JIN HAI AN CONSTRUCTIN and ENGINEERING LTD. v. GOLDEN ROCK BEACH INC. and Another

IN THE COURT OF APPEAL

1995, No. 236
(Civil)

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J U D G M E N T

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Bokhary, J.A.:

1. The plaintiff is a company incorporated in Hong Kong. The 1st defendant is a company incorporated in the United States. And the 2nd defendant is an individual resident in Hong Kong.

2. On May 25 last year, the plaintiff took out a summons seeking summary judgment against the 2nd defendant. On the 14th of the following month, the 2nd defendant took out a summons seeking a stay of the action.

3. Those two summons came on for hearing before Leonard J on October 26 last year. He refused to stay the action. And he gave summary judgment against the 2nd defendant.

4. This is the 2nd defendant's appeal. He asks us to set aside the summary judgment and to stay the action or at least give him unconditional leave to defend the action or part thereof.

5. The 2nd defendant's summons asked for a stay:

"1. Pursuant to Article 8 of the UNCITRAL Model Law, Part IIA of the Arbitration Ordinance, Cap. 341, the Plaintiff and Defendants having by an agreement in writing dated the 31st December 1987 agreed to refer to arbitration the matters in respect of which the proceedings in this action are brought; and/or

2. Under the inherent jurisdiction of the Court on the ground that the said agreement between the parties was made in China and the proper law governing the said agreement was Chinese law."

6. This is how the agreement describes the arrangement entered into between the plaintiff and the 1st defendant (which has to do with a development project in New York City, New York in the United States):

" [The 1st defendant] invests USD900,000.00 (Nine Hundred Thousand US Dollars), [the plaintiff] invests USD500,000.00 (Five Hundred Thousand US Dollars). [The plaintiff] shall remit the investment money into the US Dollar Account : 026-1-801674 of Wai Wah Company in Hongkong Bank Ltd. as designated by [the 1st defendant] in March 1988. [The plaintiff] is not responsible for profit or loss. Within 22 months after [the 1st defendant] received the above mentioned money, [the 1st defendant] guarantee that [the plaintiff] shall acquire an after tax profit of USD150,000.00 (One Hundred and Fifty Thousand US Dollars) and including the principal and profit totaling to USD650,000.00 (Six Hundred and Fifty Thousand US Dollars) (shall) be repaid to the Bank Account in Hong Kong as designated by [the plaintiff]."

7. The judge said this as to how the 2nd defendant came into the picture:

"On 19 April 1988, three days before the money was advanced to the 1st Defendant, the 2nd Defendant executed a statutory declaration in which he said: 'On the 31st December 1987, I, in the name of Wai Wah Company, endorsed a contract executed between Golden Rock Beach Inc. & JHA Construction and Engineering Ltd. In the capacity of a guarantor.'"

8. Clearly, the agreement is one entered into by the plaintiff and the 1st defendant. It begins thus:

" Agreement

Party A: Golden Rock Beach Inc. New York, USA.

Party B: Jin Hai An Construction Engineering Ltd.

Both parties on 31st day of 1987 in Shekou agreed the following in relation to the joint development of the real estate investment project in the City of New York, United States of America."

9. And it brings the 2nd defendant in as a guarantor. You can see that from this clause (coupled with the 2nd defendant's signature at the end of the agreement):

"4. Repayment guarantee: Both Party A and Party B agreed to invite Wai Wah Company to be the credit guarantee of repayment, guarantees that Party A shall perform the Agreement, if Party A cannot repay on time Guarantor shall be responsible for repayment. Guarantor fee is 5%, that is US$32,500.00, Party A is responsible to pay it."

10. The arbitration clause is expressly worded to cover disputes between two parties, the plaintiff and the 1st defendant, only. For it reads:

"6. Arbitration: In the course of performing this Agreement, if disputes arise between parties, (Both parties) shall solve the dispute through the spirit of friendly conciliation, if (it) cannot be resolved, Party B shall nominate an arbitration venue, to be approved by Party A. The decision of the arbitration institution shall be final, costs of litigation shall be born by the losing party."

11. In those circumstances, is there any proper basis for granting the 2nd defendant a stay of the plaintiff's action in favour of arbitration?

12. In my judgment, there is none.

13. Far from it appearing that the plaintiff has agreed to arbitration with the 2nd defendant, it is plain that the plaintiff had done nothing of the kind.

14. That leaves the question of a stay under the inherent jurisdiction. But even assuming that proper law of the guarantee is Chinese law, that is only one factor in the question to be answered in deciding whether the action ought to be stayed on the ground of forum non conveniens, even assuming that there was (which there is not) any evidence of any difference between the law of China and the law of Hong Kong for present purposes. That question is whether "the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice." Such is the test formulated by Lord Goff of Chieveley in Spiliada Maritime Corp v. Consulex [1987] 1 AC 470 at p. 476C.

15. Is there any proper basis, on the material before the court, for thinking that the 2nd defendant's case can pass that test? The short answer is: certainly not.

16. Turning to the question of summary judgment, this is what you find in the 2nd defendant's Notice of Appeal under the heading "The Plaintiff's Summons dated 25 May 1995 for Order 14":

" The learned Judge erred in failing to find that there were at least the following triable issues between the parties:-

(1) Whether there was an Arbitration agreement between the parties.

(2) The proper law of the Contract and/or the proper law of the Arbitration agreement.

(3) The [2nd defendant's] liability for the principal or interest allegedly due for reasons stated in Ground 4 above."

17. Items (1) and (2) properly go only to the question of a stay, which question has been disposed of already. In any event, I am satisfied that neither of them, whatever they may go to, have any substance whatsoever. Item (3) invokes Ground 4. So let us look at that ground. It reads:

" The learned Judge erred in law and fact in failing to find that there were at least the following disputes between the parties:-

(1) The [2nd defendant] is not liable by reason of the [plaintiff] having given time to the 1st Defendant to pay off the debt, in particular:-

(i) There is undisputed evidence from the [2nd defendant's] affirmation filed on 14th June 1995 that the [plaintiff] gave time to the 1st Defendant without the [2nd defendant's] knowledge or consent.

(ii) The [2nd defendant] has no knowledge save that it was sent a copy of a letter dated 18th September 1992 from the 1st Defendant to the [plaintiff] evidencing an agreement to give time.

(iii) These assertions were not denied by the [plaintiff] kin their affirmation in reply filed on 27th September 1995.

(2) There is dispute as to the [2nd defendant's] liability for interest in that:-

(i) There is undisputed evidence from the [plaintiff] in his affirmation filed on 14th June 1995 that when he was invited to be the guarantor he was led to believe that his liability would be limited to the principal sum only and would not extend to any interest.

(ii) The [plaintiff] did not deny this suggestion in their affirmation in reply filed on 27th September 1995.

(3) There is dispute as to the amounts of principal and interest allegedly due in that:-

(i) The learned Judge erred in finding that there was common ground that only three sums were paid when the [2nd defendant] had no knowledge if other sums were paid by the 1st Defendant.

(ii) The Contract only provides 15% per annum as the rate of interest after default but that the default should not exceed 6 months. Contrary to the Contract, the [plaintiff] claims the 15% per annum interest for over 5 years."

18. Points like that must be considered with care. But if at the end of the day the conclusion is that they are not reasonably arguable, then no useful purpose would be served by saying why not at any length. And if they were reasonably arguable, then there would be even less justification for giving lengthy reasons, for that might prejudice the trial which would have to be held.

19. Here, what the 2nd defendant puts forward in regard to the facts comes to, I am satisfied, speculation and incredible assertions. Speculation and assertions of that kind fall to be ignored even at the summary judgment stage.

20. But there is also a point of construction. It is the one raised in ground 4(3)(ii). As to that, the 2nd defendant's skeleton says:

"The Contract only provides 15% per annum as the rate of interest after default but that the default should not exceed 6 months (p. 36 of Appeal Bundle). Contrary to the Contract, the Respondent claims the 15% per annum interest for over 5 years. At such interest rate, it would be in the Respondent's interest to delay recovery against the 1st Defendant. The outstanding interest is by now almost as much as the outstanding principal."

21. Is it open to the 2nd defendant to raise this point now? It is a point not taken below and raised for the first time before us.

22. Whether it is open to the 2nd defendant to take it now depends on whether we are satisfied that the evidence would have been the same even if the point had been taken earlier when affidavits could have been filed thereon.

23. It seems to me that, taking the 2nd defendant's argument at its highest, the most that can really be said is that there is some ambiguity upon which he can rely for the purpose of avoiding summary judgment.

24. If the point had been taken earlier, there might have been evidence on the factual matrix which evidence would have resolved the matter in the plaintiff's favour beyond reasonable argument to the contrary. In those circumstances, it seems to me wrong for us to entertain the point.

25. But even if the point were to be entertained, I am of the view that, even as things stand, it is plain beyond reasonable argument to the contrary that all that the provision relied upon by the 2nd defendant means is this: (i) once there is default interest is payable at 15% per annum; but (ii) for the first six months of default the plaintiff may not sue the 2nd defendant, who is allowed six months' default. There is a plain provision for payment of interest of 15% per annum once there is default; and there is nothing to bring that to an end after six months or at any time before payment or judgment.

26. In those circumstances, with an expression of my thanks to counsel on both sides for the assistance which I have derived from their arguments, I would dismiss this appeal.

Liu, J.A.:

27. I agree that the appeal should be dismissed except for the plaintiff's/the respondent's claim of interest at 15% per annum beyond the period of 6 months after due date.

28. To begin with, as to Clause 6, I wish to add this: by signing the agreement, the 2nd defendant/appellant became guarantor who was to provide "repayment guarantee" under Clause 4. He was there described as "the credit guarantee". Under Clause 3, as Party B to the agreement the plaintiff was a part investor/financier on a promised net return in respect of a proposed real estate development in New York. Insofar as the 2nd defendant guarantor guaranteed the performance of the agreement by the 1st defendant who administered the proposed real estate development in New York, he was a sheer guarantor of the promised repayment to the plaintiff by Party A under Clause 3. The 1st defendant was Party A to the agreement. It is inconceivable that the 2nd defendant guarantor could be involved in any arbitrable dispute envisaged by the arbitration clause, Clause 6.

29. The arbitration clause itself clearly did not apply to the 2nd defendant guarantor. First, reference was made in Clause 6 exclusively to the American Corporation, the 1st defendant, as Party A and the plaintiff as a Party B. On the face of the agreement, the 2nd defendant guarantor was not made a party to this arbitration clause. Secondly, the subject-matter of arbitration was any unresolved dispute between the 1st defendant and the plaintiff as the Party A and Party B respectively to the agreement. No dispute between the 2nd defendant guarantor and Party A or Party B or both could be referred to arbitration under Clause 6. Thirdly, the 2nd defendant guarantor could not take either Party A or Party B or both to arbitration under that clause, Clause 6, even on a dispute as between Party A and Party B. Lastly, the 2nd defendant guarantor would not be a proper or necessary party to an arbitration. Put in another way, any dispute referred to arbitration under Clause 6 may be readily resolved in the absence of the 2nd defendant guarantor. The 2nd defendant guarantor was not a party to the arbitration agreement and could not be bound by Clause 6.

30. I turn next to the part of this appeal on which I am about to express a view on my own. After the agreement dated 31 December 1987, by a Statutory Declaration of 19 April 1988 the 2nd defendant guarantor "endorsed" it.

31. The last sentence of Clause 3 reads:

"If due to circumstantial reasons (Party A) cannot repay on time, both parties agreed that interest after default should be calculated at 15% per annum, but (the default) shall not exceed 6 months".

32. The so-called endorsement would take the matter no further in construction.

33. The words in brackets, namely, "(the default)" were inserted by the Court Translator, but it is this court, not its translator, which is being invited to construe that last sentence. It is tolerably clear that under Clause 3, failure to repay "on time" would constitute "default". If, as stipulated in Clause 3, a default began to run once Party A could not repay on time, it would be absurd to direct the defaulter that his default "shall not exceed 6 months". The decision to terminate its default rested with Party A alone. Unless these words were meant to be referable to the calculation of interest "after default", they must be redundant. If the charging of exorbitant interest had been intended to continue until repayment, it would have been meaningless to set apart any or any 6-month default period. These words in question could not have the effect of suspending the right of Party B to sue during the first 6 months of default. First of all, they simply do not say so. At best they purported to put an end to the default, not to regulate rights during its subsistence. The insertion "(the default)" was that of the Court Translator's. The words "but (the default) shall not exceed 6 months" would seem to be a limitation clause. What did it seek to limit? It was not to be the period of default of which Party B would have no control. In that last sentence, the focal point was payment of interest in the period "after default". That was the only time element with which the parties were concerned. The clause could serve no other purpose but that of specifying the period "after default"; it set a time limit for charging the punishing high interest. If ever words needed to be supplied, I would suggest the following: "but (the calculation of interest at 15% per annum after default) shall not exceed 6 months". Without the words in brackets proffered by the Court Translator, the literal translation reads decidedly more natural in the context: if Party A cannot repay on time and is in default, "interest after default should be calculated at 15% per annum, but shall not exceed 6 months". There is no ambiguity. Nothing in the literal translation calls for the Court Translator's interjection. This issue was not ventilated before the Judge, but this is a pure question of construction to which, in justice, the 2nd defendant guarantor ought not be denied access before us on appeal.

34. For these reasons, I would allow the appeal, in part, on the plaintiff's claim of interest beyond the period 6 months after default, at a higher rate than the usual commercial rate of, say, 1 over prime.

Nazareth, V.-P.:

35. For the reasons given by Bokhary JA, I also find no merit in the appellant's appeal against the judge's dismissal of the application for sale. I would dismiss the appeal to that extent.

36. However, I find it necessary to say the following about one of his grounds of appeal against the summary judgment against him. I refer to ground 4(3)(ii) i.e. that the learned judge erred in law and in fact in failing to find that there was a dispute between the parties as to the amount of interest allegedly due in that the contract only provides 15% per annum as the rate of interest after default but that the default should not exceed 6 months; and that contrary to the contract the respondent claims the 15% per annum interest for over 5 years. This ground turns upon the construction of that part of clause 3 of the Agreement between the parties emphasised below:

"Party A invests USD900,000.00 (Nine Hundred Thousand US Dollars), Party B invests USD500,000.00 (Five Hundred thousand US Dollars). Party B shall remit the investment money into the US Dollar Account : 026-1-801674 of Wai Wah Company in Hongkong Bank Ltd. as designated by Party A in March 1988. Party B is not responsible for profit or loss. Within 22 months after Party A receives the above mentioned money, (Party A) shall guarantee that Party B shall acquire an after tax profit of USD150,000.00 (One Hundred and Fifty Thousand US Dollars) and including the principal and profit totalling to USD650,000.00 (Six Hundred and Fifty Thousand US Dollars) (shall) be repaid to the Bank Account in Hong Kong as designated by Party B. If due to objective reasons (Party A) cannot repay on time, both parties agreed that interest after default should be calculated at 15% per annum, but (the default) shall not exceed 6 months." (Emphasis provided)

The 22-month period referred to expired on 22nd February 1990 and in his Statement of Claim the respondent claims interest at the contractual rate of 15% on the balance due from 22nd February 1990, that is 22 months from 22nd April 1988, or within 6 months thereafter. This was quantified in the Statement of Claim as US$385,106.43. There was a further claim for interest at 15% from 9th March 1995 until judgment or earlier payment.

37. As has been explained, judgment as prayed was given by the judge.

38. For the appellant Miss Eu QC contends that the intention of the Agreement, which can be inferred from its setting in a one-off building development project in New York and from the investment budget and project details in clause 2, is that the US$150,000 was intended to be the total profit the plaintiff would receive on completion; and that the 15% interest for 22 months is the equivalent of that project. Upon that basis, she submits, it is absurd to suggest that nevertheless the respondent was to receive in addition continuing interest at 15%, moreover that rate on a US debt which is remarkably high. I pause to say here that even if I felt able to take judicial notice that current US dollar interest rates are very much lower, I certainly would not feel able to do so in respect of the negotiating period leading up to the signing of the Agreement in December 1987.

39. However that may be, clause 3 does not say that the 15% is for the period of 22 months, nor is the rationale for such a provision clear. Moreover the word "repaid" is hardly apposite to the US$150,000 which would not have been provided by the respondent. In any case, it seems to me that the meaning of the words "but (the default) shall not exceed 6 months" is in their face - and even after reasonably careful consideration - obscure and ambiguous. They could mean that the period of default does not exceed 6 months, as contended, so that interest at 15% would only be payable for 6 months. Would that mean that no interest is thereafter payable or that thereafter interest would be payable at commercial rates? The former would seem to be a very unbusinesslike arrangement. The latter is neither expressly stated nor prima facie necessarily implied. And what is one to make of the expression "circumstantial reasons". More could be said but I do not find that necessary having regard to the conclusion I have reached.

40. Miss Gladys Li QC for the plaintiff submits that the question of interest as raised before us by Miss Eu was neither suggested as a matter in dispute nor even hinted at before the judge. Miss Eu responds that it was raised in a broad way in the question of the total amount. This refers to the following passage at p. 6 of the judgment:

"It is submitted on behalf of the 2nd Defendant that there is a triable issue as to the exact sum due and my attention has been drawn to certain letters written by the Plaintiff's solicitors setting out certain claims. But the fact is that the sum claimed is clearly stated in the Statement of Claim and it is upon the Statement of Claim that the Plaintiff is proceeding. There has been no suggestion that there is any inaccuracy in the calculation of the sum allegedly due."

41. Plainly the point was not raised in the way it has before us, that is as a construction point rather than one of calculation of the exact sum of interest. As a construction point and one that contends the meaning of the latter part of clause 3 is obscure or ambiguous, its resolution will have to turn upon the factual matrix in which the Agreement was reached. New evidence will have to be procured, no evidence having been led before the judge. Should, then, the new point be allowed to be taken?

42. The considerations in point were addressed by Lord Herschell in The Tasmania [1890] AC 223 at 225 where he said:

"A point, not taken at the trial and presented for the first time in the Court of Appeal ... ought to be jealously scrutinised .... a Court of Appeal ought only to decide in favour of an appellant on a ground there put forward for the first time, if it be satisfied beyond doubt, first, that it has before it all the facts bearing upon the new contention, as completely as would have been the case if the controversy had arisen at the trial; and next, that no satisfactory explanation could have been offered by those whose conduct is impugned if an opportunity for explanation had been afforded them when in the witness box."

His dictum is also reported in para 59/10/6 of the Supreme Court Practice 1995 at p.995.

43. Guided by those considerations, I have no hesitation in concluding that the appellant should not be permitted to take the new point. Clearly, new evidence would have to be procured which was not before the judge. Nor can we say that the plaintiff would not be able to advance some new explanation or procure new evidence for its own part.

44. That brings me to the point that I am not persuaded that there is any other dispute between the parties. Also I would add that I find no merit in the other grounds upon this part of the appeal. Accordingly, I would also dismiss the appeal against the summary judgment.

45. By a majority, therefore, the entire appeal is dismissed.