HONG Kong Phoenix Laser System, partly owned by local financial guru Chan Sun-sun, has won a legal battle with the Chinese Academy of Science over a key pilot project aimed at applying China's military technology to civil purposes. China International Economic and Trade Arbitration Commission (CIETAC) gave its verdict in Beijing last month, virtually blocking an attempt by the Academy of Science to terminate the joint venture contract unilaterally. The verdict represents the final judgment from China's highest arbitration body in commercial matters. CIETAC decided that each partner of the project should continue to implement the contract. Neither side was awarded costs. The lawsuit received attention from the central government and was closely watched by the mainland's scientific community. It arose when Fujian Castech Crystals, an offshoot of the Academy of Science, accused Hong Kong Phoenix of failing to observe the timing of the capital injection into the project. It then made an unilateral announcement that the Castech-Phoenix contract had been ''automatically terminated and dissolved'' under Chinese law. However, CIETAC maintained that the announcement itself was an act of breach of contract. CIETAC also supported the counter-claims by Hong Kong Phoenix that the mainland partner should stop all breach of contract behaviour and implement its obligations. Mr Chan said: ''The whole case was in fact very simple. The dispute originated from the intended removal of the joint venture company's general manager. ''Fujian Castech intended to replace him with a son-in-law of Mr Luo Jiaxi, vice-president of Chinese People's Political Consultative Conference, but the board as the highest decision-making entity disagreed.'' The board saw no reasons for the change given the existing general manager's experience and proven ability in the job, he said. Mr Chan believed that all the allegations by Fujian Castech were without legal backing and aimed at ousting the foreign partner. Castech Phoenix, set up in January 1992, represented a milestone Sino-US joint venture, which tried to develop and manufacture state-of-art laser systems for medical purposes. Hong Kong Phoenix - owned equally by the US-based Phoenix System and Mr Chan - Fujian Castech and Fujian Enterprise each hold an equal stake in the project. Mr Chan said that the allegations made by Fujian Castech concerning the financial ability and credit-worthiness of Hong Kong Phoenix were without evidence and legal basis. ''That Hong Kong Phoenix chose to put the dispute to the Chinese arbitrators instead of the Geneva court commonly resorted to by other foreign investors underlined the company's confidence in the Chinese jurisdiction,'' he said. Mr Chan said that the project had to be put on track again as soon as possible after a year's delay due to the litigation. ''It is also important to see how effective the arbitration could be in the future,'' he added. Meanwhile, in the judgment report, CIETAC said that the US$1.5 million first instalment of the subscribed capital contribution had already been made by Hong Kong Phoenix. Even though there was some delay in capital contribution, it was considered acceptable and was in fact agreed by the three joint venture partners, the report said. The Fujian joint venture has begun marketing laser crystals used in high technology surgery. So far, various crystal products have been sold to countries including the US, Britain, France and Germany. China is a world leader in the development of these crystals, while Phoenix is developing a computer-guided laser system based on technology originally developed as part of the US Star Wars programme.