Chiu Koon Ming Andy v. Cheung Shun Ching Mike and Others

HCA 2297/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2297 OF 2014

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DECISION
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1.This is an application by the defendants by summons dated 23 December 2014 for a stay of this action to arbitration pursuant to section 20 of the Arbitration Ordinance, Cap 609.

Background

2.The Hong Kong Jockey Club (“HKJC”) for the purpose of horse racing has racing syndicates formed under its Rules of Racing and Instructions.

3.One such racing syndicate is by the name of Fentons Racing Syndicate (“Fentons”) which was formed pursuant to a written Syndicate Agreement dated 4 April 2005.

4.At all times, the 1^st, 2^nd, 3^rd and 4^th defendants were and still are members of Fentons.  The 1^st to 3^rd defendants are the managers of Fentons with the 3^rd defendant also being the treasurer.

5.The 5^th defendant joined Fentons after 4 April 2005 but before September 2011.

6.The plaintiff officially joined Fentons on 9 September 2011.

7.Needless to say, all the parties herein are members of the HKJC.

8.The plaintiff came to join Fentons when in around July or August 2011, the plaintiff came to a verbal agreement with all the defendants to inject his horse by the name of Aomen (at that time wholly owned by the plaintiff) into Fentons.  It was also agreed between all concerned that Aomen would be priced at HK$3 million.

9.However, none of the defendants agreed to take any share in Aomen after it was injected into Fentons.  As a result, the plaintiff owned 100% of Aomen and the plaintiff alone paid for all the expenses incurred by Aomen, and also alone enjoyed all the dividends earned by Aomen on all its racings.

10.After the plaintiff had joined Fentons, another horse named Marco Polo was injected into Fentons in or about the middle of 2012.  The plaintiff did not take on any share of ownership of Marco Polo within Fentons.

11.On or about 6 October 2012, the plaintiff was invited by the 1^st defendant, representing all the other defendants, to inject another wholly owned horse of the plaintiff’s by the name of Blazing Speed into Fentons.

12.Pursuant to such invitation, Blazing Speed was injected into Fentons by the plaintiff with all concerned within Fentons agreeing to the value and price of Blazing Speed at HK$8.68 million.

13.The defendants were each invited to subscribe to the percentage they, or each of them, were interested in Blazing Speed.

14.There is no dispute that the 1^st, 2^nd and 3^rd defendants agreed to subscribe to Blazing Speed in the shareholding percentage of 10%, 10% and 5% respectively and payments of HK$868,000 by the 1^st defendant, HK$868,000 by the 2^nd defendant and HK$434,000 by the 3^rd defendant were made to the plaintiff in December 2012.

15.The 4^th and 5^th defendants declined to take within Fentons any share of the ownership of Blazing Speed.

16.Marco Polo retired in or about November 2012 and Aomen on or about 13 June 2013 from Fentons.

17.After the retirement of Marco Polo and Aomen, Blazing Speed was the only horse left in Fentons as being owned by Fentons.

The dispute

18.In July 2014, when dividends were distributed within Fentons, the plaintiff was awarded a distribution of 65% of the net earnings of Blazing Speed.

19.It is the plaintiff’s case that he should have a 75% share of the ownership of Blazing Speed within Fentons after the 1^st, 2^nd and 3^rd defendants had taken up only 10%, 10% and 5% of Blazing Speed in Fentons.

20.On the other hand, it is the defendant’s case that during the negotiation between the plaintiff and the 1^st defendant for Blazing Speed to be injected into Fentons which took place in October 2012, the plaintiff was particularly anxious to secure permission from the HKJC for importing Blazing Speed in time to race at the 2013 Hong Kong Derby, the selection for which by the HKJC takes place in February.  In view of the five weeks quarantine period, sufficient training time and running in at least one race to allow assessment by the HKJC, it left a very short time to import this new horse to enter the Hong Kong Derby which had to be done by early November.

21.However, no further import permit had been allotted to Fentons.  Thus the only available route to allow Blazing Speed to be brought into Hong Kong in time for the Hong Kong Derby was for Fentons to apply for and obtain a Replacement Permit of Marco Polo’s Import Permit which meant that Marco Polo would need to be retired.

22.In the circumstances, it was suggested by the 1^st defendant to the plaintiff during the negotiations that if this was to go ahead, and in order to be fair to the other members of Fentons for Blazing Speed to replace Marco Polo, the plaintiff would need to compensate the other syndicate members (who owned Marco Polo) for its retirement.

23.The 1^st defendant then suggested a 10% interest in Blazing Speed be given or allotted by the plaintiff to the other members of Fenton in consideration of retiring and replacing Marco Polo.

24.It is the defendants’ case that this suggestion was agreed to by the plaintiff and all the other defendants whereupon Blazing Speed was imported on such basis.

25.Thereafter, the 1^st, 2^nd and 3^rd defendants took a further 10%, 10% and 5% share respectively of Blazing Speed by paying the plaintiff for such shares.

26.The dispute between the parties can therefore be summarized as being one in which the plaintiff claims to have a 75% share or ownership of Blazing Speed within Fentons, while the defendants say that the plaintiff has only 65% share or ownership of Blazing Speed within Fentons and that the difference of 10% ownership was agreed to be given or allotted by the plaintiff to the other defendants as compensation for the retirement of Marco Polo when Blazing Speed was injected into Fentons.

27.The reliefs claimed by the plaintiff in the Statement of Claim are:

(a) a declaration against all the defendants that the plaintiff has 75% interest of Blazing Speed in Fentons;

(b) against the 1^st to 3^rd defendants for them to account for the shortfall of 10% of his rights and interest in the net dividends declared and distributed in the sum of HK$800,000; and

(c) an order that the 1^st to 3^rd defendants to provide an account as to the total net winnings of Blazing Speed since its inception in Fentons to date.

Defendants’ application for stay

28.As already indicated at the start of this Decision, Fentons was formed and regulated by a Syndicate Agreement dated 4 April 2005.

29.When the plaintiff joined Fentons on 9 September 2011, he had signed a Syndicate Agreement form bearing the name of the syndicate being “Fentons Racing Syndicate” stating that he has read and understood and thereby agree in full to the provisions and conditions set out in the above Syndicate Agreement which has been lodged with the Racing Registry Office of the HKJC.

30.Clause 17 of the Syndicate Agreement dated 4 April 2005 which regulates Fentons states as follows:

“DISPUTES

… Any dispute under this agreement will be settled by referring the matter in writing to the Board of Stewards of the Club [i.e. HKJC] who will appoint an arbitrator whose decision will be final.”

It is therefore based upon this clause 17 that the defendants have taken out the present summons to stay the present proceedings for the dispute to go to arbitration.

The plaintiff’s objection to the application for stay

31.The plaintiff opposes the summons to stay contending that the dispute falls outside the scope of the arbitration agreement by reason of the following:

(a) The plaintiff’s claim concerns the ownership or proprietary rights over Blazing Speed injected into Fentons.

(b) The terms of the standard form syndicate agreement of HKJC (and therefore the arbitration clause therein) are concerned with the management of the syndicate itself rather than issues such as dispute between the members of the syndicate as to the ownership of horses within the syndicate.

(c) In any event, the plaintiff argues that the July or August 2011 Agreement upon which the plaintiff’s claim is based in the Statement of Claim predates the plaintiff’s agreement dated 8 September 2011 to be bound by the Syndicate Agreement of Fentons and therefore falls outside of the arbitration agreement.

Decision

32.It is not in dispute that the applicable principles for reference of an action to arbitration four criteria must be present as follows:

(a) The clause in question must be an arbitration clause.

(b) The arbitration agreement must not be null and void, inoperative or incapable of being performed.

(c) In reality there must be a dispute or difference between the parties.

(d) The dispute or difference must be within the ambit of the arbitration agreement.

There is no dispute that clause 17 of the Syndicate Agreement is an arbitration clause.

33.There is no suggestion that the arbitration agreement is null and void, inoperative or incapable of being performed.  The contention by the plaintiff is merely that the dispute in question is not covered by it.

34.There is here clearly a dispute between the parties as to the percentage share or ownership, and therefore the dividends, in respect of Blazing Speed.

35.The real contention between the parties in respect of this application for stay goes squarely to the fourth requirement, namely whether the dispute falls within the ambit of the arbitration agreement.

36.The first point contended for by counsel for the plaintiff is that this dispute is inter se the members of Fentons and is not a dispute as between that syndicate and the HKJC relating to the management of the syndicate.  That therefore is the basis of counsel’s contention that the arbitration clause should be read or construed as only being applicable to disputes between the syndicate and the HKJC relating to the management of the syndicate under the Syndicate Agreement.

37.The first point to note is that there are no express words in clause 17 of the Syndicate Agreement which qualify that clause to be read in the way suggested by counsel for the plaintiff.  Clause 17 is very widely worded.

38.Secondly, the object of the syndicate (ie Fentons in the present case) is stated in clause 1 of the Syndicate Agreement as follows:

“1. OBJECTS

The object of the Syndicate is to own and race a horse or horses under the Rules of Racing of the Hong Kong Jockey Club …”

Since the ownership of a horse comes within the object of the syndicate, therefore such dispute as to the ownership of Blazing Speed between the members of Fentons must necessarily come within those words “Any dispute under this agreement”.

39.On such construction of clause 17 of the Syndicate Agreement, the first contention by the plaintiff falls down completely.

40.As to the second point taken by the plaintiff, I had some difficulty understanding what was the exact argument being put forward by the plaintiff.  When I asked counsel for the plaintiff to clarify what that point was, counsel merely referred me to paragraph 11 of the Affirmation of Chiu Koon Ming Andy without any further elaboration.

41.It would appear that the plaintiff is saying that his claim in the Statement of Claim is based on the July or August 2011 Agreement (whereby the plaintiff agreed to inject Aomen into Fentons).  That July or August 2011 Agreement predated his formally joining Fentons on 8 September 2011, therefore the arbitration clause has no binding effect upon his claim.

42.In my view that contention is a complete non‑point.

43.The present claim or dispute concerns the ownership share of Blazing Speed.  The plaintiff officially joined Fentons on 8 September 2011 whereby he became bound by the Syndicate Agreement of Fentons including clause 17 thereof.  Blazing Speed was injected into Fentons by the plaintiff some time between 6 October 2012 and December 2012.

44.The July or August 2011 Agreement concerns Aomen and has absolutely nothing to do with Blazing Speed.

45.In the circumstances, there can be no question that the Syndicate Agreement including clause 17 thereof is binding upon the plaintiff where the ownership of Blazing Speed within Fentons is concerned.

46.For the reasons given above, there can be no question in my mind but that these proceedings must be stayed for the dispute to go to arbitration.

47.Moreover, if the jurisdiction of the arbitrator is challenged by the plaintiff, that challenge to the jurisdiction of the arbitrator can still be brought up by the plaintiff before the arbitrator for the arbitrator to rule on.

48.Accordingly, there will be an order in terms of the defendants summons dated 23 December 2014 and these proceedings are accordingly stayed.

Costs

49.The opposition put forward by the plaintiff to the defendants’ application was, to say the least, weak.  Moreover, of the two matters argued, one was a complete non‑point.

50.There will be a costs order nisi that the plaintiff pays the defendants the costs of the summons and the hearing on an indemnity basis, to be taxed and paid forthwith if not agreed.

Mr Minju Kim, instructed by Lam & Co, for the plaintiff

Mr Edward Alder, instructed by Tanner De Witt, for the 1^st to 5^th defendants