross applications, the lengthy history of the legal proceedings between HKK2 and Chenming may be shortly stated. 

5.  On 20 November 2015, HKK2 obtained a favourable arbitral award against Chenming, by which Chenming was ordered to pay, inter alia, RMB167,860,000 plus interest to HKK2 (“2015 Award”).^[1] By an order of Mimmie Chan J dated 7 December 2015, the 2015 Award became enforceable as a judgment of the Hong Kong Court (“2015 Order”).  Chenming’s subsequent application to set aside the 2015 Award was dismissed by Mimmie Chan J on 12 October 2016.  As is clear from the Nisi Order, these garnishee proceedings are based on the 2015 Order. 

6.  On 18 October 2016, HKK2 served a statutory demand (based on the 2015 Award) on Chenming.^[2] This prompted Chenming to commence HCMP 3060/2016 to dispute the jurisdiction of the Hong Kong Court (“Jurisdiction Challenge”) by seeking a declaration that the Hong Kong Court does not have jurisdiction to wind it up.  

7.  The Jurisdiction Challenge failed before Harris J,^[3] following which HKK2 presented a winding-up petition against Chenming.  At the hearing of the petition on 28 August 2017, the petition was adjourned pending Chenming’s appeal against Harris J’s decision, on the giving of an undertaking by Chenming to procure a payment into court by a third party of the sums of HK$355,141,100.06 (being the Hong Kong dollar equivalent of the amounts claimed in the statutory demand) plus HK$33,971,332.38 (being interest thereon from 19 October 2016 to 27 August 2018).  Those sums were subsequently paid into court by a third party (“Court Deposit”).  

8.  Chenming’s appeal against Harris J’s decision was dismissed by the Court of Appeal in CACV 158/2017^[4] on 5 August 2020.  Chenming is now seeking leave to appeal to the Court of Final Appeal. On 18 October 2020, Harris J adjourned HKK2’s applications to restore the winding-up proceedings and for payment out of the Court Deposit, pending the proposed appeal to the Court of Final Appeal. 

9.  In the midst of the foregoing, there were two notable developments. 

10.  First, on 8 August 2018, HKK2 commenced another set of garnishee proceedings to enforce the 2015 Award against sums held by Bank of Communications Trustee Limited (“BCTL”) for the purpose of Chenming’s dividend distribution.  As BCTL had already distributed the funds, HKK2 only sought an order absolute in respect of an insignificant sum of HK$1,340 (“BCTL Garnishee Proceedings”).  Chenming says that the BCTL Garnishee Proceedings were not fairly disclosed by HKK2 in obtaining the Nisi Order. 

11.  Secondly, on 9 October 2018 commenced another arbitration against HKK2 (“2^nd Arbitration”).  By a Final Award dated 5 August 2020 (which was not for monetary relief), the Tribunal ordered, inter alia, that the security for costs in the sum of HK$3,000,000 paid by Chenming and held by the HKIAC (“Sum”) be returned to Chenming (“2020 Award”).  The Nisi Order, which was made two days after the publication of the 2020 Award, is directed at the Sum.  The Sum currently remains with and is held by the HKIAC pending the determination of the present cross applications. 

B.    The issues in these cross applications

12.  Both parties have proceeded on the basis that the cross applications are, in Mr Li SC’s characterization, “mirror image” of each other.  In opposing, HKK2’s application for the Nisi Order to be made absolute, the grounds advanced by Chenming are broadly as follows. 

13.  First, Chenming says that the Sum held by the HKIAC is not a debt owed by the HKIAC to Chenming.  Chenming contends that it does not have an immediate and effective civil claim against the HKIAC to recover the Sum, which is a prerequisite for the court to exercise its jurisdiction under RHC Order 49, rule 1 (“Issue 1”). 

14.  Secondly, Chenming argues that HKK2’s pursuit of the Nisi Order against the background of the ongoing winding-up proceedings against Chenming is an abuse of process, in that HKK2 is approbating and reprobating as it has taken two irreconcilable positions against Chenming on the issue of its solvency, and is therefore seeking inconsistent remedies or relief.  It is said that HKK2’s abuse lies in embarking upon a collective enforcement path (in the winding-up proceedings) on the one hand and invoking on the other an individual enforcement action in the form of these garnishee proceedings (“Issue 2”). 

15.  Thirdly, Chenming complains that HKK2 did not make full and frank disclosure when obtaining the Nisi Order, both as to law and on facts (“Issue 3”).  As to law, Chenming postulates that Issues 1 and 2 ought to have been brought to the attention of Master Hui.  As regards facts, it is Chenming’s case that HKK2, as mentioned above, should have disclosed the BCTL Garnishee Proceedings. 

16.  HKK2 in its written material portrayed Chenming as a debt dodger (in that the 2015 Award has remained unsatisfied) and referred to a number of adverse comments made by Harris J and Mimmie Chan J against the conduct Chenming in previous decisions.  However, HKK2 fairly did not press these points at the hearing, as they are not germane to the resolution of the three issues raised by Chenming. 

C.   Issue 1: No attachable debt

17.  RHC Order 49, rule 1(1) provides as follows:

“Where a person (in this Order referred to as the judgment creditor) has obtained a judgment or order for the payment by some other person (in this Order referred to as the judgment debtor) of a sum of money amounting in value to at least $1,000, not being a judgment or order for the payment of money into court, and any other person within the jurisdiction (in this Order referred to as the garnishee) is indebted to the judgment debtor, the Court may, subject to the provisions of this Order and of any written law, order the garnishee to pay the judgment creditor the amount of any debt due or accruing due to the judgment debtor from the garnishee, or so much thereof as is sufficient to satisfy that judgment or order and the costs of the garnishee proceedings.” (emphasis added by Chenming)

18.  The disagreement between Chenming and HKK2 is on the issue of whether the Sum amounts to a debt due from the HKIAC to Chenming.

C1.    Chenming’s position

19.  Chenming’s position is succinctly encapsulated at its Skeleton Submissions §19.  It is said that the order by the Tribunal (ie the 2020 Award) to return the Sum to Chenming, rather than generating any legal responsibility on the part of the HKIAC, was an internal administrative direction by the Tribunal (acting in its judicial capacity) to HKIAC (also acting in its judicial capacity as repository of funds held to the order of the Tribunal).  Both The Tribunal and the HKIAC are immune from suit when so acting. 

20.  On the issue of what constitutes a debt for the purpose of garnishee proceedings, Chenming relies on Taurus Petroleum Ltd v State Oil Marketing Co of the Minstry of Oil, Republic of Iraq [2018] AC 690.  Lord Mance DPSC said at §§88, 90-91 as follows:

“The concept of a debt for the purposes of a third party debt order, or its predecessor the garnishee order, is particularly well-settled by authority. First, “The test of ‘debt due’ is whether it is one for which the creditor could immediately and effectually sue”… [§88]

Secondly, and as a concomitant of the first principle, a judgment creditor cannot stand in a better position than the judgment debtor did in relation to the third party against whom the third party debt order is sought… [§90]

Thirdly, and again as a further concomitant of the previous two principles, where a judgment debtor has precluded itself contractually from having any immediate right to recover what would otherwise be a third party debt, a third party debt order cannot be obtained. There is in this respect no difference in principle between a fetter which arises contractually and for proprietary reasons... [§91]”

21.  It is Chenming’s case that it does not have an immediate and effectual civil claim against the HKIAC to recover the Sum by reason of the “fetter” of arbitral immunity.  It is said that the immunity arises from section 105(1) of the Arbitration Ordinance Cap 609 (“AO”), which provides:

“A person—

(a) who appoints an arbitral tribunal or mediator; or

(b) who exercises or performs any other function of an administrative nature in connection with arbitral or mediation proceedings,

is liable in law for the consequences of doing or omitting to do an act in the exercise or performance, or the purported exercise or performance, of the function only if it is proved that the act was done or omitted to be done dishonestly.”

22.  Chenming argues that that the wording of section 105(1) of the AO makes it plain that arbitral immunity covers all administrative functions, and in the present case, it is clear that the HKIAC, in receiving and holding the Sum pursuant to an order of the Tribunal, must be regarded as a person performing an administrative function in connection of the 2^nd Arbitration.  The HKIAC is therefore immune from ordinary suit absent a showing of dishonesty, and as there is neither suggestion nor evidence that the HKIAC has acted dishonestly, Chenming does not have an immediate and effectual claim against the HKIAC for the return of the Sum. 

C2.    Analysis

23.  Despite the persuasion with which its counsel have put their submissions, I disagree with Chenming. 

24.  First, as pointed out by HKK2, Hong Kong Civil Procedure 2021 Note 49/1/9 states as follows:

“It is essential that the relationship of creditor and debtor should exist between the judgment debtor and the garnishee. If the judgment debtor could sue the garnishee for the amount and recover it, it is plain that there would be an attachable debt but this is not an infallible test.

There must be money due to the judgment debtor.  In the case, for example, of a building contract, where the builder is paid on the certificate of the architect, it is plain that money in the hands of the building owner cannot be attached until a certificate is issued, and then only for the amount mentioned in the certificate…”

25.  In my view, Chenming’s submission that the existence of an immediate and effectual civil claim as being the exclusive test for the existence of a debt for the purpose of garnishee proceedings is inappropriate in the present case where, as here, the HKIAC does not assert any arbitral immunity and it is and was at all material times ready and willing to honour its obligation to return the Sum to Chenming.  In these circumstances, a rigid adherence to Taurus would render a “fallible test”. 

26.  The relevant (and undisputed) factual background is as follows.  By the 2020 Award, the Tribunal ordered the Sum to be returned to Chenming.  On the following day (6 August 2020), HKK2 was told by the HKIAC that the Sum, in compliance with the 2020 Award, would be returned to Chenming on either 7 or 10 August 2020.  HKK2 obtained the Nisi Order on 7 August 2020. 

27.  As I understand from the HKIAC website, fund holding (including sums paid as security for costs) is a service provided by the HKIAC to all cases (such as the 2^nd Arbitration) administered by the HKIAC at no additional cost.  Where the purpose of the Sum (as security for costs) is rendered spent by the order made in the 2020 Award, it seems to me quite plain that there is in existence a relationship of creditor and debtor between Chenming (as the judgment debtor) and the HKIAC (as the garnishee) and the Sum is due to Chenming.  One does not need to resort to the test adumbrated in Taurus to ascertain the foregoing position.  Indeed, in the particular circumstances of the present case, a strict application of Taurus would defeat the purpose of RHC Order 49, rule 1.  The anomaly, if Chenming’s position were correct, is that HKK2 can only proceed with these garnishee proceedings if the HKIAC acted dishonestly by refusing to pay over the Sum to Chenming, but HKK2 cannot execute against the Sum if the HKIAC, in the ordinary course, honours its obligations. 

28.  Secondly, even on a strict application of Taurus, I do not believe Chenming can derive assistance, since the arbitral immunity under section 105(1) of the AO, on its proper construction, does not apply to the situation of the present case where the administrative task in question (paying over the Sum) does not and cannot have any impact on the “integrity” of the 2^nd Arbitration. 

29.  On the issue of statutory interpretation, both parties have lodged very helpful post hearing submissions. 

30.  Chenming’s primary submission is that one should adopt the plain meaning rule.  However, as submitted by HKK2, the modern approach to statutory interpretation is the purposive approach.  As set out at HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568 §§12-15:

“12. The modern approach is to adopt a purposive interpretation. The statutory language is construed, having regard to its context and purpose. Words are given their natural and ordinary meaning unless the context or purpose points to a different meaning. Context and purpose are considered when interpreting the words used and not only when an ambiguity may be thought to arise.

… the mischief rule is an early example of the purposive approach. And the purposive approach (including the mischief rule) has been reflected in Hong Kong in s.19 of the Interpretation and General Clauses Ordinance, Cap.1[5].

13. The context of a statutory provision should be taken in its widest sense and certainly includes the other provisions of the statute and the existing state of the law…

14. The purpose of a statutory provision may be evident from the provision itself. Where the legislation in question implements the recommendations of a report, such as a Law Reform Commission report, the report may be referred to in order to identify the purpose of the legislation. The purpose of the statutory provision may be ascertained from the Explanatory Memorandum to the bill. Similarly, a statement made by the responsible official of the Government in relation to the bill in the Legislative Council may also be used to this end…

15. Whilst as noted above, statements made by officials of the Government in relation to the bill in the Legislative Council may be used to identify the purpose of the statutory provision, employing it in order to ascertain the meaning of the statutory words stands in a fundamentally different position.  In England, in Pepper v Hart [1993] AC 593, the House of Lords decided that such statements may be referred to as an aid to interpretation for the purpose of ascertaining the meaning of the statutory language, where the following three conditions are met : (a) The legislation is ambiguous or obscure or leads to an absurdity; (b) The material relied upon consists of one or more statements by a Minister or other promoter of the Bill together if necessary with such other Parliamentary material as is necessary to understand such statements and their effect; (c) The statements relied upon are clear.” 

31.  Further, as stated at Ho Choi Wan v HK Housing Authority (2005) 8 HKCRAR 628 §109:

“In considering the language of statute, it is the task of the court to ascertain and given effect to the intention of the legislature. But that does not mean that the court must give a literal construction to every word or phrase in the statute… Whenever the legislature enacts or amends an Ordinance, its purpose is to remedy a perceived mischief or defect in the pre-existing legislation. It is to be presumed that it did not intend the statute to go wider in its operation than is necessary to remedy the mischief or defect in question. If it has inadvertently employed general words which, if given their fullest effect, are wider than necessary, the court not only may but must restrict them by construing them in a narrower sense which, while still falling within the ordinary meaning of the words, gives effect to the legislative intent but does not go beyond it, still less frustrate it.”

32.  Chenming’s position is that the arbitral immunity extends to all administrative functions of the HKIAC.  Whilst that might be the literal meaning of section 105(1) of the AO, that is not a correct interpretation, in my view, as the literal meaning is far too wide given the context and purpose of arbitral immunity. 

33.  Chenming relies on Corey v New York Stock Exchange 691 F 2d 1205 to explain the rationale for extending arbitral immunity to arbitral organizations such as the HKIAC.  At page 7 (right column), it states:

“Extension of arbitral immunity to encompass boards which sponsor arbitration is a natural and necessary product of the policies underlying arbitral immunity; otherwise, the immunity extended to arbitrators is illusory. It would be of little value to the whole arbitral procedure to merely shift the liability to the sponsoring association.”

34.  However, it is also stated at page 7 of Corey (starting from the left column) that:

“A number of policy arguments support our decision… [I]t is clear that immunity does not depend on the source of the decision-making power but rather upon that nature of that power. Accordingly, the limits of immunity should be fixed in part by federal policy. The functional comparability of the arbitrators’ decision-making process and judgments to those of judges and agency hearing examiners generates the same need for independent judgment, free from threat of lawsuits. Immunity furthers this need. As with judicial and quasi-judicial immunity, arbitral immunity is essential to protect the decision-maker from undue influence and protect the decision-making process from reprisals by dissatisfied litigants…

By immunizing arbitrators and their decisions from collateral attacks, arbitration as a contractual choice of the parties is respected yet the arbitrators are protected… An aggrieved party alleging a due process violation in the conduct of the proceedings, fraud, misconduct, a violation of public policy, lack of jurisdiction, etc, by arbitrators should pursue remedies against the “real” adversary through the appeal process. To allow a collateral attach against arbitrators and their judgments would also emasculate the appeal provisions…”

35.  Both parties have referred to the 1996 Departmental Advisory Committee on Arbitration Law 1996 Report (“DAC Report”). In England, section 74 of the Arbitration Act 1996 introduced immunity for appointing bodies and persons as regards their appointing functions.  The DAC Report relevant states at §§300-301:

“300. The reason for this proposal is that without such an immunity [for arbitral institutions], there is in our view a real risk that attempts will be made to hold institutions or individuals responsible for the consequences of their exercise of the power they may be given to appoint or nominate arbitrators, or for what their appointed or nominated arbitrators then do or fail to do. This would provide a means of reopening matters that were referred to arbitrations, something that might be encouraged if arbitrators were given immunity (as we have proposed in clause 29) but nothing was said about such institutions or individuals.

301. There is an additional point of great importance.  Many organisations that provide arbitration services… could find it difficult if not impossible to finance the cost of defending legal proceedings or even the cost of insurance against such cost.  In our view the benefits which these organisations (and indeed individuals) have on arbitration generally fully justify giving them a measure of protection so that their good work can continue.”

36.  Chenming points out that section 105(1) of the AO is wider than section 74 of the Arbitration Act 1996 since the former extends not only to appointing functions, but to all acts of an administrative nature in connection with arbitral proceedings.  It contends that there is no difficulty in applying the same rationale.  It says that the purposes of section 105(1) of the AO are:

(1)  to promote and protect the idea of party autonomy and minimal intervention by the local court;

(2)  as a provision implementing arbitral immunity, to implement a policy choice to promote arbitration by (a) protecting the internal integrity of the arbitral process and collateral challenges against awards, (b) protecting those who are involved in the arbitral process from vexation by local court and (c) insulating the arbitral participants so as to ensure arbitral fees and costs are kept within a reasonable range. 

37.  For the following reasons, I respectfully disagree with Chenming’s submissions.  It seems to me that none of the above considerations warranting the protection of arbitral immunity applies in circumstances such as the present.  First, the act of releasing the Sum to Chenming pursuant to the 2020 Award is a ministerial act which does not involve any decision-making on the part of the HKIAC.  Secondly, I am unable to see, and Chenming has not explained, how even if there is a failure by the HKIAC to perform the ministerial and administrative task of releasing the Sum, and if sued upon by Chenming, such can have the effect of reopening matters that were referred to in the 2^nd Arbitration, amounts to a due process violation, represents an interference by the Hong Kong Court which might have an adverse effect on arbitral autonomy, or poses a risk of escalating insurance costs when the HKIAC does not dispute the claim (if made by Chenming or those in an analogous position of expecting a return of sums held by the HKIAC but ordered to be returned by the arbitral tribunal). 

38.  I therefore agree with the position advocated by HKK2.  The purpose of section 105(1) of the AO is to bar the kind of lawsuits where a party unhappy with an outcome or a state of affairs, finds an act or alleges an omission by the arbitral body, and seeks to claim against the body for that outcome or state of affairs as allegedly a consequence of that act or omission.  Conversely, its purpose is not to bar all claims against an arbitral body, in particular, as here, where the claim is one (undisputed by the arbitral body) for recovery of a debt or property held by it. 

39.  For the above reasons, I determine Issue 1 against Chenming. 

D.   Issue 2: Abuse of process

40.  As I understand Chenming’s position, its case on abuse is premised on HKK2’s approbation and reprobation in taking two irreconcilable positions against Chenming in different proceedings.  The positions relate to the factual position of Chenming’s solvency, and consequentially on the different relief sought by HKK2.  It is said that it is impermissible on the one hand for HKK2 to petition for the winding-up of Chenming on the basis of its insolvency (which is a collective enforcement path), and then seek individual enforcement against by way of garnishee proceedings.  As regards the latter, Chenming says that the impermissibility of the inconsistent relief is reflected in section 269(1) of the Companies (Winding Up and Miscellaneous Proceedings) Ordinance Cap 32 (“C(WUMP)O”), which provides:

“Where a creditor has issued execution against the goods or lands of a company or has attached any debt due to the company, and the company is subsequently wound up, he shall not be entitled to retain the benefit of the execution or attachment against the liquidator in the winding up of the company unless he has completed the execution or attachment before the commencement of the winding up…”

41.  I do not agree with Chenming.  First, on the position of solvency, as observed by Harris J at Re Yueshou Environmental Holdings Ltd, HCCW 142 of 2013, 16 July 2014 §14, the authorities suggest that the conventional view is that, where, as here, a creditor is relying on the deeming provision of insolvency by reason of non-satisfaction of a statutory demand, there is nothing objectionable in principle to a creditor owed a debt he believes cannot be disputed issuing a petition to wind up a company he knows is probably solvent, citing for example Cornhill Insurance plc v Improvement Services Limited [1986] 1 WLR 114.  

42.  Secondly, in terms of the relief, Chenming relies on McPherson & Keay on the Law of Company Liquidation, 4^th Ed which states at §7-086 as follows:

“Execution has been described as “the process for enforcing or giving effect to the judgement of the court”. It is a process which, in the interval between the presentation of a winding-up petition and either the appointment of a provisional liquidator, or the making of a winding-up order, a judgement creditor is at liberty to commence or continue until such proceedings are stayed restrained by the court in consequence of an application…”

43.  I also accept HKK2’s submission that I am entitled and should take into account the observations made by Harris J^[5] and the Court of Appeal^[6] that there is a real possibility that Chenming would not allow itself to be wound up, as on the basis of its latest financial statements, it would appear that Chenming is well able to satisfy the 2015 Award.  As such, there is a real question whether section 269(1) of the C(WUMP)O would be engaged at all.  Even if it is, it will only lead to the consequence that HKK2 is not able to retain the fruits of the present execution against the liquidator of Chenming. 

44.  For the above reasons, I determine Issue 2 against Chenming. 

E.    Issue 3: Full and frank disclosure

45.  Chenming argues that HKK2 was under a duty to disclose the arguments on law relating to Issue 1 and Issue 2 and the factual scenario relating to the BCTL Garnishee Proceedings. 

46.  As regards Issue 1 and Issue 2, the relevant facts, namely that the Sum is held by the HKIAC and that HKK2 had commenced winding-up proceedings against Chenming, were disclosed in HKK2’s evidence leading to the Nisi Order.  I agree with HKK2 that the legal arguments arising therefrom could not be reasonably anticipated. 

47.  Chenming submits that that BCTL Garnishee Proceedings ought to have been disclosed as it was a similar application, it was abortive and it resulted in a costs decision against HKK2.  I am unable to see how the lack of practical success in that application has any relevance to HKK2’s present application. 

48.  For the above reasons, I determine Issue 3 against Chenming. 

F.    Conclusion

49.  The parties’ submissions also mentioned various other points.  Where these have not been expressly set out or dealt with above, it does not mean they are thought to be irrelevant (or have been overlooked). To avoid doubt, those other points have also been considered and I believe they are either subsumed in the matters dealt with above or do not materially affect the analysis. 

50.  Chenming’s summons dated 14 September 2020 is dismissed and the Nisi Order is made absolute. 

51.  I understand that the HKIAC has not made any application for costs.  I make a costs order nisi that Chenming is to pay to HKK2 the costs of the garnishee proceedings and the costs of and occasioned by Chenming’s summons dated 14 September 2020, with a certificate for two counsel.  HKK2 is to lodge its skeleton bill of costs within 7 days and Chenming its list of objections within 3 days thereafter and I will deal with the assessment on paper. 

52.  I thank counsel for their helpful assistance.