RE MECH-POWER HONG KONG-CHINA LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING UP NO. CWU 281 OF 1995

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DECISION

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1. On 31st December 1993 Mech-power Holdings PTE Limited entered a Joint Venture Agreement with Philip Lai Man, Richard Lam Kam Wing, Ho Kai Man and Derek Yam Wing Hang.

2. The Joint Venture Agreement was to engage in the business of distribution of and trading in generator sets and related power generating and supply equipment. Under the Joint Venture Agreement, a company was to be formed, that company was to be called Mech-Power Hong Kong-China Limited. That company was so formed. However, things did not go well and that will be the subject of further hearings hereafter.

3. On 3rd July 1995, Mech-power Holdings PTE Limited presented a petition to wind up the Hong Kong Company. The petition was based on the just and equitable grounds. It suffices to say that the allegations particularly those in paragraph 8 of the petition, if proved, would show that there has been a break down in relations between the parties such that the parties apparently cannot even hold a board meeting.

4. On 24th August of last year, Philip Lai Man filed a Notice of Intention to oppose the winding up petition. He filed an affirmation which went to the merits of that petition on 5th September. On 29th March this year, an application was made to stay the winding up proceedings pursuant to section 34C of the Arbitration Ordinance and Article 8 (1) of the Uncitral Model Law, on the basis that there was an arbitration clause in the Joint Venture Agreement.

5. The material part of that Arbitration Clause reads as follows:

6. The application for stay of these proceedings was initially supported by the Official Receiver but Mr. Chan, who appeared on behalf of the Official Receiver having heard the submissions of Mr. Maurice Chan who appeared upon behalf of the Petitioner indicated that the Official Receiver saw the force of the argument presented by Mr. Maurice Chan and supported the Petitioner's opposition to this application

7. Article 8(1) of the Uncitral Model Law which is contained in the 5th schedule of the Arbitration Ordinance reads as follow:

8. This provision is relevant because this is an international arbitration and the agreement is not one which is covered by the domestic provisions.

9. The first question is whether this is an action which is brought in a matter which is the subject of an arbitration agreement within the meaning of Article 8(1). In my view, it is not for two reasons. First of all, it is not an action within the meaning of Article 8. The remedy of winding up on a petition is one which was originally used mainly in cases where the company was deadlocked; during the course of the present century, it has been moulded by the Courts into a means of subjecting companies to equitable principles derived from partnership law when they were in reality incorporated quasi-partnerships.

10. The term action as used in Article 8 has not been defined in either the 5th schedule or in any other part of the Ordinance, and although in other pieces of legislation a petition may constitute an action, in my view, this winding up petition presented to Court does not fall within the term action as used in Article 8. The prayer for winding up is not something which is or could be the subject of an arbitration. The jurisdiction to wind up resides solely in the Court on the hearing of a petition to wind up.

11. Secondly, this matter is not a matter which is the subject of an arbitration agreement. Clause 16 related as I have said to any question, dispute, difference or controversy arising out of or in connection with the Joint Venture Agreement and also relates to the interpretation of the Joint Venture Agreement and the validity of agreement or the performance under it. It does not relate, in strict terms, to the operation of the company and the arbitration agreement certainly does not cover the question of winding up by a court. Hence this petition is not something which is the subject of an arbitration agreement.

12. Furthermore, it seems to me that this is not a dispute which can be submitted to arbitration within the meaning of Clause 16 of the Joint Venture Agreement because it is a dispute as to whether the company should be wound up. In the final analysis anything the arbitrator says is marginal as to that relief. If the agreement had purported to subject winding up matters to arbitration, then, in my view, it would have been incapable of being performed within the meaning of Article 8(1) of the 5th schedule.

13. The final question which has been raised is as to whether Mr. Lai has submitted his first statement on the substance of the dispute within the meaning of Article 8(1) which would prohibit the operation of Article 8(1) because the time for the reference of the dispute to arbitration would thereby have passed. My attention was drawn initially to the case of Zalinoff v. Hamon [1898] 2 Ch. p.92 in which Sterling J. had held that there had been no step in proceedings for the appointment of the receiver simply by the filing of an affidavit.

14. It is unnecessary to go into the question of whether in those circumstances he was correct in that. He might well have been because of the procedure in the Chancery Division of an affidavit only becoming effective once it is read and if a party chooses not to read it, it is not thereupon used or usable.

15. However, the decision in that case has been specifically overruled by the Court of Appeal in the case of Turner and Goudy v. McConnell [1985] 1 WLR 898. In any event, the question of whether something constitutes a step in the proceedings, in my view, is marginal to this consideration because what must be considered is whether there has been a first statement on the substance of the dispute.

16. In my view, the filing on the 5th September 1995 of the affirmation by Mr. Lai must be considered a first statement on the substance of the dispute. The affirmation clearly goes to the merits of the petition. Towards the end of the affirmation Mr. Lai makes reference to Article 16 of the Joint Venture Agreement. Mr. Lai criticises the Petitioner for not making any effort to have recourse to what he refers to as an "alternative remedy" of arbitration. Mr. Lai does not at that stage state that he intends making an application that the matter be referred to arbitration. The affirmation concludes with a prayer that the petition be dismissed.

17. In the normal course of events, there are no pleadings in winding up matters and the issues are raised in the affidavits. Mr. Lai's affirmation does specifically purport to go to the merits. The affirmation in this petition clearly it seems to me constituted a first statement on the substance of the dispute.

18. Moreover even if it were necessary to find that a step had been taken in the proceedings, I can find little to differentiate the filing of this affirmation and the securing of the directions on the 11th September 1995 for the further conduct of the petition from the steps taken in the order 14 proceedings recounted by Dillon L.J. in Turner & Goudy v. McConnell as set out at page 903H.

19. As was pointed out by Mr. Maurice Chan, it was not until March of this year that any attempt was made to have this matter stayed with a view to there being arbitration proceedings and in my view, the time within which this application could have been made has therefore passed following the filing of Mr. Lai's affirmation. I must therefore refuse the application on this summons.