China Property Development (Holdings) Ltd v Mandecly Ltd And Others

HCCT 53/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION & ARBITRATION PROCEEDINGS NO. 53 OF 2010

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J U D G M E N T
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1. This is the application by the plaintiff to set aside part of an award made on 25 May 2010 in an international arbitration between the plaintiff and the 5^th defendant as the claimants and the other defendants as the respondents.

BACKGROUND

2. The 5^th defendant 太平洋城開發有限公司(“BPP”) was set up for the purpose of a real estate development project in the Mainland. It used to be the wholly owned subsidiary of World Lexus Pacific Limited (“World Lexus”). World Lexus was owned by the 1^st defendant (“Mandecly”) and the 2^nd defendant (“Tsoi”). Mandecly was owned and controlled by the 3^rd defendant (“Chan”).

3. In 2004, the plaintiff (“CPDH”), through its subsidiaries, acquired 80% of the shareholdings in World Lexus and thus BPP. By agreement dated 9 August 2004, CPDH acquired the remaining 20% of the shareholdings in BPP (“the 20% Agreement”).

4. By then, BPP had been involved in litigation in the Mainland in which BPP sought to recover from another company 北京華正時房地産開發有限公司 (“Huazhengshi”) certain deposit paid in respect of the real estate development in 2001-2002. The parties agreed to cater for the situation and to provide for their rights and obligations arising out of that by, among others, the following terms of the 20% Agreement[1]:

Clause 3.6.2(5)

“出讓方及陳先生同意在2005年3月31日前太平洋城公司如未能收回華正時有關協議下轉付將台鄉政府的人民幣1000萬元，受讓方可在2.4.2.2項下應支付轉讓代價餘額人民幣2000萬元中扣除人民幣1000萬元，如在2008年6月30日前太平洋城公司收回全部或部分華正時有關協議下之所付訂金/合同款，太平洋城公司將把所得款項不超于人民幣1000萬元轉付給出讓方及/或陳先生”.

Clause 3.6.2(6)(b)

“出讓方及受讓方同意以下幾種方式可視為款項已收回……(b)將台鄉政府提供付款人為太平洋公司的發票、收據或公函，確認已收到人民幣1000萬元款，並表明此1000萬元款項權益歸太平洋城公司，可用作抵扣太平洋城公司應付將台鄉政府的各種款項包括土地補償款在內”.

5. The effect of Clause 3.6.2(5) was that: (i) CPDH would be entitled to deduct RMB 10 million from the consideration payable to the vendors under the 20% Agreement, if BPP failed to recover from Huazhengshi by 31 March 2005 the sum of RMB 10 million, which had been forwarded to the Jiangtai party; and (ii) if BPP recovered any part of the sum from Huazhengshi by 30 June 2008, such amount up to RMB 10 million would be payable to the vendors and/or Chan.

6. Clause 3.6.2(6) set out the parties’ agreement on the situations where the sum of RMB 10 million under the Huazhengshi Judgment would be deemed to have been recovered by BPP. One of such situations was provided in sub-clause (b) above, namely, the Jiangtai party provided documentary proof of receipt of the sum from Huazhengshi, and confirmed the sum to be held for the benefit of BPP, which could be utilised to set off any amount payable by BPP to the Jiangtai party (“the Deeming Provision”).

7. BPP eventually succeeded on appeal and was given judgment against Huazhengshi in the sum of RMB 14 million plus interest (“the Huazhengshi Judgment”). But recovery of the judgment debt was still pending.

8. Dispute arose between CPDH and its counterpart in the deal pursuant to the 20% Agreement. Amongst other disputes, CPDH claimed to be entitled to invoke Clause 3.6.2(5) for the deduction of RMB 10 million from the consideration payable to the vendors under the 20% Agreement. In April 2005, CPDH and BPP, through Messrs Reed Smith Richards Butler (“RB”), filed a notice of arbitration as the claimants.

9. As mentioned, the other defendants herein were named the respondents in the arbitration. Mandecly, Chan and the 4^th defendant (“Minghuaxuan”) were represented by Messrs Anthony Siu & Co (“AS”). Tsoi was represented by different solicitors; and had since mid-June 2006 acted in person in the arbitration. Messrs WK To & Co (“WKT”) started to act for Tsoi at the end of October 2007.

10. While the arbitration was pending, by an agreement dated 16 November 2007, World Lexus (then controlled by CPDH) sold the entire shareholdings in BPP to Best China Holdings Limited (“Best China”), which was in turn owned by北京北大青鳥有限責任公司(“Jade Bird”). The following terms of the agreement between CPDH and Best China (“the Jade Bird Agreement”) are relevant for the present purpose:

“買方向賣方實際支付的有關對價……該對價已扣除目標公司和BPP的備考合併資產負債表中以下BPP賬目上的應收賬款：

……

(b) 與華正時應收賬款人民幣壹仟萬元(10,000,000)

……”

Then:

“成交後，在BPP賬目中應作出以下調整：

……

(b) 與華正時應收賬款人民幣壹仟萬元(10,000,000)的權益實為賣方所有，賣方實際是應收華正時人民幣壹仟萬元之權益的所有人，買方承諾由BPP繼續協助及配合賣方追討與華正時之應收賬款，並在成功追回部份或全部款項時，即時歸還給賣方，歸還後BPP賬上改為買方應付BPP歸還金額”.

11. Essentially, credit was given to the RMB 10 million to be recovered by BPP pursuant to the Huazhengshi Judgment in the consideration payable by Best China. In return, World Lexus retained the benefit of the Huazhengshi Judgment after completion of the sale and purchase, so that the same, when recovered, would be payable by Best China to World Lexus.

12. In late June 2009, RB ceased to act for BPP and have since acted solely for CPDH in the arbitration. As a party to the arbitration, BPP became unrepresented.

13. The arbitration hearing was held before a panel of 3 arbitrators comprising Mr Philip Yang as Chairman and Mr Rimsky Yuen, SC and Mr M T Yeung as members (“the Tribunal”). The main hearing lasted from 28 September to 29 October 2009. Closing submissions were heard on 16 and 17 November 2009.

14. In the arbitration, CPDH (and BPP) claimed that pursuant to Clause 3.6.2(5), it was entitled to deduct RMB 10 million from the consideration payable under the 20% Agreement. The respondents[2] disagreed. They contended, among other things, that CPDH and BPP were in breach of the contractual term implied to Clause 3.6.2(5) that they should take reasonable steps and exercise due diligence to recover the RMB 10 million under the Huazhengshi Judgment by the contractual deadline 31 March 2005. CPDH was therefore not entitled to make the deduction.

15. The respondents further contended that the Deeming Provision was invoked upon the letter from the Jiangtai party dated 6 March 2008 (“the 6/3/2008 Letter”). The letter reads:

“……其中人民幣壹仟萬元整(RMB1000萬)已於2002年5月間由華正時公司轉付至我公司做駝房營項目的土地補償款。此1000萬元款項的權益屬貴公司。可用作抵扣貴公司應付將台鄉政府的各種款項包括土地補償款在內。但，在貴公司未完成開發用地及代征地上所有拆遷工作之前以及在公司付清應付將台鄉政府的土地補償款之前，不可用於抵扣。具體抵扣的時間及條件屆時雙方另行協商訂立。”

16. Essentially, the Jiangtai party acknowledged by this letter the receipt of the sum of RMB 10 million from Huazhengshi, and the sum was held for the benefit of BPP and, subject to conditions, could be applied to set off the amount payable by BPP to the Jiangtai party. On this basis, the respondents claimed to be entitled to the payment of RMB 10 million pursuant to Clause 3.6.2(5).

17. Alternatively, if CPDH’s deduction of the price was upheld, the respondents sought to subrogate to the rights of BPP in the interest of the Huazhengshi Judgment. This alternative claim was based on the concept of unjust enrichment, if CPDH had the benefit of the RMB 10 million deducted while BPP managed to recover any part of the Huazhengshi Judgment.

18. On 25 May 2010, the Tribunal issued the final partial award (“the Award”). Issue is now taken as to the following parts of the Award:

§342

“To conclude, the Tribunal finds that the 6 March 2008 letter from Jiangtai company satisfies the requirements set out in clause 3.6.2(6) and holds that in accordance with the Deeming Provision, CPDH ought to pay the “Vendors and/or Chan” the sum of RMB 10 million in accordance with clause 3.6.2(5) of the 20% Agreement.”

§354

“To conclude, if the Tribunal is wrong in finding of the Deeming Provision and in awarding the Respondents RMB 10 million, the Tribunal would in the alternative, make a declaration that the Respondents are entitled to be subrogated to the rights of BPP under the Huazhengshi Judgment to the extent of RMB 10 million. Any recovery (interest included) short of RMB 10 million should first go to the Respondents. Any excess of RMB 10 million should go to CPDH.”

§477(7)

“The Respondents’ claim for RMB 10 million under clauses 3.6.2(5) and 3.6.2(6)(d) of the 20% Agreement is upheld and CPDH shall pay the same forthwith.”

19. It appeared to CPDH that §§342 and 477(7) of the Award ordering it to pay RMB 10 million to the respondents could not be right. Believing that it could be a typographical error, RB issued their request to the Tribunal for clarify if it was a clerical mistake to order CPDH, instead of BPP, to pay the sum pursuant to Clause 3.6.2(5).

20. On 7 June 2010, the Tribunal answered and confirmed this part of the Award with reasons (“the Tribunal’s Letter”).

21. Following that, CPDH paid the sum of RMB 10 million into the account of the Hong Kong International Arbitration Centre. Meanwhile, it commenced the present originating proceedings and seeks to set aside §§342 and 477(7) of the Award mentioned above, which directed it to make the payment.

22. The originating proceedings were commenced on 25 August 2010. The main contest is between CPDH of one part and Mandecly, Tsoi and Chan of the other part. Minghuaxuan was in liquidation and did not enter appearance....