Zs Capital Fund Spc and Others v. Astor Asset Management 3 Ltd and Another

HCA 1157/2020

[2023] HKCFI 1047

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1157 OF 2020

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D E C I S I O N

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BACKGROUND

1.The Plaintiffs’ action against the 1st Defendant in these proceedings was stayed in favour of arbitration in St Kitts & Nevis.

2.The arbitral tribunal in the St Kitts & Nevis arbitration (“the Tribunal”) ruled that the seat of the arbitration is in Jamaica.

3.The Tribunal has also since issued its:

3.1  Reasons for Final Award dated 15th November 2021 (“the First Award”);

3.2  Reasons for Award on Counterclaim and Cost dated 21st February 2022 (“the Second Award”; together with the First Award, “the Awards”).

4.In the First Award, the Tribunal held that it was difficult to accept that the 1st Defendant was not a money lender subject to the Money Lenders Ordinance (Cap.163) (“the MLO”); that the MLO is clear that an unlicensed money lender is not entitled to recover the loan proceeds or any interest thereon unless it comes within the proviso to s.23 which provides for the Hong Kong court to order recovery in certain circumstances; that the Tribunal therefore could not grant the relief sought by the 1st Defendant; and that the 1st Defendant had to apply to the Hong Kong court to obtain relief.

5.In the Second Award, the Tribunal clarified that the Plaintiffs’ counterclaim should also be dealt with by the Hong Kong court, as it similarly involved issues relating to the enforceability of the loan agreements between the parties under the MLO, and to avoid inconsistent rulings.

6.The essence of the two Awards is therefore that the parties’ disputes should proceed to be determined in the Hong Kong court.

7.The 1st Defendant complains that the Tribunal refused to exercise its jurisdiction to adjudicate most of the issues referred to it.  It has therefore applied to set aside both Awards in the Court of Jamaica, asking for the arbitral proceedings to be commenced de novo before a differently constituted tribunal.

8.The Plaintiffs have applied to strike out the setting aside application on the grounds that it was completely groundless.  There was a hearing on 30th January 2023 and on 1st March 2023, and the application has been adjourned to be heard on 21st September 2023.

THE PARTIES’ POSITIONS

9.The Plaintiffs say that by analogy with the test as to whether a stay should be granted in favour of arbitration, as set out by Ma J (as he then was) in Tommy CP Sze & Co v Li & Fung (Trading) Ltd & ors [2003] 1 HKC 418 at [18] to [22], the stay should be uplifted.  The applicable questions on that test are as follows.

9.1  Is the clause in question an arbitration agreement? If not, a stay will not be granted.

9.2  Is the arbitration agreement null and void, inoperative or incapable of being performed? If yes, a stay will not be granted.

9.3  Is there in reality a dispute or difference between the parties? If not, a stay will not be granted.

9.4  Is the dispute or difference between the parties within the ambit of the arbitration agreement? If not, a stay will not be granted.

10.The Plaintiffs say that on the second of the four questions, the arbitration agreement is spent and no longer capable of being performed, since the Tribunal has already ruled on the dispute and issued the two Awards.

11.The 1st Defendant says that the application to uplift the stay is premature; it is wrong to say that the arbitration proceedings have concluded, since the 1st Defendant has applied to set aside such proceedings in the supervisory court, which is the Supreme Court of Judicature of Jamaica.

12.The 1st Defendant cites Gao Haiyan v Keeneye Holdings Ltd [2012] 1 HKLRD 627.  At [67] Tang VP referred to Minmetals Germany GmbH v Ferco Steel Ltd [1999] CLC 647, where Colman J said at p.661 that:

“A party who agrees to arbitrate in a foreign jurisdiction is bound not only by the local arbitration procedure but also by the supervisory jurisdiction of the courts of the seat of the arbitration. If the award is defective or the arbitration is defectively conducted, the party who complains of the defect must in the first instance pursue such remedies as exist under that supervisory jurisdiction. That is because by his agreement to the place in question as the seat of the arbitration he has agreed not only to refer all disputes to arbitration but that the conduct of the arbitration should be subject to that particular supervisory jurisdiction.”

ANALYSIS

13.I agree with Mr Richard Yip, counsel for the Plaintiffs (appearing with Mr Matthew Suen) that the arbitration agreement is spent.  The Tribunal has already ruled on all of the parties’ disputes, and issued the two Awards.  The Tribunal ruled that insofar as the parties seek to pursue their arguments relating to the MLO, these should be resolved by the Hong Kong court.  There is nothing further for the Tribunal to address in the arbitration proceedings.  The basis for a stay accordingly has gone.  Cf. 廈門新景地集團有限公司 v Eton Properties Limited and others, unreported, FAMV 5/2011, 4th May 2011 at [5] (Ma CJ).

14.As regards the 1st Defendant’s application to set aside the Awards, this does not affect the fact that the Awards are operative and binding on the parties unless and until they are set aside.  The 1st Defendant has not applied to stay the Awards.  If the Awards should be set aside in the future, it is always open to the 1st Defendant to apply for a further stay at that stage, based on the change in circumstances constituted by such setting aside.

15.Mr Chase Pun, counsel for the 1st Defendant, sought to argue that the authorities say that pending the determination of an application to set aside an arbitral award, proceedings in the Hong Kong court should be stayed.  I do not agree.

15.1 Gao Haiyan is authority for the proposition that the parties’ agreement to arbitration also extend to an agreement that the conduct of the arbitration should be subject to the supervisory jurisdiction of the relevant court of the seat of the arbitration; insofar as a party is aggrieved by the arbitral process, he should in the first instance pursue remedies under the supervisory jurisdiction.  However, that does not mean that the other party is not, in the meantime, free to proceed on the basis of the award as made by the arbitral tribunal, when that award is not the subject of any stay.  In any event, the court in Gao Haiyan was not concerned with the issue of whether, for the purposes of a stay of court proceedings, an arbitration agreement should be considered as not yet spent during the period pending determination of an application to set aside an award.

15.2 Clinton Engineering Limited v B-Tech (Holdings) Ltd, unreported, HCA 3608/1998, 28th September 2001, is also not authority for the aforesaid proposition.  Mr Pun submitted that whilst Mr Recorder Liao SC uplifted the stay in that case, it was only because the application to set aside the award in the supervisory jurisdiction had been dismissed.  However, as Mr Pun acknowledged, this was not the basis of the decision.

15.3 Astro Nusantara International BV and others v PT Ayunda Prima Mitra, unreported, HCCT 45/2010, 21st March 2012, is also not authority for the aforesaid proposition, as Mr Pun acknowledged in oral submissions.  The case dealt with the situation where there were proceedings in both Hong Kong and Singapore (the latter being the seat of the arbitration) to set aside leave to enforce five arbitral awards.  DHCJ Lok (as he then was) held that as there were two sets of proceedings which involved common issues, it would save time and costs if the issues were first resolved in the Singapore court.

16.The parties also raised a number of other arguments.

17.Towards the end of his submissions, Mr Yip sought to argue that the arbitration agreement between the parties in fact was limited to the arbitration before the Tribunal, and did not extend to the supervisory jurisdiction of the Jamaica court, so that Gao Haiyan has no application in any event in the circumstances of the present case.  In the arbitration agreement, the parties had agreed that:

“The arbitration award shall be final and legally binding on the Parties … There will be no appeal from the decision of the Arbitral Tribunal on questions of fact, error, public policy, impartiality, process, jurisdiction, or law, nor will any court deviate from this paragraph, [its] provisions and wish of the Parties. The arbitration award will be final and binding in resolving any controversy.”

18.The 1st Defendant’s stance was that this covered appeals only, and did not exclude applications to set aside defective arbitrations.

19.I do not find it necessary or appropriate to resolve this issue of construction in a summary manner, without reference to the factual matrix in which the agreement was made. I can see that it might be argued that whilst the parties intended any arbitral award to be final, without recourse to an appeal, they may not have intended to preclude complaints of irregularities in the arbitral process itself.

20.After the arguments had been completed, Mr Pun sought to raise a new point that the arbitration agreement was not spent as no award had in fact been made, given that the Tribunal had not found for either party.  As Mr Yip points out, this cannot be correct: the Tribunal had dismissed the claims as raised in the arbitration and ruled that the parties should pursue their respective claims in Hong Kong.

THE 2ND DEFENDANT

21.The 2nd Defendant does not oppose the lifting of the stay of this action insofar as it concerns the 2nd Defendant, on the terms agreed with the Plaintiffs.

CONCLUSION

22.I order that the stay of this action be lifted, but will hear the parties further on the precise terms of the order.