Capital Wealth Holdings Ltd and Others v. 南通嘉禾科技投资开发有限公司
Read the full judgment text of HCCT 66/2020 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 4 February 2021 before Hon K Yeung J.
Construction and Arbitration Proceedings — Anti-suit injunction — Whether initiation of Mainland court proceedings against WFOEs breached arbitration agreement in JV contracts — Multiple related contracts with differing dispute resolution clauses — Principle that cause of action determines applicable dispute resolution clause — General clauses yield to specific clauses — WFOEs not parties to JV Agreements — Mainland jurisdiction clauses in Loan and Share Pledge Agreements cover disputes — Non-exclusive jurisdiction clauses upheld — Arbitration Agreement claimed by Plaintiffs not enforceable by non-parties — No unconscionability, vexatious or oppressive conduct in commencing Mainland proceedings — Interim anti-suit injunction relating to Mainland proceedings discharged by Court of First Instance — Costs order nisi for Defendant. Plaintiffs obtained an interim anti-suit injunction restraining Defendant from pursuing Mainland court actions in respect of three sets of proceedings against WFOEs allegedly in breach of arbitration clauses. Defendant applied to discharge the injunction, arguing that the Mainland jurisdiction clause in Share Pledge Agreements applied to WFOE Proceedings and there was no breach of Arbitration Agreement. Held: The cause of action arose under the specific Loan and Share Pledge Agreements involving Mainland jurisdiction clauses, to which the WFOEs were parties, not under the JV Agreements containing the arbitration clause. Non-parties cannot enforce arbitration clauses. The Mainland jurisdiction clause was valid and not unenforceable as vague. Initiating Mainland proceedings was neither vexatious nor oppressive. The injunction was discharged accordingly.
Legal issues: Whether initiation of WFOE Proceedings breached Arbitration Agreement · Whether the WFOE Proceedings are unconscionable, vexatious or oppressive
Outcome: Discharged the part of the Interim Injunction relating to the WFOE Proceedings; dismissed Plaintiffs’ Variation Summons
Cited by 1 case · Cites 5 cases
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HCCT 66/2020 [2021] HKCFI 272 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 66 OF 2020 ________________________
________________________ BETWEEN
________________________ Before: Hon K Yeung J in Chambers Date of Hearing: 20 January 2021 Date of Decision: 4 February 2021 ________________________ D E C I S I O N ________________________ A. Introduction 1.Upon the application of the plaintiffs (“P1” to “P6”, and collectively “Ps”), Deputy Judge Sit SC by Order dated 19 October 2020 (the “19 Oct Order”) granted[1] on an ex parte with notice basis an interim anti-suit injunction (the “Interim Injunction”) restraining the defendant (“D”) from starting, continuing, pursuing or taking further steps in 4 specified proceedings commenced by D in the Mainland before the Nantong Intermediate People’s Court (“NIPC”) against inter alios P3 to P6 (the “WFOEs”). Those 3 of the 4 sets of proceedings which are against the WFOEs[2] have been referred by the parties as the WFOE Proceedings, which term I adopt. 2.By summons of 1 December 2020 (the “Summons”), D seeks (1) the discharge of the Interim Injunction in respect of the WFOE Proceedings, (2) a limited variation of the same, and (3) fortification of the undertaking as to damages. 3.On 4 December 2020, I dealt with the part of the Summons for variation. I gave directions on the filing of evidence in relation to the application to discharge. I then adjourned it to 20 January 2020 for substantive hearing. It now comes back before me. 4.Ps sought the Interim Injunction on 2 grounds[3]. The first one was that the WFOE Proceedings were commenced in breach of the arbitration agreement contained in the joint venture agreements that parties had entered into (the “Contractual Ground”). Whether they indeed were is hence the main issue. The law relating to the so-called “one-shop stop” presumption concerning the interpretation of dispute resolution clauses will need to be considered. The second ground was that the WFOE Proceedings are unconscionable, vexatious and oppressive (the “Unconscionable Ground”), which is more factual. 5.In the meantime, Ps themselves on 24 December 2020 took out another summons for variation of §1 of the Interim Injunction (the “Ps’ Variation Summons”). It is now also before me for substantive hearing. 6.Mr Anson Wong SC leading Mr Martin Kok appeared for D. Mr Ernest Yang of Messrs DLA Piper Hong Kong appeared for Ps. B. The affirmations 7.Placed before me are the following relevant affirmations:
C. The agreements between the parties 8.Given the issues involved, it is important to first outline the relevant agreements that the parties[4] have entered into. 9.P1 and P2 are companies registered in the BVI. The WFOEs are companies incorporated in the Mainland. P3, P4, and P5 are wholly owned by P1, and P6 by P2 (hence their WFOE status). 10.On 28 January 2016, a joint venture agreement was entered into[5] (the “JVA”):
11.On 21 July 2016, a supplemental joint venture agreement[8] was entered into (the “SJVA”):
12.On 15 October 2016, a further supplemental agreement[11] (“SSJVA”, and together with the JVA and SJVA, collectively the “JV Agreements”). Its four parties are WMI, P1, D and JSAT[12]. The WFOEs are again not parties to it. 13.In 2019, D as “甲方 (出借方)” (ie the lender), JSAT as “乙方 (借款方)” (ie the borrower), and the WFOEs jointly as “丙方 (擔保方)” (ie the guarantors) entered into a number of loan agreements (“Loan Agreements”). Save the amount of the loans, the terms of each of those Loan Agreements are materially the same. Pursuant to those agreements, D lent to JSAT loans in the total sum of RMB 2 billion. 14.The Loan Agreements do not contain any dispute resolution clause. 15.Each of the Loan Agreements bears a reference code. 16.To ensure parties’ performance of their obligations under the Loan Agreements[13], each of the WFOEs as the “出質人” (ie the pledgor), D as the “質權人” (ie pledgee), and JSAT as the “債務人” (ie debtor) entered into a number of “股權質押擔保協議” (the “Share Pledge Agreements”). Certain specified percentages of the WFOEs’ holding in JSAT were pledged thereby. The reference codes of the Loan Agreements which the Share Pledge Agreements individually relate to are expressly referred to and specified. 17.Apart from the identities of the pledgors, the amount of the loans, the percentage of the pledged shares concerned and the reference codes, the terms of each of those Share Pledge Agreements are materially the same. The following 2 terms are material:
18.In addition to the Share Pledge Agreements, JSAT has also agreed to pledge as securities for the Loan Agreements inter alia its facilities, immovable properties and land rights (the “JSAT Pledge”). 19.The aforesaid loan and security arrangements have, on the face of the resolutions adduced, been approved at the shareholder level by both JSAT[15] and each of the WFOEs[16]. D Proceedings in the Mainland and Hong Kong 20.On 8 June 2020, D commenced the WFOE Proceedings before the NIPC. Three sets have been started, as a result of the way the loans were grouped amongst the Loan Agreements and Share Pledge Agreements. Such details are not important, as each of the 3 sets are materially the same. 21.In relation to the WFOE Proceedings:
22.By notice dated 28 August 2020, Ps, Saleen Motors International LLC, and SMS Supercars, Inc as claimants initiated ad hoc arbitration proceedings in Hong Kong against D. The Arbitration Agreement is relied upon[18]. They claim[19](1) a declaration that D has breached the JV Agreements; (2) various forms of relief in relation to patents and confidential information; (3) D be ordered to purchase the claimants’ interest in JSAT at the amount of RMB 9.987 billion; (4) damages; (5) legal fees and interest. 23.On 5 October 2020, Ps issued the Originating Summons herein. They seek thereby an anti-suit injunction against D in respect of inter alia the WFOE Proceedings. 24.On 19 October 2020, Ps obtained the Interim Injunction. 25.On 1 December 2020, D filed the Summons herein. E. Parties’ stances and main submissions 26.Originally, there is dispute between the parties about the validity of the Arbitration Agreement. It refers to “香港仲裁委員會”. There is however no arbitral body in Hong Kong which bears that name. Expert evidence has been called from both sides. Opinions have been expressed as to whether the validity of the Arbitration Agreement should be governed by Mainland or Hong Kong Law, and whether it is according to the proper governing law valid. 27.In the course of the hearing, Mr Wong informed me that for the purpose of the Summons and the hearing (and for such purposes only), and on a without admission basis, D is content to proceed on the basis that Hong Kong law applies, and that the Arbitration Agreement is valid. 28.I therefore proceed on that basis. 29.Mr Wong submits that even assuming for Ps’ benefit that the Arbitration Agreement is valid, the Interim Injunction should be discharged. He summarizes his submissions as follows[20] (emphasis omitted):
30.Mr Yang argues otherwise. He summarizes his main submissions as follows:
Mr Yang also relies on the basis that the WFOE Proceedings are vexatious and oppressive, as counsel for Ps did before the learned Deputy Judge. F. The relevant legal principles 31.The relevant principles applicable to the grant of anti-suit injunctions have recently been considered by Deputy Judge William Wong SC in Suen Kwai Kam v Central China Dragon Select Growth Fund [2020] HKCFI 69, at §25. Suffice for this Court to highlight a number of points that are of particular relevance to the present application. 32.The Courts have jurisdiction to grant anti-suit injunctions. An application can be grounded upon a contractual right, or that the foreign proceedings have been commenced in bad faith[21]. 33.The principle of comity requires that the jurisdiction to grant anti-suit injunctions be exercised with caution and restraint. The threshold for an applicant to meet is the enhanced one of “high degree of probability”. As explained in Gee on Commercial Injunctions (6th ed)at §14-027:
34.In Fiona Trust & Holding Corp v Privalov [2007] 2 CLC 553, Lord Hoffmann observed at [13] that:
35.Fiona Trust concerned the scope of a single arbitration clause. When it is not, the approach to be adopted has been explained by Beatson LJ in Trust Risk Group SpA v AmTrust Europe Ltd [2017] 1 CLC 456, that:
36.Trust Risk Group was considered and applied by Mimmie Chan J in X v Y [2020] HKCFI 2782, wherein Her Ladyship observed at §46 that:
37.The position is summarised in Lewison, The Interpretation of Contracts (6th ed) at pp [881]-[882] as follows:
38.There are two further points that are relevant to that “careful and commercially-minded” construction exercise which the court is required to undertake:
39.In the course of the hearing, Mr Yang submitted to the effect that if there is an overarching dispute resolution agreement (and he submitted that the Arbitration Agreement is one), and if it is wide enough to cover certain disputes arising from a related subsequent agreement between the parties, then unless the subsequent agreement has been “carved out” and is completely different from the overarching agreement, then those disputes should still be resolved in accordance with the overarching agreement, even though that subsequent agreement contains a different dispute resolution clause. 40.Mr Yang relies on Transocean and L v M, HCCT 16/2016. 41.In Transocean, the issue was which of the 2 different dispute resolution clauses contained separately in the Drilling Contract and the subsequently Escrow Agreement should be applied. On the facts before him, Andrew Ang J held that the one in the Escrow Agreement was applicable. One reason for that was his view, upon a reading of the Escrow Agreement and the Drilling Contract, that the parties had intentionally carved the former out from the latter. In my view, that aspect of Transocean is a factual one decided on the facts before the Court. The fact that there has been such “carving out” supports the disapplication of the earlier dispute resolution clause. It is however not a prerequisite. It simply does not follow. 42.In respect of L v M, I agree with Mr Wong that it does not assist Mr Yang. In that case, the relevant agreements were the Master Agreement, the Memorandum of Understanding, the Guarantee, and the Mutual Claims Settlement Agreement. The Master Agreement was silent as to the mode of dispute resolution. The other agreements all contained an arbitration clause providing for arbitration at the Hong Kong International Arbitration Centre. It is not a case with multiple forum clauses. 43.The proposition and the rigid approach put forward by Mr Yang is also inconsistent with the principles discussed above which explain that a broad and purposive construction should be undertaken. 44.I do not accept Mr Yang’s submission in this regard. G. The Contractual Ground — discussion 45.To establish a case for the Interim Injunction, WFOEs were and are required to show to a high degree of probability that the initiation by D of the WFOE Proceedings constituted a breach of the Arbitration Agreement. It is a question of interpretation of the agreements concerned. 46.The WFOEs would also have to be able to show to a high degree of probability that they were able to rely on the Arbitration Agreement and to enforce it. 47.During the hearings before Deputy Judge Sit SC, Ps relied on the Fiona Trust approach. Those cases and authorities discussed above dealing with multiple forum clauses were not brought to her attention. 48.One important consideration, put in a nutshell, should have been whether the WFOE Proceedings arose out of or were more closely connected with the Share Pledge Agreements than the JV Agreements. 49.The WFOEs were however not parties to the JV Agreements. 50.At section III.1 of his submissions, Mr Yang argues that the coverage of the Arbitration was wide, that the WFOEs have been mentioned in the JV Agreements, and that the Loan Agreements were the result of D’s failure to honour its obligation to provide the guarantee. 51.One difficulty the WFOEs face is what Rix J described in Credit Suisse First Boston as “axiomatic”, and he described that in the context of non-parties’ position regarding a dispute resolution clause, that:
52.Similar observations can be made in the present case. 53.There is further nothing on the face of the JV Agreements which provide for the provision of any direct loan from D to the JSAT, or the pledging of any shares the WFOEs had in it in favour of D in exchange. 54.In my view, there is great force in Mr Wong’s argument that the JV Agreements in fact did not envisage any direct loan from D, that the WFOEs are not parties to it, and that they are not entitled to enforce the Arbitration Agreement[23]. 55.Further, and more importantly in my mind:
56.Mr Yang relies on the fact that the Loan Agreements contain no dispute resolution clause, and that the Mainland Jurisdiction Clause is a non-exclusive one. 57.Those facts do not advance WFOEs’ case far:
58.In relation further to Mr Yang’s submission[24] that the Loan Agreements were the result of D’s failure to honour its obligation, I accept Mr Wong’s submissions that that at best gives the WFOEs a defence in the WFOE Proceedings. But according to Deutsche Bank v Sebastian Holdings (both first instance and on appeal), the focus of the interpretation exercise should be the cause of action, but not the defence or the relief sought. 59.I note further these. On scope, the JV Agreements are wide; in comparison with the Loan Agreements and the Share Pledge Agreements are specific, focusing upon only the provision of loans and securities. On parties, the Loan Agreements and the Share Pledge Agreements are between D (a state-owned company), JSAT (the joint venture vehicle), and the WFOEs, which are all companies incorporated in the Mainland. The Loan Agreements and the Share Pledge Agreements have been, on the face of the resolutions adduced, subject to separate shareholder approvals. Viewed objectively and in a commercially-minded way, the parties could reasonably have intended that any dispute arising from the specific loans and securities provided pursuant to the Loan Agreements and the Share Pledge Agreements should be dealt with by the NIPC pursuant to the Mainland Jurisdiction Clause, but not by the “香港仲裁委員會” under the Arbitration Agreement in the JV Agreements. 60.For completeness, I record P’s contention that the Mainland Jurisdiction Clause may be too vague to be enforceable under Mainland law because it refers to “雙方” when there are three parties to each of the Share Pledge Agreements. I reject that contention. I accept the expert evidence adduced by D in this regard, that “雙方” merely refers to the two parties that may be in dispute, but is not referable to all 3 parties to each of those agreements. 61.On the basis of the above authorities and discussions which were not raised before Deputy Judge Sit SC, I form the view that the WFOEs have not been able to show to a high degree of probability that the initiation by D of the WFOE Proceedings constituted a breach of the Arbitration Agreement. H. The Unconscionable Ground — discussion 62.Given my views above, I fail to see how it could be argued that the initiation of the WFOE Proceedings pursuant to a contractual clause agreed amongst the parties (ie the Mainland Jurisdiction Clause) could be regarded as unconscionable, vexatious or oppressive. I. Conclusion on the application for discharge 63.For the reasons set out above, I discharge the part of the Interim Injunction at §§1(b) to (d) of the 19 Oct Order relating to the WFOE Proceedings. J. The part of the Summons for fortification, and Ps’ Variation Summons 64.Given my decision to discharge the part of the Interim Injunction at §§1(b) to (d) of the 19 Oct Order, the part of the Summons for fortification and Ps’ Variation Summons are no longer engaged. I make no order in respect of the former, and dismiss the latter. K. Costs 65.I make a costs order nisi that D shall have the costs of the Summons and Ps’ Variation Summons, with certificate for 2 counsel, to be assessed summarily. The order will become absolute within 14 days from the date hereof unless any party seeks any variation thereof in the meantime, in which case I will give further direction on the further conduct of the same.
Mr Ernest Yang of DLA Piper Hong Kong, for the 1st to 6th Plaintiffs Mr Anson Wong SC, leading Mr Martin Kok, instructed by Baker & McKenzie, for the Defendant [1] See [2020] HKCFI 3025. [2] The other set is against P1 and P2 which this application is not concerned with. [3] The ex parte submissions filed on behalf of Ps, §3 [B3/498]. [4] Such background facts relating to the agreements are generally not in dispute. They have been set out in Mr Wong’s written submissions, which I with the necessary modifications adopt. [5] [B1/56-60]. [6] According to the translation at [B1/63]. [7] [B1/60]. [8] [B1/66-82]. [9] [B1/79]. [10] [B1/79]. [11] [B1/101-103]. [12] Though its name had changed. [13] See the preamble of each of the Share Pledge Agreements. [14] [B3/549]. [15] [B3/543-544; 663-664; B4/723-724]. [16] [B3/545-548; 665-668; B4/725-728]. [17] The main parts of which at [B3/524-526], [B3/649-651] and [B4/715-717]. [18] §3 of the Notice of Arbitration [B1/41-42]. [19] §7 of the Notice of Arbitration [B1/53-54]. [20] §§3-5 of his written submissions. [21] Suen Kwai Kam, §25(6). [22] Citing Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] 2 S.L.R. 821 and PT Thiess Contractors Indonesia v PT Kaltim Prima Coal [2011] EWHC 1842 (Comm). [23] §48 of his written submission. [24] Relying on the evidence of Saleen in Saleen/Aff. |
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