SAM MING CITY FORESTRY ECONOMIC CO. AND ANOTHER v. LAM PUN HUNG t/a HENRY CO. AND ANOTHER

CACV279/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 279 OF 2000

(ON APPEAL FROM HCMP 1220 OF 2000)

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J U D G M E N T

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Hon Leong CJHC (giving the judgment of the Court):

1. There are two matters in the present case. The first is an appeal by the defendants against the order of Burrell J on 6 July 2000 granting leave to the plaintiffs to discontinue their action. The second is an appeal also by the defendants against the judge's order of the same date refusing to set aside an ex parte order granting leave to the plaintiffs to enforce a Mainland arbitration award against the defendants and giving judgment to the 2nd plaintiff in the sum of 2.9 million RMB.

2. The two appeals were consolidated for hearing together by a court of two judges on the basis that the matters under appeal were interlocutory matters.

3. The appeals were first before the court in November last year. On the day before hearing the defendants applied for legal aid and the hearing was adjourned pending the result of their applications. Their applications had since been refused.

4. At the resumed hearing on 31 May 2001, the defendants were able to have private legal representation. Through Mr Chain their counsel, the defendants abandoned their first appeal against the order granting leave to the plaintiffs to discontinue their action. They asked the court to dismiss that appeal. The appeal was accordingly dismissed with costs to the plaintiffs.

5. The matter left for the court's decision on 31 May 2001 was the 2nd appeal. In the notice of appeal, the defendants asked the court to set aside the order of Burrell J on 6 July 2000 as well as his ex parte order on 20 March 2000.

6. Prior to his submissions on the appeal, Mr Chain raised the question as to whether this appeal was on an interlocutory or a final determination of the Court of First Instance. He submitted that if it were a final determination, the appeal should be heard by a court of three judges instead of two. Both Mr Chain and Mr Lo, counsel for the plaintiffs, agreed that the test as to whether a determination is interlocutory or final is the application test i.e. whether the determination either way would finally dispose of the matter before the court. The court heard arguments by both counsel and concluded that the order made by Burrell J was a final determination on the matter whether the Mainland arbitration award to the 2nd plaintiff is enforceable in Hong Kong and an appeal from that order should be heard by a court constituted by three judges. The court therefore adjourned the case to today for hearing by this court.

7. In respect of this appeal, Mr Chain indicated that the grounds set out in the notice of appeal filed on 29 July 2000 were no longer relied upon by the appellants. Instead they relied only on the additional ground set out in their supplemental Notice of Appeal filed on 7 March 2001. This states as follows:

8. The background is as follows:

The 1st plaintiff Sam Ming City Forestry Economic Company and the 1st defendant Lam Pun Hung trading as Henry Company were parties to a joint venture. In 1993, together they set up the joint venture company, the 2nd plaintiff Sam Ming City Hing Ming Mushroom Company Ltd. The sole beneficiary of this company is the 2nd plaintiff. A dispute arose and after arbitration proceedings in the Mainland, an award was made to the 2nd plaintiff in the amount of 2.9 million RMB and to the 1st plaintiff a smaller amount. It is not argued that under Mainland law, an arbitration award may be made to an interested person who is not a party to the arbitration proceedings. The 2nd plaintiff was not a party to the arbitration proceedings.

9. In November 1998, the 1st plaintiff issued proceedings against the defendants claiming the arbitration award. More than a year after proceedings had been issued, following an amendment made to the Arbitration Ordinance, making it possible for a Mainland arbitration award to be enforced in Hong Kong, the plaintiffs issued two summonses, one to discontinued the proceedings issued in November 1998 and the other to enforce the arbitration award under the Arbitration Ordinance.

10. On 20 March 2000, the plaintiffs obtained ex parte an order to enforce the award and obtained judgment in the sum of 2.9 million RMB to the 2nd plaintiff.

11. The defendants asked the judge to set aside the ex parte order and argued that the 2nd plaintiff could not enforce the award in Hong Kong because it was neither a party to the joint venture nor a party to the arbitration proceedings. It was also argued that the 2nd plaintiff was wound up and in liquidation and proceedings could not be taken in the name of the 2nd plaintiff.

12. At the commencement of the proceedings before the judge, the parties agreed that the award to the 2nd plaintiff was within the jurisdiction of the Mainland Arbitration Tribunal. The judge concluded that the 2nd plaintiff was the joint venture itself between the 1st plaintiff and the defendants and was the heart of the proceedings. The 2nd plaintiff could not be a party to the joint venture nor a party to the arbitration proceedings. Under 40B(2) of the Arbitration (Amendment) Ordinance, a Mainland award enforceable under the Ordinance is binding on the persons between whom the award was made. The judge held that these persons must include the beneficiaries and recipients of the award. Thus the section enables the 2nd plaintiff who was the sole beneficiary of the award to enforce it in Hong Kong. The judge also held that proceedings taken in the name of the 2nd plaintiff with "(in liquidation)" added after it did not vitiate the 2nd plaintiff's locus standi in these proceedings.

13. Mr Chain for both defendants in the present appeal argued that the award was beyond the scope of the arbitration agreement and therefore was made without jurisdiction. He referred to the arbitration agreement in clause 48 of the joint venture agreement. He submitted that the disputes for arbitration must have been derived from the enforcement of the joint venture agreement or those disputes relating to the agreement. An award is not binding on a person who is not a party to the agreement and the 2nd plaintiff should not have been granted the award. He questioned the tribunal's decision ordering the 2nd plaintiff to be dissolved and liquidated as such was not a dispute or difference between the 1st plaintiff and the defendant that the tribunal was asked to resolved.

14. Mr Chain relied on section 40E(2)(d) of the Arbitration Ordinance and submitted that the award was one which the court may under that section refuse to enforce.

15. Mr Lo for the plaintiffs on the other hand submitted that the defendants were estopped from raising doubts on the jurisdiction of the Arbitration Tribunal. He argued that challenge to the jurisdiction could not be resolved without calling further evidence on the Mainland Arbitration Laws. In any case, the present appeal dealt with enforcement of the Mainland award and the merits of the case before the Arbitration Tribunal was irrelevant and should not be revisited before this court. He added that it was decided in The Tasmania [1890] 15 Appeal Cases 223 that a point not taken at the trial and presented the first time on appeal ought to be most jealously scrutinised and if it was deliberately not raised in the court below, an appellate court should not allow it to be raised.

16. Mr Lo also submitted that although a court would discourage unmeritorious enforcement of awards, if there was no prejudice to the other party, a court should exercise its discretion to enforce an arbitration award even though it was one falling within one of the excepted cases under s.40E.

17. Finally Mr Lo submitted that Order 45 rule 9(1) enabled a person not a party to a cause who obtained an order to enforce the order and the 2nd plaintiff was in such a position regarding the arbitration award.

18. Section 40B(2) of the Arbitration Ordinance provides:

19. The relevant part of section 40E provides as follows:

20. It should be noted that section 40E(2)(d) requires the defendants to prove that the award deals with matters outside the scope of the terms of submission to arbitration before the court may refuse enforcement of the award. The defendants never invoked this subsection before Burrell J and it was never proved before the judge that the award was one falling within paragraph(d). No question was raised as to the propriety of the award made by the Mainland Arbitration Tribunal. The defendants conceded before Burrell J that under Mainland law, the Mainland Arbitration Tribunal had jurisdiction to make the award to the 2nd plaintiff albeit the 2nd plaintiff was not a party to the proceedings. Thus, no challenge had been made both to jurisdiction and the merits of the case. In our opinion, the appeal is against the order of Burrell J giving leave to the 2nd plaintiff to enforce the award and it is not an appeal against the arbitration award. Even if it were, this court is not here to embark on a rehearing and determination on the merits. It is now not open to the defendants to take a point as to the jurisdiction and merits.

21. In any case clause 48 of the joint venture agreement provides for any dispute derives from the enforcement of the agreement or any dispute related to it, if not settled through amicable negotiation, to be submitted to arbitration.

22. The repayment to the plaintiffs in the sum of 2.9 million RMB was a dispute relating to the joint venture agreement under which the 2nd plaintiff had been created, the dispute being whether that sum had been improperly taken from the 2nd plaintiff by the defendants. This dispute was plainly within the arbitration clause 48 in the agreement. This dispute was argued by the parties before the tribunal. No objection had been taken by the defendants that this was not one within the scope of the terms of submission to arbitration. Plainly by arguing the matter the parties have submitted the dispute to the tribunal and would be estopped from raising the jurisdiction point subsequently. (Jiangxi Provincial Metal & Mineral Import and Export Corp v Sulanser Co Ltd [1995] 2 HKC 373).

23. In these circumstances, section 40E(2) does not apply and that being the case, under section 40E(1), the award must be enforced. We agree with Burrell J that a person who was not a party to a Mainland arbitration proceedings but was the sole beneficiary of the Mainland award may enforce it in Hong Kong. The award was against the defendants requiring them to pay 2.9 million RMB to the 2nd plaintiff. As the beneficiary of the award which was made between the plaintiffs and the defendants, the 2nd plaintiff is in the analogous position of a third person not being a party to a cause who may invoke Order 45 rule 9(1) to enforce an order to his benefit.

24. The appeal is dismissed with an order nisi that the costs of the appeal shall be to the plaintiffs.