T v. W
Read the full judgment text of CACV 20/2021 on BabelCite. This Court of Appeal judgment was delivered on 30 November 2021.
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.
Cited by 4 cases · Cites 10 cases
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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) ________________________ BETWEEN
________________________ Before: Hon Kwan VP and G Lam JA in Court Date of Hearing: 30 November 2021 Date of Judgment: 30 November 2021 Date of Reasons for Judgment: 14 January 2022 ________________________ REASONS FOR JUDGMENT ________________________ 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:
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:
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:
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:
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]
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:
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]
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: 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):
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:
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.
Mr Justin Wang, instructed by Messrs. Lam, Lee & Lai, for the Plaintiff (Respondent) Mr Adrian Lai and Mr Kevin Lau, instructed by Messrs. Edwin Yun & Co., for the Defendant (Appellant) [1] See the issue on the meaning of the phrase in paragraph 37 below. [3] Paras 8-15 of the judge’s decision. [4] Paras 16-20 of the judge’s decision. [5] Paras 21-22 of the judge’s decision. [6] Para 23 of the judge’s decision. [8] Rinehart v Welker [2012] NSWCA 95, at §§121, 204 and 219. [9] Rinehart v Hancock Prospecting Pty Ltd & others [2019] HCA 13, at §§19-21. [10] See pages 719F-H & 731A. [11] Kaplan J held that under Mainland Chinese law – the governing law of the contract of sale, a bill of exchange was to be treated separately from the underlying contract in respect of which the bill was given and that there was therefore no arbitration clause covering the claim on the bill; see page 270, at line 10. [12] See page 271. [13] pp 466E-467A. [14] See §§20-26. [15] Solicitor (24/07), §46. [16] Solicitor (24/07), §48. [17] p 717G. [18] p 730A. [19] At pp 721H-722A, Lord Wilberforce said: “… We are not concerned in this appeal with the future course of this action, but I must demur to the view that the results similar to granting a stay under the Arbitration Act can be obtained by any procedural stay of another character. So to hold would seem quite counter to long accepted principles regarding claims on bills of exchange and would represent an undesirable change in the law.” [20] See §§40-42. [21] See the first instance decision by Vinodh Coomaraswamy J at [2015] SGHC 264, at §194. [22] See §§3 & 49. [23] The judge had earlier decided that any jurisdictional objection to arbitration was time-barred: see §§31-42. [24] See Article 43. [25] See Graham v Seagoe [1964] 2 Lloyds Rep 564; Paharpur Cooling Towels Ltd v Paramount (WA) Ltd [2008] WASCA 110; John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451; Dewshaf Investments Inc v Buckingham Hospitality (11 August 2005, Ont. Sup. Ct.); Vistacare Communications Services of Canada Inc v Verge Technologies Inc 2021 NSSC 161. [26] Para 23 of the judge’s decision. The sentence may be translated as “Without affecting the rights and interests in the original agreement, including the [litigation rights] in respect of the original five million dollars cheque …” [27] See paras 8, 10 and 20. |
Cases cited in this judgment