Cmb v. Fund, Cattle and Management

HCCT 34/2022

[2023] HKCFI 760

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 34 OF 2022

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BETWEEN

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D E C I S I O N

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Introduction

1.This is an unusual case, calling for consideration of when it can be said that there is a dispute between the parties to an arbitration agreement. On the one hand, arbitration agreements are construed widely, as it is the policy of the Court to uphold a contract made by consenting parties to submit their disputes to their forum of choice. On the other hand, a party is only bound to that choice against its proper contracting counterpart, and it would be artificial for an arbitration to be commenced in order to compel a party to admit a claim never made by him.

2.I am grateful to Counsel for the Defendants for their succinct summary of the background and the complaints made by the Plaintiff.  I do not believe that the background of the parties’ dealings and the procedural history is disputed by Mr Barlow who appeared for the Plaintiff.

3.In these proceedings, the Plaintiff seeks to set aside designated parts of a final arbitral award made on 10 March 2022 (“Award”)  in an arbitration commenced by the 3 Defendants named in these proceedings, together with 2 other parties, against the Plaintiff. The grounds of the setting aside application are that the Award deals with a dispute not contemplated by and/or not falling within the terms of the parties’ submission to arbitration, and/or decided matters beyond the scope of the parties’ submission and was made without jurisdiction, and/or that the Award dealt with or decided matters in a manner which is in conflict with the public policy of Hong Kong. The further ground relied upon, invoking section 4 of Schedule 2 of the Arbitration Ordinance (“Ordinance”)  was an admitted error, which was no longer pursued.

Background

4.On 17 March 2014, the Plaintiff (“CMB”)  entered into a Co-Investment Agreement (“Agreement”)  with the 1^st Defendant (“Fund”)  and the 2^nd Defendant (“Cattle”), whereby CMB agreed to invest US$10 million for a minority equity stake of a company (“HC”)  specialized in the production, processing and sales of beef and other meat products on the Mainland (“Investment”). Fund was represented by Mr Li Lei (“L”), and Cattle was represented by Mr Xiong Fei (“X”)  in the dealings with the Plaintiff, which acted by its directors/shareholder Mr Qiu (“Q”).

5.The Agreement was governed by Hong Kong law, and contained an ICC arbitration clause, which provides for all disputes between the parties arising out of or related to the Agreement to be settled by arbitration.

6.The Defendants have highlighted the fact that disputes commenced when CMB, through its solicitors, wrote to Fund and Cattle on 18 December 2019, complaining that Fund and Cattle had failed to properly manage CMB’s Investment, and had acted in breach of their duties owed to CMB as trustees (“12/19 Letter”). The 12/19 Letter ended by stating that legal proceedings would be instituted in the absence of a satisfactory response.

7.On 5 June 2020, CMB commenced legal proceedings in Hong Kong under High Court Action 905/2020 (“HCA”)  against L, X, Mr Chen Yangyou (“C”), and the 3^rd Defendant herein (“Management”). L was at all material times the managing Director of HC, X was an employee of HC, and C was the controlling shareholder and a director of HC.  The claims made in the HCA against these parties were that they had made fraudulent misrepresentations to CMB which induced CMB to enter into the Agreement with Fund and Cattle, and that the named defendants had conspired by unlawful means to defraud CMB. The allegedly fraudulent misrepresentations (as originally pleaded in the Statement of Claim)  were that (inter alia)  the CDH investment group, of which Management was a part, had a lucrative pre-IPO investment opportunity, that the target company (ultimately HC)  would be listed on the Hong Kong Stock Exchange shortly, and that CMB should make the investment which would have a substantial yield. The Statement of Claim sought damages from each of L, X, C and Management.

8.Notably, the only defendants named in HCA were L, X, C and Management.  CMB has highlighted throughout that Fund and Cattle were not defendants in HCA, and that no claims were made against them in HCA.

9.On 3 July 2020, Fund, Cattle, Management, L and X (referred to hereafter jointly as “Claimants”)  commenced ICC arbitration proceedings against CMB (“Arbitration”). According to the Request for Arbitration, the Claimants sought (inter alia): permanent and interim anti-suit injunctions requiring CMB to discontinue or withdraw the HCA and restraining CMB from commencing or pursuing any other proceedings relating to disputes arising out of or relating to the Agreement otherwise than by ICC Arbitration in accordance with the Agreement. The Claimants also sought declarations that:

(1)  CMB’s initiation of HCA was in breach of the Arbitration Agreement;

(2)  the Claimants are not liable to CMB with respect to the claims made in HCA;

(3)  CMB has no right to claim against L, X, or Management in respect of matters arising out of or relating to the Agreement;

(4)  CMB’s allegations against L and/or X with respect to fraud, misrepresentation and conspiracy are false;

(5)  Management cannot be vicariously liable for the actions of individuals acting on behalf of Fund, L and X;

(6)  HCA is an abuse of process and/or contravenes the tort of malicious prosecution; and

(7)  HCA is time-barred.

10.On 24 June 2020, shortly after the commencement of HCA, Fund, Cattle, Management, L and X had applied for emergency relief against CMB under the ICC Rules, seeking (inter alia)  an order that CMB should discontinue HCA, and that all disputes relating to the Agreement should be pursued by arbitration.  That was adjourned until an arbitrator was appointed.

11.On 30 July 2020, a sole arbitrator was appointed by ICC for the Arbitration (“Arbitrator”).

12.CMB served its Answer to the Request for Arbitration, in which CMB challenged the jurisdiction of the Arbitrator and requested a ruling on jurisdiction (“Jurisdiction Challenge”). In its Jurisdiction Challenge, CMB claimed that Management, L and X had no contract or arbitration agreement with CMB. It also claimed that there was no actual dispute between CMB and Fund and Cattle, arguing that the claims made in the Arbitration were advanced on behalf and for the benefit of non-parties to the Agreement, which was prohibited under clause 10.2 which states:

“No Third Party Beneficiaries - This Letter Agreement is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits on, or create any rights in favour of, any person other than the parties thereto.”

On behalf of CMB, it was pointed out that clause 10.2 was reinforced by clause 10.5 of the Agreement:

“Entire Agreement - This Letter Agreement represents the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior understandings or agreements, oral or written, among the parties as to such matters.”

13.On 29 September 2020, the Arbitrator issued his decision on the Claimants’ application for relief by interim measures, and on CMB’s application for a ruling first on jurisdiction before any further proceedings in the Arbitration. He dismissed the application for interim measures. In essence, the Arbitrator considered that a party seeking interim anti-suit relief must show to a high degree of probability that there was an arbitration agreement which governed the dispute in question. He pointed out that Management, L and X were not on the face of the Agreement parties to it, particularly in the light of clause 10.2 of the Agreement, and the Agreement does not define parties to include affiliates of the parties.  The Arbitrator considered that CMB did not promise under the Agreement with Fund and Cattle that it would not pursue claims against third parties.  Hence, the Claimant’ application for anti-suit relief was denied.

14.The Arbitrator also declined to decide the Jurisdiction Challenge at the threshold, ruling instead that as the jurisdictional objections raised (as to whether or not the claims of Fund and Capital were proxy claims made on behalf of others)  were closely linked to the merits of the dispute, and cannot be easily separated from them, the decision on jurisdiction would be included in the final award.

15.Although CMB claims that the Arbitrator should not have declined to rule on jurisdiction as the preliminary question, the Arbitrator was clearly entitled so to do under Article 16 (3)  of the Model Law, which has effect by virtue of section 34 (1)  of the Ordinance.

16.It was only on 30 September 2020 that, X, C and Management applied in the HCA for an order that the action be stayed in favour of the Arbitration (“HC Stay Application”).

17.On 12 November 2020, CMB filed and served an Amended Statement of Claim in the HCA. This (as the Arbitrator pointed out in the  Award of 10 March 2022)  contained expanded claims against L, X and Management, with allegations of fraudulent misrepresentations which they had made from 2014 to 2018, and pleadings of their knowledge of matters which allegedly rendered representations made by then to be fraudulent. The allegations of L, X and Management being parties to a conspiracy to defraud CMB were maintained. As CMB highlighted, no claims were made against Fund and Capital, whether in the original Statement of Claim or the Amended Statement of Claim filed in the HCA.

18.On 16 December 2020, the Claimants in the Arbitration served their Statement of Claim in the Arbitration (“SOC”). The claims and pleadings made are somewhat unusual. After referring to the factual background, the terms of the Agreement, the role of the parties and the HCA which had been commenced, the SOC pleads (inter alia)  that:

(1)  the fraud and conspiracy allegations in the HCA are not credible (paragraph 46, SOC);

(2)  the claims have no prospect of success (paragraph 52 to 55);

(3)  the claims of inducement cannot be made out (paragraph 68);

(4)  CMB cannot establish that the alleged representations were made and that there were actionable representations, cannot establish the falsity of the representations, and cannot demonstrate reliance;

(5)  CMB has not established that it has suffered any damages from relying on the alleged representations; and

(6)  the claims of fraudulent misrepresentation are time-barred.

19.The relief sought in the SOC was for the Arbitrator to:

“(a)  Declare that Fund and Cattle, whether directly or on behalf of their agents and representatives (L, X and Management), and each of L, X and Management has no liability to CMB with respect to its allegations of (i)  fraud; (ii)  conspiracy and (iii)  breach of trustee duties, and that all such allegations are false;

(b)  Declare that CMB’s fraud and conspiracy allegations in respect of its entry into the Agreement are time-barred pursuant to the Limitation Ordinance (Cap. 347);

(c)  Declare that CMB’s initiation of the litigation and/or its pursuit of the fraud and conspiracy claims against Management, L and X breached;

i. its obligation in Clause 5.2(e)(i)  of the Agreement not to ‘do any act or thing which would have a material adverse effect on the Right and/or the Project’ (as defined);

ii. its obligation in Clause 7.1 of the Agreement to keep confidential the ‘Agreement and its terms and the Investment’;

iii. its agreement in Clause 8.1 of the Agreement that Fund and Cattle introduced and arranged for the investment and the Project;

iv. its obligation in Clause 8.2 of Agreement to waive liability over the Claimants;

v. the entire agreement provision in Clause 10.5 of the Agreement; and

vi. the Arbitration Agreement in Clause 10.4 of the Agreement.

(d)  Declare that Management are not vicariously liable for actions of Fund’s representatives and agents, L and X, in relation to the investment;

(e)  Declare that CMB’s litigation is an abuse of process;

(f)  Grant permanent injunction requiring CMB to discontinue or otherwise formally abandon the litigation;

(g)  Grant permanent injunction retraining CMB from commencing or pursuing any court or other proceedings relating to disputes arising out of or relating to the Agreement otherwise than by ICC Arbitration in accordance with Clause 10.4 of the Agreement;

(h)  Award the Claimants’ damages for all losses resulting from CMB’s breaches of the Agreement and abuse of process;

(i)  Order CMB to reimburse all costs and expenses incurred by the Claimants in connection with the preparation and conduct of the Arbitration, including the fees and/or expenses of legal counsel, experts, consultants, witnesses, the Claimants’ own staff, the Sole Arbitrator and the ICC; and

(j)  Grant any other relief that the Arbitrator considers appropriate.”

The declarations sought in (a)  above are the subject matter of the current setting aside application.

20.For CMB, Mr Barlow SC sought to highlight the fact that in the SOC, when making the assertions summarized in paragraph 18(1)  to (5)  above, the Claimants pleaded and referred to the claims of CMB as summarized in a document entitled “Annex A” served with CMB’s Answer to the Request for Arbitration, dated 12 August 2020. Mr Barlow explained that Annex A did not represent the claims made by CMB in the Amended Statement of Claim filed and served in HCA, on 12 November 2020. Mr Barlow also contended that the claims made as to the lack of prospect of success of the HCA are akin to claims made in a striking out application, and that the proper forum for such application to be made is in the HCA, for determination by the Court. No such application had ever been made by the parties to the HCA, and no such claim can be made in good faith in the Arbitration.

21.It is pertinent that on 14 April 2021, the parties in the HCA (namely CMB, L, X, C and Management)  applied by consent for the HC Stay Application to be dismissed. This followed correspondence which was exchanged between the solicitors for the Claimants and for CMB in February and March 2021.  However, the attempts to agree on the terms of the termination of the Arbitration were unsuccessful. Counsel for the Claimants highlighted the fact that CMB refused in March 2021 to agree to a draft Consent Award to be made in the Arbitration, in terms that “(Fund), (Cattle), including any individuals acting in their capacity as officers, agents and/or representatives of these entities, have not breached the terms of the (Agreement)  and have no liability, whether contractual or non-contractual, to (CMB)  arising out of, relating to, or in any way connected with the (Agreement), including in respect of CMB’s US$10 million investment thereunder”.

22.After the service of further pleadings, the parties exchanged Opening Submissions in the Arbitration, and the trial took place on 25 October 2021. Both parties have pointed out that prior to the hearing, the Arbitrator had raised queries with them on 24 October 2021. In an email that day, the Arbitrator stated:

“1. (CMB)  makes no claims in any forum against (Fund)  and (Cattle)  under the (Agreement).

2. Any such claims would need to be pursued in arbitration under Clause 10.4 of the (Agreement).

3. In any event, no such claim can be advanced in subsequent arbitration proceedings (ie because that would represent impermissible ‘holding back’ of claims).

To what extent, if at all, are these three points correct?”

23.On the first day of the hearing, all the three questions raised by the Arbitrator were answered “yes” by all the parties in the Arbitration.

24.It is not disputed, that CMB maintained its Jurisdiction Challenge throughout the hearing of the Arbitration. In the Opening Submissions served on behalf of CMB, it was claimed that the Arbitrator did not have jurisdiction because the Claimants had submitted to the jurisdiction of the Court in the HCA by their abandoning the HC Stay Application, and all parties in the HCA had consented that the determination of their claims or issues was within the exclusive jurisdiction of the Court.  It was also contended that by pursuing the claims in the Arbitration, there was mala fide abuse of the arbitral process by all the Claimants.

25.On behalf of the Claimants, Counsel highlighted the fact that L had given oral evidence and was extensively cross-examined in the Arbitration. Counsel further pointed out that CMB elected not to call any of its witnesses, and a submission of “no case to answer” was made instead.  Such submission was withdrawn the following morning, and Counsel for CMB submitted instead that the Arbitrator should decide the case on the basis of the records before the tribunal, without regard to the statements of their witnesses. Closing submissions were then exchanged and made.

The Award

26.The Award was handed down on 10 March 2022.

27.The Arbitrator found, firstly, that L, X and Management were not parties to the Agreement and therefore he had no jurisdiction to grant the anti-suit injunction at their request, to restrain the HCA.

28.The Arbitrator found, further, that the HCA was not a breach by CMB of the Arbitration Agreement, and that no damages for breach should be awarded.

29.The Arbitrator found that he had jurisdiction in respect of Fund and Cattle “in so far as they seek declarations of non-liability as regards their own position”. He accordingly made the following declaration, which is now challenged by CMB (“Declaration”):

“(Fund and Cattle)  have no liability to (CMB)  with respect to the allegations arising out of the (Agreement)  that are the subject matter of the (HCA), and that all such allegations in so far as they are made against (Fund and Cattle)  are false.”

30.The Arbitrator found that since Fund and Cattle had succeeded in part in the Arbitration, in that they had obtained the Declaration of non-liability in respect of the allegations in the HCA arising out of the Agreement, and had overcome the Jurisdiction Challenge in that regard, and had further been slow in providing the unequivocal confirmation that it did not pursue any claims against Fund or Cattle arising out of the Agreement until the first day of the hearing, CMB should pay HK$8,374,125.15 as the legal fees and expenses incurred by Fund and Cattle, in addition to 50% of the costs of the emergency arbitrator proceedings.

31.The Arbitrator stated in the Award that although he had no jurisdiction to issue the anti-suit injunction against non-parties to the Agreement, at the request of L, X and Management (who were the only named Defendants in the HCA), and as he had found that HCA was not a breach of CMB’s Agreement made with Fund and Cattle, and although it was not necessary for him to decide the points, he nevertheless made observations at paragraph 110 of the Award, which CMB seeks in these proceedings to set aside as having been made in the absence of jurisdiction and power, in the absence of any issue or dispute between CMB, Fund and Cattle.

32.The relevant paragraph 110 is set out below:

“110. Given the attention that was devoted to these points and in the hope that these comments may provide some assistance in the (HCA)  and although it is not necessary to decide these points, the Tribunal does note:

a. As stated above, given the terms of the (Agreement), (Fund and Cattle)  would appear to be the natural respondents to the wide-ranging allegations advanced in the (HCA). In its letter dated 18 December 2019, CMB made allegations against (Fund and Cattle)  in relation to the (Agreement). (CMB)  did not pursue proceedings against (Fund or Cattle); instead it started the HCA against (L, X and Management).

b. The (Agreement)  contains provisions that, on their face at least, confirm that (CMB)  would, in effect, take its own view of the investment and not seek to claim any resultant losses from (Fund or Cattle)  (or their affiliates); Clause 8.

c. CMB did not support its allegations by oral evidence; the two witnesses who had provided witness statements did not give oral evidence. There was therefore no positive case supported by witness evidence to sustain the very wide-ranging allegations of fraud.

d. (L)  did give oral evidence and was extensively cross-examined. CMB accepts (L)  is experienced in private equity investment (Amended SoC, §2(1)). Without making detailed findings about his evidence, the Tribunal generally found his evidence to be credible, open and honest. He explained cogently difficulties encountered with the investment in (HC)  and attempts by the CDH Group to counter them.

e. (CMB)  has not identified any clear or coherent motive as to why (L, X or Management)  would wish to conspire to persuade (CMB)  to enter into the (Agreement), only then to run-down (HC). The misfortunes of (HC)  also directly affected (Fund’s)  $70 million investment – it has also not had any return at all on its investment. There is no clear or credible case as to what (L, X or Management)  stood to gain from the alleged fraud and conspiracy.

f. The allegations made in the (HCA)  are on their face improbable, amounting to the fact that (Management)  is conspiring to defraud another entity within the CDH Group by inducing it to invest in (HC)  and continued this fraudulent scheme over a long period (2014-2018).

g. The allegations that (L)  represented to (Q)  that HC’s shares could be listed in 2014 (summarised in Claimants’ Opening, §72)  appear to the Tribunal to be improbable (These are the original or baseline allegations in the (HCA)  and have subsequently been substantially expanded to cover events to 2018). A pitch document headed Project Redbull, March 2014, which (Q)  sent by email to a Mr Cai, apparently a prospective investor, on 11 March 2014 (i.e. six days before the (Agreement)  was signed), and prepared by an All Wins entity, appears to reflect independent analysis which (Q)/All Wins had apparently done on (HC). The document states that ‘we believe that (HC)  can complete its overseas IPO within 1-3 years’ (p.1), set outs ‘preliminary’ design of a post-listing structure (p.2)  and says that the plan and timing of the listing are ‘realistic and feasible’ (p.2). Recognised next steps include the need to seek approval from regulatory authorities (for the listing)  and complete other steps (p.5). This document suggests that whilst (Q)/All Wins were hopeful of a listing within 1-3 years (and not necessarily within 2014)  more work was to be done. Experienced investment professional investors would likely be taken to have realised that the listing plan was just that at that stage, a plan, on which more work expressly needed to be done and hence which could run into trouble. The document does not say that (L or X)  (or anyone else)  had guaranteed to (Q)  that a listing would take place, either within 2014 or at all. (Q)  stated in his third witness statement, at §24, that he understood that a listing of (HC)  in Hong Kong would take place within 6 months (and/or that there were no significant impediments to a listing)  and such a listing would result in returns of 2.5 the initial investment. However, he did not attend to give oral evidence and so no weight can be attached to that statement.

h.  Although the Tribunal did not hear oral evidence from (Q), he appears to be an experienced investment professional, and he was closely connected to All-Wins, which itself appears to be a private equity/investment management firm. Q/All-Wins appear to have been in a position to judge the suitability of the investment for themselves, consistently with Clause 8.1.”

33.From paragraphs 111 to 118, the Arbitrator set out his observations on whether L, X and Management were affiliates for the purposes of clause 8.2 of the Agreement. The Claimants had sought in the Arbitration to rely on clause 8.2, to argue that the Agreement had been intended to extend the parties thereof to L, X and Management, as affiliates of Fund and Cattle. At paragraph 117, the Arbitrator stated that Management was plainly an affiliate, Management being an advisor to the manager of Fund, and Fund and Management being part of the CDH Group. The Arbitrator also stated that as L and X were instrumental in negotiating the Agreement with CMB and in the subsequent performance of the Agreement, they too would be affiliates for the purposes of clause 8.2, and that if it had been necessary to decide the point, he would have decided that L, X and Management were affiliates for the purpose of clause 8.2.

34.CMB claims that these paragraphs contain findings and observations which were made in the absence of any jurisdiction on the part of the Arbitrator, in the absence of any arbitration agreement between CMB, L, X and Management, and in the absence of any dispute between CMB, Fund and Cattle.

Any jurisdiction to make the Award and the Declaration?

35.The Declaration was made by the Arbitrator on the basis that he had jurisdiction in the Arbitration to grant the Declaration sought by Fund and Cattle as against CMB.

36.It is not disputed, that a true question of jurisdiction properly falling within Article 34 of the Model Law is open to review by the Court on de novo basis as to the correctness of the tribunal’s finding as to its own jurisdiction (S Co v B Co [2014] 6 HKC 421 and C v D [2021] 3 HKLRD 1; X v Jimmy Chien [2020] HKCFI 286).

37.Having reviewed the Award as a whole and in the context, and with all due respect to the Arbitrator, I do not agree that he had jurisdiction to make the Award.

38.The reason given by the Arbitrator, that the Declaration can be made, is that Fund and Cattle appeared to have a legitimate interest in the declaratory relief sought (paragraph 73 of the Award). He pointed out that CMB’s Jurisdiction Challenge was that neither Fund nor Cattle had a dispute with CMB, and hence, they could not validly commence arbitration.  He went on to state, however, that if either or both of Fund or Cattle had a legitimate interest in seeking the declaratory relief, then the objection should fall away.

39.From paragraph 74 to paragraph 81 of the Award, the Arbitrator then considered whether the three requirements for the grant of the Declaration were met, such requirements being: (i)  a real as opposed to an abstract or hypothetical interest in the subject matter of the declaration (“real issue requirement”); (ii)  a real interest in obtaining a declaration against the adverse party (“real interest requirement”); and (iii)  that the adverse party is a proper contradictor (“proper contradictor requirement”). These are the requirements set out in Koo Ming Kwon v Rev Mr Mok Kong Ting & Ors, unreported, HCA 2337/2016, 4 May 2018 cited by the Arbitrator.  The Arbitrator analyzed these tests, and concluded that there was a real issue in the subject matter of the Declaration, because it concerns an agreement which Fund and Cattle instigated and to which they are a party; they had a real interest in obtaining the Declaration against CMB as the counterparty to the Agreement, given the allegations made by CMB in the HCA.

40.The Arbitrator further pointed out (at paragraph 82 of the Award)  that Fund and Cattle appeared to be the “natural respondents” to the extensive allegations relating to the Agreement which are pleaded in the HCA. In the opinion of the Arbitrator, there was potential for the outcome of the HCA to affect the CDH Group including Management and one of its senior employees, L, who had the specter of claims hanging over them.  He therefore concluded in paragraph 82:

“(Fund and Cattle)  are properly entitled to at least ask for confirmation in the form of an award that they had not committed a series of frauds or otherwise relevantly breached the (Agreement). The Tribunal is clear that the negative declaration sought does serve a useful purpose and would serve the interests of justice. The Tribunal does not therefore need to make any findings about the extensive evidence that it heard in respect of the (Agreement)  for the purpose of this particular declaration in the light of (CMB’s)  confirmations given at the oral hearing that (CMB)  has no claims against (Fund or Cattle). The Tribunal therefore grants a negative declaration as sought….”

41.The above passage contains several contradictions.  It referred to CMB’s confirmations that it had no claims against Fund or Cattle.  It pointed to the fact that the tribunal did not need to make findings on the evidence. Yet, the Arbitrator did proceed to make various findings at paragraph 110 in the form of what he “noted”.

42.More significantly, it appears that the Arbitrator had confused the question of whether he had jurisdiction in the Arbitration to deal with the claims made in the Arbitration, with the question of whether he should exercise his power to grant the remedies sought in the Arbitration.

43.It is trite, that for there to be a valid arbitration process and a valid award, there has to be a formulated dispute, and the right of the parties to put an arbitration agreement into effect does not arise until and unless there is a dispute between the parties to the agreement. Even if one party to an arbitration agreement makes a claim which the other party admits, this cannot usually be made the subject of arbitration because the right to call for arbitration does not arise unless there is a dispute (Mustill & Boyd Commercial Arbitration 2^nd edition pp 47, 122-123).  Unless there is a dispute, there is nothing to refer to arbitration.

44.I accept the submissions made on behalf of of CMB, that to begin with, there was no dispute between CMB on the one part, and Fund and Cattle on the other part. The HCA was commenced by CMB against L, X, C and Management which were not parties to the Agreement. As CMB maintained throughout, whether in the original Statement of Claim or the Amended Statement of Claim, no claims had been made against either Fund or Cattle. The allegations of fraudulent misrepresentations, and conspiracy, were directed against L, X and C, the claim being that L and X had acted for themselves and on behalf of Management. The claims for damages were sought against L, X, C and Management.

45.The Claimants made repeated references to the 12/19 Letter and the fact that legal proceedings had been threatened against Fund and Cattle. However, as they also sought to highlight, the claims made in the 12/19 Letter were in respect of the alleged breach of trustee’s duties and lack of care on the part of Fund and Cattle, which are different in nature to those claims made against L, X, C and Management in the HCA.  No mention was made in the 12/19 Letter as to any fraudulent misrepresentation having been made by Fund or Cattle, for which they should be liable. The fact that the 12/19 Letter made no mention of fraud and conspiracy against Fund and Cattle is consistent with their not having been sued as Defendants in HCA in respect of the claims made in those proceedings, directed against other parties.

46.On behalf of Fund, Cattle and Management, Counsel argued that one of the live disputes before the Arbitrator was whether Fund and Cattle “were entitled to seek the non-liability declaration in the Arbitration in respect of the false allegations of wrongdoings against them made by CMB and arising out of the Agreement which are the subject matter of the HCA”. The Award referred to this as the relief sought by the Claimants in the Arbitration, and that was the aim of the exercise carried out by the Arbitrator when he considered (from paragraphs 73 to 82 of the Award)  the requirements for the grant of the Declaration, and then proceeded to make the Declaration. The decision on whether Fund and Cattle had a legitimate interest in seeking the Award was a determination on whether the Arbitrator should grant the relief sought by Fund and Cattle in the Arbitration. Before he could do that, there must still be a dispute in existence between CMB, Fund and Cattle, before the rights under the Arbitration Agreement can be invoked, to confer jurisdiction on the Arbitrator.

47.The Declaration was granted as a remedy in respect of the claims made by CMB in the HCA, and in the Arbitrator’s consideration, whether Fund and Cattle “had committed the series of frauds or breaches of the Agreement”, was a matter in which they had an interest.  However, if there was no dispute to begin with between CMB, Fund and Cattle, because no claims had been made by CMB against Fund and Cattle in the HCA for fraud or breach of contract, there was no subject matter in respect of which any remedy or relief could be considered by the Arbitrator for granting to Fund and Cattle.

48.As analyzed by the learned editors in Mustill & Boyd Commercial Arbitration 2^nd edition (at p 128), even if a claim is not essential for a dispute, there must nevertheless be something in the nature of an assertion by one party, and a situation in which the parties neither agree nor disagree about the true position is not one in which there is a dispute.  The editors also referred to cases to point out that silence in the face of a claim does not raise a dispute, as what is required is a rebuttal or denial of the claim.

49.The Arbitrator referred to the queries he had raised before the oral hearing, and the confirmation given by the parties on the first day of the hearing, that CMB made no claim in any forum against Fund and Cattle under the Agreement, that any such claims would need to be pursued in arbitration, and no such claims can be advanced in subsequent arbitration proceedings. By the first day of the hearing, at the very latest, it was clear that there was no dispute between CMB, Fund and Cattle in relation to the claims under the Agreement. CMB’s Answer to the Request for Arbitration had also made it clear (in paragraph 4(3)(b))  that it raised no tort claims against Fund and Cattle in the HCA.

50.The Arbitrator in his Award, and the Defendants in this case, referred to the fact that in February 2021 CMB had refused to agree to a draft Consent Award prepared by the lawyers acting for Fund and Cattle, to affirm that Fund and Cattle had no liability to CMB, whether contractual or otherwise, arising out of or connected to the Agreement. CMB, through its lawyers, only confirmed in writing on 5 March 2021, that CMB had no claims against Fund or Cattle under the Agreement, stating at the same time that the Claimants had no basis to institute or continue with the Arbitration. CMB’s lawyers also signed, on 17 March 2021, a draft Consent Award, confirming the truth of its pleaded case in the HCA, the Jurisdiction Challenge, and that CMB had no claim, whether contractual or non-contractual, against Fund or Cattle, and that the Claimant should discontinue the Arbitration.

51.I do not agree that CMB’s refusal or failure to sign the draft Consent Award on the terms prepared by those acting for Fund and Cattle can evidence a dispute between them. It must be borne in mind that CMB had made the Jurisdiction Challenge, and its stance was that as there was no claim made against Fund and Cattle, the rights under the Arbitration Agreement had not been invoked for Fund and Cattle to commence the Arbitration or to confer any jurisdiction on the Arbitrator. It was hence entitled to refuse to admit that the Arbitrator should make any award relating to the Agreement, whether there was a breach of the Agreement, and whether Fund and Cattle had any liability in relation to the Agreement, on the terms required by Fund and Cattle.

52.In any event, CMB’s consent to the draft award sent with the letter dated 17 March 2021 to the solicitors acting for Fund and Cattle confirmed that CMB had no claim, contractual or non-contractual, against Fund or Cattle.  That evidenced the absence of any dispute or assertion made as to the liability of Fund and Cattle.

53.Counsel for Fund and Cattle referred to section 70 of the Ordinance, which provides that an arbitral tribunal may, in deciding a dispute, award any remedy or relief that would have been ordered by the Court if the dispute had been the subject of civil proceedings in the Court.  Whilst section 70 may confer on the Arbitrator the power to grant remedies or relief, it does not confer jurisdiction on him where none exists.  As Mr Barlow pointed out on behalf of CMB, the essential difference between the Court and the arbitral tribunal is that the former has unlimited and inherent jurisdiction, whereas the tribunal has to rely on the existence and scope of the arbitration agreement to exercise his jurisdiction and powers.  This is the point highlighted in the case of Koo Ming Kwon, where the Court stated in paragraph 15 of the judgment that its power to grant declaratory relief is derived from its inherent jurisdiction, and that Order 15 rule 16 only reflects the width of the inherent jurisdiction. It was in this context that the Court stated that it adopts a practical utility approach, by asking the question whether the Court’s jurisdiction to grant declaratory relief was properly exercisable, instead of applying nice tests as if it were raising a strict jurisdictional issue. The statement in paragraph 20 of the judgment, as to the need to show real issue, real interest and proper contradictor requirements in order to invoke the jurisdiction of the Court, must also be read in that proper context.

54.The fact that there is a legitimate interest for Fund and Cattle to seek the Declaration cannot by itself invoke the jurisdiction of the Arbitrator when there is no dispute between CMB, Fund and Cattle and no claims made against Fund and Cattle in the HCA. If the allegations made against L, X, C and Management are incredible or improbable, or if there is no operative representation, these are for finding and determination by the Court in HCA, amongst CMB, L, X, C and Management. If the claims against L, X, C and Management are liable to be struck out, that is for them to pursue in the HCA. The Arbitrator already ruled that he had no jurisdiction to decide the claims of L, X and Management in the Arbitration, and that L, X and Management are not parties to the Agreement as affiliates, which mean that the observations made by the Arbitrator in paragraphs 110 to 118 were all made without jurisdiction, were irrelevant, and unnecessary.

55.It was pointed out for the Claimants that the Arbitration Agreement was broad in scope, covering all disputes arising out of or related to the Agreement, and that the claims made in the Arbitration should fall within the ambit of the clause. To repeat what should already be clear from the earlier parts of this Decision, no matter how wide the arbitration clause, it can only cover disputes and claims between the parties to the Agreement, namely claims and disputes between CMB and Fund and Cattle.  Claims made by CMB against third parties such as Management, L and X, and disputes between them, simply cannot fall within the scope of the Arbitration Agreement.

56.Nor can I accept that the dispute which arises under the Request for Arbitration, and which falls within the jurisdiction of the Arbitrator for determination in the Arbitration, can be “whether the Declaration can or should be made”. That begs the question of whether the Arbitrator has jurisdiction to make the Declaration, when the terms and substance of the Declaration as sought are whether Fund and Cattle are liable to CMB under the Agreement, and whether the claims made in the HCA are false, in circumstances when no claim or assertion had ever been made by CMB, that Fund or Cattle were liable to it for any of the claims made in HCA, and when L, X and Management against which the claims were made are not parties to any arbitration agreement.

57.In any event, as evident from the answers given on the first day of the Arbitration to the three questions raised by the Arbitrator, there was no dispute and no issue between the parties, to any of the three questions.

58.I also reject the suggestion that the dispute between CMB, Fund and Cattle can relate to liability for allegations made in HCA “in so far as they are made against Fund and Cattle”. That is clearly academic, when CMB had confirmed to Fund, Cattle and the Arbitrator that no claims were made against Fund and Cattle. In any event, either allegations had been made which were denied, for a dispute to arise and to confer jurisdiction on the tribunal, or no allegations had been made, which can only lead to the result that there was no dispute, the arbitration agreement was not triggered, and no jurisdiction can be conferred on the tribunal in the Arbitration. There can be no half-way house.

59.I also accept the submissions made by Mr Barlow, that as parties to the Arbitration Agreement and parties in the Arbitration commenced, Fund, Cattle, L, X and Management all have the duty of good faith to act bona fide in the conduct of the Arbitration (Hebei Import & Export Corporation v Polytek Engineering Company Limited (1992)  2 HKCFAR 111, at 137-138). L, X and Management as parties to the HCA had abandoned the Stay Application and submitted to the jurisdiction of the Court for the determination of the claims made against them in HCA. Fund and Cattle had knowledge of this.  As Claimants in the Arbitration, they had the duty after the dismissal of the Stay Application to discontinue the Arbitration, since the claims which were made in the Arbitration were solely and essentially whether the claims of fraudulent misrepresentation and conspiracy inducing and regarding the Agreement, which were made only against L, X and Management, were false, and those claims were the very matters agreed by L, X and Management to be decided by the Court. To permit the duplication of proceedings on the same issues and between the same parties (CMB, L, X and Management)  would be abusing the arbitral process.

60.Having decided that the Arbitrator had no jurisdiction to make the Declaration in the absence of a dispute between CMB, Fund and Cattle, the impugned parts of the Award against CMB (including the parts relating to costs on the basis that Fund and Cattle had succeeded in the claims for the Declaration)  naturally have to be set aside. It is not necessary to address the arguments made on behalf of CMB, as to whether the Award is against public policy for ousting or usurping the jurisdiction of the High Court in relation to the matters in dispute in HCA, or as being against any policy of the Court in relation to the grant of declarations.

Disposition

61.The impugned parts of the Award identified in paragraphs 3 to 5 of the Originating Summons, paragraphs 135 a and b of the Award and the costs orders against CMB, are set aside.

62.It follows also that the costs of the Originating Summons (including costs reserved)  are to be paid by the named Defendants, ie Fund, Cattle and Management, to CMB, on indemnity basis, with certificate for 2 Counsel.

Mr Barrie Barlow SC and Ms Eva Leung, instructed by Jones Day, for the plaintiff

Mr Jeffrey Chau and Mr Benjamin Lam, instructed by Guantao & Chow Solicitors and Notaries, for the 1^st to 3^rd defendants