C1 and Others v. Ibs

HCCT 32/2024

HCCT 33/2024

(heard together)

[2025] HKCFI 227

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 32 OF 2024

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BETWEEN

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AND

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 33 OF 2024

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BETWEEN

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D E C I S I O N

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Background

1.This is an application made by the Plaintiffs in HCCT 32/2024 (“Plaintiffs”) to set aside various declarations made by the arbitral tribunal (“Tribunal”) in the counterclaim of an arbitration (“Counterclaim”). The arbitration had been commenced in the name of XXXXXXXXXXXXXXX XXXXX (“CPG”) against XXXXXXXXXXXXXXXXXXXXXXXXXXXX (“IBS”) XXXXXXXXXXXXXXXXX in Hong Kong (“Arbitration”), whereas the Counterclaim was made in the name of IBS against CPG and the Plaintiffs currently named in HCCT 32/2024. The grounds for the setting aside are that the award of the Tribunal contains decisions which were beyond the scope of the submission to arbitration, and for which the Plaintiffs as respondents of the Counterclaim were unable to present their case, and hence the award is in conflict with the public policy of Hong Kong.

2.HCCT 33/2024 are proceedings commenced by IBS to enforce the same award in the Arbitration (“Award”). IBS had succeeded in obtaining the declarations from the Tribunal on its Counterclaim.

3.The Arbitration was commenced pursuant to arbitration agreements contained in what have been collectively referred to as the “2007 Agreements”. These are a Share Purchase Agreement (“SPA”), an Investors’ Rights Agreement (“IRA”), a Voting Agreement (“VA”), and a Share Restriction Agreement (“SRA”), all of which were made between (i) CPG; (ii) three investment funds (namely, the 1^st Plaintiff C1, the 2^nd Plaintiff C2, and the 3^rd Plaintiff C3, together “C Parties”); and (iii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (“Foundation”, which later assigned its rights and obligations to IBS). There was a separate Quitclaim agreement made between CPG and IBS, regarding IBS’ grant of intellectual property rights in the IBS brand to CPG, which is not material to the present setting aside application.

4.The relief sought by CPG in the Arbitration was for a declaration that the Quitclaim was valid and binding on IBS, and for unspecified damages arising from IBS’s alleged breach and repudiation of the Quitclaim.

5.The Counterclaim made by IBS against C Parties and against the 4^th Plaintiff (“School”) was for their purportedly acting in breach of contract, breach of an alleged common understanding and legitimate expectation, and breach of implied duty of good faith, regarding the 2007 Agreements and the joint venture in CPG.

6.The underlying facts are typical of a contest for control in a joint venture (CPG), and they have been helpfully summarised in the Award. The facts below are extracted from the introductory paragraphs of the Award.

7.IBS was a premier business school established in Shanghai, with backing from the government of China and the European Commission. In 2006, the head of IBS’s Marketing and Translation Departments, XXXXXXXXX (“Mr Z”), was tasked with exploring the possibility of having IBS establish a publishing company as a potential new source of revenue for the school, among other objectives. IBS lacked the resources to found such a venture on its own, and so, with the support of IBS’s leadership team, Mr Z set out to find an external investor to provide necessary financing.

8.Mr Z was introduced to XXXXXXXXX (“Mr L”), the founder of one of China’s first venture capital firms, XXXXXXXXXXXXXXXXXX (“C4”). As a result of a series of discussions, IBS and C4 reached agreement in principle on the broad outlines of a publishing joint venture (“JV”), to be established as a new company in which IBS would hold a relative majority of shareholders (40 percent); C4, through its investment funds, would hold a 39 percent shareholding; and 21 percent of the equity would be set aside for strategic investors and top management. C4’s contribution to the JV would be in the form of a capital investment of no less than RMB 25 million; IBS would contribute by granting to the JV company the exclusive right to use the IBS brand name in the publishing, online education and case studies fields.

9.The 2007 Agreements were executed as a result of and pursuant to the discussions made and agreements reached.

10.Under the 2007 Agreements, the shareholding structure was that: C Parties would be issued Preferred Shares (representing 39 percent of CPG’s equity), IBS would receive Class A Common Shares (representing 40 percent of CPG’s equity), and the remaining 21 percent of the equity would be issued as Class B Common Shares to XXXXXXXXXXXXXXXXX (“ManCo”), a special purpose vehicle established by the parties as a holding platform by which the Class B Common Shares would be held for the benefit of members of the CPG management team or other persons to be designated by the CPG board of directors (“CPG Board”) in its discretion. It was agreed that Mr Z would be appointed as the first CEO of CPG and would also serve as one of two members of the CPG Board nominated by IBS. C Parties in turn nominated two of its officers to serve as CPG directors. The fifth position on the CPG Board was left open.

11.At the time of its incorporation, CPG’s shareholding was (as agreed above) 39% held by C Parties, 40% held by IBS, and 21% (“Class B Common Shares”) held by ManCo. In turn, the single share in ManCo (“ManCo Share”) was held by C Parties, and registered in Mr L’s name.

12.On 28 June 2007, Mr L transferred the ManCo Share to Mr Z (“2007 ManCo Transfer”).

13.On 24 October 2007, IBS, Foundation and C Parties entered into an Amendment and Assignment Agreement (“AAA”). The AAA refers to a Restated Restructuring Plan (“Plan”).

14.On 30 June 2016, Mr Z transferred the ManCo Share to XXXXXXXXXXXXXXXXXX (“C5”) (“2016 ManCo Transfer”).

15.From 2018 onwards, C Parties began taking steps to exit the JV.

16.In November 2018, C Parties and ManCo appointed XXXXXX (“Ms M”) as the 5^th director of CPG.

17.In 2019, C Parties entered into discussions with XXXXXXXXX XXXXXX (“Y Co”), an online education platform and content provider, which resulted in a series of transactions, including (1) a two-stage transfer of C Parties’ shares in CPG to the School (the 4^th Plaintiff), followed by a transfer of C Parties’ shares in the School to an affiliate of Y Co (“U Co”) in 2019; and (2) a transfer in 2020 of the ManCo Share from C5 to U Co (“2020 ManCo Transfer”).

18.In June 2019, both C Parties and C5 had transferred all their respective shares in the School and ManCo to U Co. At around the same time, the School and ManCo appointed Mr LX, Ms Q, and Mr T (“Y Co Directors”) onto the board of CPG.

19.Disputes finally arose between CPG and IBS under the Quitclaim and the SPA, which led to the Arbitration, the Counterclaim made thereunder, and the present applications before the Court.

20.As summarized by Counsel for C Parties and for the School in their Skeleton, the key findings made by the Tribunal in the Award are that:

(1) IBS’s case on common understanding/legitimate expectation was rejected and dismissed. The equitable considerations of quasi-partnership, common understanding, and legitimate expectations were not engaged as between IBS, C Parties and the School;

(2) On the true construction of section 7.2 of the SPA and the AAA, Mr Z would hold the ManCo Share pending and subject to further action by the board of CPG;

(3) It was the objective intention of the parties that (1) “Mr Z would hold the [ManCo Share] in a caretaker capacity, rather than as personal property, and would not be free to deal with it other than as directed by the CPG Board”; and (2) “if, contrary to such restriction, Mr Z were to purport to transfer the ManCo equity other than as directed by the CPG Board, such transfer would not be effective in conveying the beneficial ownership of the Class B Common Shares held by ManCo”;

(4) As to the effect of the 2007 ManCo Transfer:

(a) Mr Z did not obtain beneficial ownership of the Class B Common Shares when the same were issued to ManCo; and

(b) Mr Z had no right or entitlement to deal with the ManCo Share other than as directed by the CPG Board;

(5) As to the effect of the 2016 ManCo Transfer:

(a) It was “an invalid and ineffective attempt by Mr Z to transfer beneficial ownership of the [ManCo Share] as if it had been his personal property, which it was not”; and

b) Since “Mr Z never obtained beneficial ownership of the Class B Common Shares”, “it necessarily follows that Mr Z could not have validly or effectively transferred beneficial ownership of the Class B Common Shares to C5”;

(6) As to the effect of the 2020 ManCo Transfer:

(a) Since “C Parties (via C5) never validly or effectively obtained beneficial ownership of the [ManCo Share]”, “C Parties’ attempt to transfer ownership of the [ManCo Share] to Y Co in 2020 was also ... invalid and ineffective”;

(b) The 2020 ManCo Transfer was ineffective in transferring beneficial ownership of the Class B Common Shares to U Co for the same reasons which apply to the 2016 ManCo Transfer; and

(7) Since the 2016 and 2020 ManCo Transfers were ineffective in conveying beneficial interests in the Class B Common Shares to C5 and U Co, the appointments of Ms M in 2018 and one of the three Y Co Directors in 2020 (“Appointments”) were “substantively invalid” under the Articles of CPG.

21.As Counsel for the C Parties camp emphasized, the Tribunal’s finding that Mr Z did not obtain beneficial interest in ManCo and/or the Class B Common Shares upon the 2007 ManCo Transfer is the premise for its findings that the 2016 and 2020 ManCo Transfers and the Appointments were all invalid and ineffective.

Whether decision beyond scope of submission

22.The relevant legal principles have already been summarized by Au J (as His Lordship then was) in Grant Thornton International Limited v JBPB & Co (A Partnership) HCCT 13/2012, 5 April 2013, when he considered the meaning of the expression “decisions on matters beyond the scope of the submission to arbitration” in section 89 of the Ordinance. At paragraph 44 of the judgment, it was observed:

“In my view, the words ‘decisions on matters beyond the scope of the submission to arbitration’ under s 89(2)(d)(ii) should be construed narrowly to only include those decisions which are clearly unrelated to or not reasonably required for the determination of the subject disputes, matters or issues that have been submitted to arbitration. Arbitrations are intended and supposed to be an expedient, procedurally less complicated and costs effective private dispute resolution process. The courts and the AO are there to facilitate the effective and fair operation of arbitrations through interlocutory court orders and enforcement of the awards. To construe s 89 (2)(d)(ii) widely is likely to (a) impede arbitration proceedings and increase costs, as it would encourage parties (or one of the parties) to engage in an exercise in trying to segregate satellite or ancillary issues and questions from an arbitration for separate court determinations, and (b) encourage unwarranted microscopic and truncated challenges to an arbitral award by the losing party. This cannot be the intention of the legislature and the objective of the provision.” (Emphasis added)

23.This is consistent with the approach of the Singapore Court in AKN v ALC [2015] SGCA 18, that unless the tribunal awards relief or decides an issue that the parties did not seek in a manner completely unrelated to the other issues or relief sought, the court will generally accord substantial deference to arbitrators in terms of their power to grant relief and as to the scope of the reference.

24.His Lordship’s observations in Grant Thornton are apposite to the present case, when the Award is read as a whole, and the grounds of challenge are considered.

25.Before dealing with the ground of the Plaintiffs’ application to set aside under Article 34(2)(a)(iii) of the Model Law in detail, it is also useful to refer to the more recent decision of the Singapore Court of Appeal in CJA v CIZ [2022] SGCA 41, where the Court summarized the approach towards such applications, as follows:

“37. The principles governing a challenge on the basis of Art 34(2)(a)(iii) of the Model Law for an excess of jurisdiction were recently restated in Bloomberry Resorts and Hotels Inc and another v Global Gaming Philippines LLC and another [2021] 2 SLR 1279 (“Bloomberry”). Article 34(2)(a)(iii) of the Model Law reflects the fundamental principle that an arbitral tribunal has no jurisdiction to decide any issue not referred to it for determination by the parties (Bloomberry at [68]). However, a practical view has to be taken regarding the substance of the dispute which has been referred to arbitration (Bloomberry at [68]). ...

38. A two-stage inquiry is followed in assessing whether an arbitral award should be set aside for an excess of jurisdiction: (a) first, the court must identify what matters were within the scope of submission to the arbitral tribunal; and (b) second, whether the arbitral award involved such matters, or whether it involved a “new difference … outside the scope of the submission to arbitration and accordingly would have been irrelevant to the issues requiring determination” [emphasis in original] ... Further, in CDM, this court held (at [18]) that the question of what matters were within the scope of the parties’ submission to arbitration would be answerable by reference to five sources: the parties’ pleadings, the list(s) of issues, opening statements, evidence adduced, and closing submissions at the arbitration. This was an elaboration of the principle that in considering whether the jurisdiction has been exceeded, the court must look at matters in the round to determine whether the issues in question were live issues in the arbitration. In doing so, it does not apply an unduly narrow view of what the issues were: rather, it is to have regard to the totality of what was presented to the tribunal whether by way of evidence, submissions, pleadings or otherwise and consider whether, in the light of all that, these points were live.” (Emphases added)

26.Arguments have been made by the parties with regard to the observations made by the Singapore Court, as to the “five sources” of reference, when the court considers the matters which fall within the scope of the parties’ submission to arbitration. These five sources were identified as the pleadings, the lists of issues, the opening statements, the evidence adduced, and the closing submissions made in the arbitration.

27.I do not consider that it is necessary to set down any particular or exhaustive list of sources, or to confine the court’s consideration in any given case. Pleadings are of course an important starting point when the court reviews the nature of the claims made and the relief sought by a party, bearing in mind the essential role pleadings play in any adversarial system of dispute resolution. However, I agree with the statement made by the Court of Appeal in CJA v CIZ, that the correct approach must be for the court to “look at matters in the round”, to decide what were the live issues in dispute in the arbitration, in the best way it can.

28.As correctly pointed out by Counsel for IBS, this was in fact the approach adopted by the court in Arjowiggins HKK2 Ltd v X Co [2022] HKCFI 128. Despite the emphasis put on the pleadings, and recognizing the need for material facts and particulars to be set out clearly in the documents served by a party in an arbitration, this court in Arjowiggins did review and consider the evidence submitted by the parties in the case as well as the arguments made in the arbitration, in deciding whether the party had indeed been unfairly taken by surprise by the new arguments raised or any new consequences alleged. At paragraph 45 of the Decision, it was expressly stated that “the touchstone is fairness”.

29.Counsel for IBS also referred to X v Z Co [2024] HKCFI 695, with emphasis on the court’s observations on the overlapping criteria for setting aside an award under Article 34(2)(a)(iii) (on the scope of the submission), and Article 34 (2)(a)(ii) (on reasonable opportunity to present case):

“For example, the courts have held (in Reliance Industries Ltd v Union of India [2018] EWHC 822, Terna Bahrain Holding Co WLL v Bin Makil Al Shamsi & Ors [2012] EWHC 3283 (Comm), and in Z v R [2021] HKCFI 2312) that an issue which was “in the arena” or “in the play”, albeit only briefly argued or not made the focus of a party’s submissions, would still have been an issue which had been raised, and on which a party would have had the reasonable opportunity to deal with the issue, and the tribunal cannot be criticized either for having acted outside the scope of the submission and having dealt with an issue not raised or argued at length, or having failed to give the parties an opportunity to argue such issue.”

30.Taking into account the principles set out in the above cases, and having reviewed the Award, I cannot agree, for the reasons set out below, that the declarations challenged by the Plaintiffs in this case can in any way be said to be outside the scope of the submission to the Arbitration.

The Beneficial Ownership Issue

31.On C Parties’ case, the finding made by the Tribunal is that Mr Z did not obtain beneficial interest in the ManCo Share or the Class B Common Shares as a result of the 2007 ManCo Transfer (“Beneficial Ownership Issue”), and that as such, the 2016 and 2020 ManCo Transfers were ineffective in conveying any beneficial interest in the shares to C5 and U Co respectively. Without such beneficial interest, the Tribunal also found that CW5 and U Co were not entitled to appoint the 5^th director on to the CPG Board and that the Appointments were therefore invalid (“Voting Rights Issue”). C Parties argued that the Tribunal’s determination of the Beneficial Ownership Issue and the Voting Rights Issue (“Issues”) fell outside the scope of the reference to the Arbitration, and that the declarations made should be set aside.

32.According to C Parties, neither of the Issues had been included or set out in IBS’ pleadings in the Arbitration. C Parties argued that to the contrary, IBS had admitted in its pleading that the ManCo Share was “100% owned” by Mr Z upon the 2007 ManCo Transfer. C Parties also claims that the Issues had not been included in the parties’ agreed list of issues submitted to the Tribunal in the Arbitration (“Agreed List”), which shows that the Tribunal had never been asked to determine them.

33.Closely related to the ultra petita challenge is the claim that C Parties and the School had been denied due process, as they were deprived of the opportunity to present their case and to adduce material BVI law evidence on these unpleaded Issues.

34.The Award consists of 2 lever-arch files of a total of 408 pages. Its length is not a complete defence, but it sets out in elaborate detail the procedural history of the Arbitration, including: the challenge to the Tribunal’s jurisdiction which was made by IBS (which the Tribunal decided to rule together with the merits in the Award), the facts of the establishment of IBS as a joint venture between the parties and the execution of the 2007 Agreements and the AAA, facts relating to the subsequent dispute which arose following C Parties’ exit from the JV, the scope of the arbitration agreements relied upon, the claims made by the parties, the submissions made by each side, the issues identified by the Tribunal for determination, the relevant contractual clauses and the arbitrator’s construction thereof, and the Tribunal’s decision on the issues raised.

35.From reading the Award, it is obvious to appreciate the real and key issues which were in dispute between the parties, and which call for the Tribunal’s decision. These can also be seen from the Agreed List.

The key issues in the Arbitration

36.The Award first referred to the background of the parties and described the different 2007 Agreements which were executed. Right at the beginning, in paragraph 7, the Tribunal identified the essential dispute in the Arbitration as follows:

“Before the closing of the transactions contemplated by the 2007 Agreements, the parties agreed that Mr Z would hold 100 percent of the equity of ManCo, and such equity was in fact transferred to him in June 2007. The Parties vigorously dispute in this arbitration whether Mr Z received the ManCo equity (A) as a caretaker/nominee, pending and subject to subsequent disposition of beneficial ownership of the Class B Common Shares by the CPG Board in accordance with the provisions of the SPA; or (B) in his personal capacity as a (prospective) member of the CPG management team who had in effect been awarded 21 percent of CPG’s equity as an incentive to build the company. As discussed later in this Award, much turns on the resolution of that dispute.”

37.Then at paragraph 24 of the Award, the Tribunal identified the 2 categories of disputes, as being the “Shareholder Dispute” and the “Quitclaim Dispute”. The Quitclaim Dispute is not material to the present application, and the Shareholder Dispute is described by the Tribunal at paragraph 24a:

“24. This case presents a series of difficult, close questions, which can loosely be grouped into two categories of disputes (albeit with overlap between the categories):

a. The first category of disputes are between the shareholders of CPG - namely, IBS, on one side; and C Parties (the original JV partner) and School (the purported new JV partner) on the other, and relate to the validity of the various transactions by which Y Co/School purportedly came to acquire a majority interest in CPG (“Shareholder Dispute”). Among the difficult questions presented by the Shareholder Dispute are (without limitation): (a) the nature of the relationship formed between the Parties at the time they entered into the 2007 Agreements, and whether that relationship was one with respect to which equitable principles are engaged and/or duties of good faith implied as a matter of law; (b) the proper construction of various clauses of the 2007 Agreements and the articles of association of CPG; and (c) the validity of a series of share transfers and purported director appointments as measured against those various clauses and articles, properly construed. The Shareholder Dispute is a merits dispute, as to which no Party has presented any jurisdictional objection.” (Emphases added)

38.Of pertinence is the fact that the Tribunal identified the Shareholder Dispute as including the issues of the proper construction of various clauses of the 2007 Agreements and the articles of CPG, and the validity of the series of share transfers and purported director appointments.

39.It was under Section VI of the Award that the Tribunal referred to the claims in the Arbitration and the parties’ respective position. At paragraph 433, the Tribunal summarized IBS’ claims and allegations in the Arbitration, with reference to paragraphs 90, 91 and 93 of the Statement of Defence and Counterclaim served in the Arbitration, as follows:

“433. IBS alleges that there existed a quasi-partnership among IBS, C Parties, and ManCo. IBS further alleges that as part of the quasi-partnership, there existed various common understandings and/or legitimate expectations among IBS, C Parties, and ManCo (collectively, “Common Understandings and Legitimate Expectations”). Specifically, IBS’s allegations include:

a. The pre-emption right in Section 3.1 of the SRA may not, and should not, be sidestepped or otherwise circumvented by C Parties via (i) transferring its shares to an affiliate and then (ii) transferring the shareholding in the affiliate to a non-affiliate (“Common Understanding/Legitimate Expectation regarding Section 3.1 SRA”);

b. Regarding the Class B Common Shares (21 percent of CPG’s equity) held by ManCo:

i. Despite Section 7.2 of the SPA (which allowed C Parties for the time being to beneficially hold all the shareholding of ManCo and therefore ManCo’s 21% shareholding in CPG), C Parties (and its affiliates or successors) was not the ultimate intended beneficiary of those 21% shares.

ii. It was envisaged under the Restructuring Plan that ManCo would be 100% owned by Mr Z, and that C Parties would no longer have any shareholding in ManCo.

iii. Although C Parties would beneficially own ManCo until the Restructuring Plan was implemented, C Parties would not transfer ManCo’s 21% shareholding to any other party, because the 21% shareholding was intended to be transferred to the management team of CPG.

iv. C Parties (or its affiliates or successors) should not and was never intended to - through directly or indirectly exercising ManCo’s voting rights - (i) have a controlling majority shareholding in CPG, or (ii) be able to control the CPG Board. Rather, the parties to the 2007 Agreements intended that IBS should have the controlling majority shareholding in CPG.

v. In any event, C Parties (or its affiliates or successors) should not and was never intended to: (i) exercise ManCo’s 21% shareholding in CPG, whether directly or indirectly, or (ii) cause ManCo’s ownership to be transferred to any party other than Mr Z, in order to appoint a fifth director to the CPG Board pursuant to Article 73(d) of the Articles.

(“Common Understanding/Legitimate Expectation regarding ManCo’s 21% Shareholding”).”

40.The key issues in dispute between the parties in the Arbitration are reflected in the Agreed List. In the context of IBS’ Counterclaim, Part II of the Agreed List sets out the issues concerning the relationship between the parties, and Part III sets out the issues concerning the breaches of the SPA, SRA and/or the alleged Common Understanding between the parties. Part III lists the following as issues:

“10. What restrictions on transfers of shares in the Claimant were there in the 2007 Transaction Documents and/or by virtue of common understanding/legitimate expectations between the Respondent, C Parties and the Management Company? Did there exist the Common Understanding/Legitimate Expectation regarding Clause 3.1 SRA between the parties?

11. Did there exist the Common Understanding/Legitimate Expectation regarding the Management Company’s 21% Shareholding between the parties; in particular, was there any common understanding/legitimate expectation vis-à-vis Mr Z; C5 and the Management Company?

...

14. Was the transfer of shares in the Claimant from C Parties to School, and the subsequent transfer of shares in School to Y Co in breach of:-

(a) Clause 4.1 of the VA;

(b) Article 9 of the M&A; and/or

(c) the Common Understandings/Legitimate Expectations between the Respondent, C Parties and the Management Company (if any).

15. Was the transfer of shares in the Management Company from Mr Z to C5 in breach of the 2007 Transaction Documents and/or the Common Understanding/Legitimate Expectation regarding the Management Company’s 21% Shareholding (if any) as pleaded by the Respondent?

16. Was the transfer of shares in the Management Company from C5 to Y Co in breach of:-

(a) Clause 7.2 of the SPA; and/or

(b) the Common Understandings/Legitimate Expectations between the Respondent, C Parties and the Management Company (if any)?

17. Was the appointment of directors by School and the Management Company (Ms M in November 2018 and Mr LX, Ms Q and Mr T in June 2020) in breach of:-

(a) Clause 2.3(e) of the VA;

(b) the Common Understandings/Legitimate Expectations between the Respondent, C Parties and the Management Company (if any)?

(c) Was the appointments of Ms M to the Board consented to by Mr Z and if so, was Mr Z’s knowledge and consent attributable to the Respondent?

(d) Were the appointments of Ms M, Mr LX, Ms Q and Mr T approved and/or ratified by the Claimant?”

41.When dealing with applications made to set aside an award, the court often comes across cases in which a party, seeking to challenge an unfavorable outcome, will endeavor to look for issues which had either been missed by the tribunal, or which are claimed to be the focus of the tribunal’s reasoning and decision but which had not been formulated or argued by the parties in the course of the arbitration. This is all in the aftermath of an award being given, and often, when different teams of lawyers have been instructed to advise on the possibility of challenges to the award. The tendency then is to focus, after the event, on the award and reasons given by the tribunal in finding for or against a party, and with that focus (and for the purpose of rearguing the points found against the party) re-formulate the issues which (one party may say) appear from the award. The issues so formulated can be quite different to what had naturally evolved from the pleadings and the evidence and the arguments made in the course of the hearing itself before the tribunal, and which the parties had duly met and used the opportunity afforded to them to cross-examine the witnesses and to make counter-arguments thereon.

42.The Court should therefore not be too ready to accept a claim of surprise, or to read an award or the pleadings in the arbitration in an overly restrictive manner, but should instead read the award as a whole, and do so generously (see X v Z Co [2024] HKCFI 695, para 16), expecting that the tribunal would not easily have misconstrued or ignored the essential issues presented to it for determination in the arbitration – unless there is clear evidence to the contrary. If inferences are to be made, that the tribunal has failed to consider an important issue, or has made some equally substantial error in understanding the issues presented to it, such inferences should only be made if it is clear and virtually inescapable to do so.

43.In light of the pleadings in this case and the issues included in the Agreed List, it appears relatively clear to me that the key and essential dispute between the parties in this case, in relation to the Counterclaim, is whether there was a valid and effective transfer of the ManCo Share from Mr Z to C5 under the 2016 Transfer, and a valid and effective transfer of the ManCo Share from C5 to U Co under the 2020 Transfer. This is implicit in issues 10, 11 14, 15 and 16 of the Agreed List. The validity of the Appointments to the CPG Board depended on a valid and effective transfer of the ManCo Share. However, the validity of the 2016 and 2020 Transfers cannot be determined without first deciding the validity of the transfer of the ManCo Share from Mr L to Mr Z in 2007. If there was no valid transfer of the beneficial interests and title in the ManCo Share to Mr Z in 2007, he could not possibly have any interest which can be validly and effectively transferred to C5 in 2016. That, in my view, is the simple answer to the complaint made for the C Parties camp. The Tribunal’s findings on the validity of the 2007 Transfer, and whether Mr Z obtained beneficial interests in the ManCo Share as a result, were necessary and entirely related to the determination of the dispute and issues submitted by the parties to the Tribunal for determination in the Arbitration (Grant Thornton International Limited v JBPB & Co (A Partnership), and cannot be said to be outside the scope of the submission. Needless to say, whether the Tribunal’s decision on the validity is correct or wrong, is not for further discussion or review by this Court.

44.I cannot see any real distinction between the finding made by the Tribunal in this case on the invalidity of the 2016 and 2020 Transfers from Mr Z to C5 and from C5 to U Co (for the reasons given in the Award), and a finding by the Tribunal that Mr Z did not obtain any beneficial interest in the ManCo Share - which is the “Beneficial Ownership Issue” as defined by Counsel for the C Parties camp, and allegedly an issue outside the scope of the submission.

Tribunal’s reasons for findings

45.It is important to bear in mind the actual findings and reasoning made by the Tribunal, in coming to its conclusions to grant the declarations, that none of the ManCo Share Transfers effected a direct or indirect transfer of beneficial ownership of the shares, and that each of the 2016 Transfer and 2020 Transfer constituted a breach of section 7.2 of the SPA, and was invalid and ineffective in transferring the beneficial ownership of the ManCo Share or the Class B Common Shares.

46.From paragraph 503 of the Award, the arbitrator addressed the question “Whether the purported transfers of beneficial ownership of the Class B Common Shares were valid under the 2007 Agreements”.

47.The arbitrator first referred to IBS’ contention, “that the transactions by which (C Parties) purported to acquire and subsequently transferred to Y Co beneficial ownership of the Class B Common Shares, representing 21% of the equity of CPG, were invalid under the 2007 Agreements, properly construed”. He construed section 7.2 of the SPA, at paragraph 500 for of the Award, focusing on the first sentence and the acknowledgment of the parties contained therein, and then the second sentence of the section which sets out the “mechanism for transfer of beneficial ownership” of the Class B Common Shares (“section 7.2 Mechanism”). The relevant paragraphs of the Award are set out below:

“504. Section 7.2 of the SPA, titled “Management Company Shares,” consists of two sentences, the proper construction of which is vital to resolution of the Parties’ claims and defenses concerning the ManCo Share Transfers. The full text of Section 7.2 is reproduced here:

7.2 Management Company Shares.

[(“First Sentence”)]

Each of the parties hereto acknowledges that (i) the [C Parties] currently hold beneficially and of record all the equity securities of the Management Company, (ii) the Management Company currently holds 2,100,000 Class B Common Shares of the Company, and (iii) beneficial ownership of such Class B Common Shares held by the Management Company are intended to be transferred for nominal consideration to members of the management team of the Company or otherwise disposed of as may be agreed by the Board (including the approval of each of ihe members of the Board designated by the investors, if any).

[(“Second Sentence”)]

Promptly following adoption of a resolution of the Board (including each of the members of the Board designated by the Investors, if any) designating any Person to whom beneficial ownership of any of the Class B Common Shares owned by the Management Company is to be transferred and the number of Class B Common shares beneficial ownership to which is to be transferred (the “Transferred Interest”), (x) the lnvestors and such designated Person shall execute and deliver to the Management Company an instrument of transfer with respect to the portion of the equity securities of the Management Company representing beneficial ownership of such Transferred Interest in exchange for aggregate consideration payable by such Person to the Investors of US$1.00, and (y) the Investors shall instruct the registered agent of the Management Company to update the register of members of the Management Company to reflect such transfer; provided, that as a condition to the consummation of any such transfer, the transferee shall [have] executed a deed of adherence in a form mutually acceptable to such Person and Investors pursuant to which such Person and such Person’s beneficial ownership in the Company shall be subject to all applicable restrictions set forth in this Agreement and the Ancillary Agreements.

505. In the First Sentence, the parties “acknowledge” three points:

a. First, that “the Investors [i.e., C Parties] currently hold beneficially and of record all of the equity securities of [ManCo].” (In fact, at the time of execution of the SPA, the equity securities of ManCo consisted of a single share, held beneficially and of record by Mr L in his own name, rather than by any of the C Parties entities.)

b. Second, that ManCo “currently holds 2,100,000 Class B Common Shares of [CPG].” In fact, this statement was not yet accurate at the time of execution of the SPA, but would become accurate as of the Closing, when CPG issued the Class B Common Shares to ManCo. Notably, in contrast to the first acknowledgment, which referred to the ManCo equity being held “beneficially and of record,” in this clause the parties acknowledged only that Manco “holds” the Class B Common Shares, without stating that it held such shares beneficially.

c. Third, that “beneficial ownership of such Class B Common Shares held by [ManCo] is intended to be transferred for nominal consideration to members of the management team of [CPG] or otherwise disposed of as may be agreed by the [CPG] Board (including the approval of each of the members of the Board designated by [C Parties], if any). Crucially, in this clause, the parties recorded their agreement that ManCo itself was not intended to beneficially own the Class B Common Shares that it held; rather, such beneficial ownership was intended “to be transferred for nominal consideration to members of the management team of [CPG] or otherwise disposed of as may be agreed by the [CPG] Board” (emphasis added). I will return shortly to the parties’ disputes concerning proper construction of this clause.

506. The Second Sentence established the mechanism for transfer of beneficial ownership of the Class B Common Shares under the direction of the CPG Board. Specifically, the Second Sentence sets out three mandatory steps for, and one condition to the effectiveness of, any such transfer:

a. Board resolution. The first step was “adoption of a resolution of the [CPG] Board... designating any Person to whom beneficial ownership of any of the Class B Common Shares owned by [ManCo] is to be transferred and the number of Class B Common Shares beneficial ownership to which is to be transferred (the ‘Transferred lnterest’)” (emphasis added).

b. Instrument of transfer. The second step was that, “promptly following adoption” of such a resolution,” [C Parties] and such designated Person shall execute and deliver to [Manco] an instrument of transfer with respect to the portion of the equity securities of [ManCo] representing beneficial ownership of such Transferred Interest in exchange for aggregate consideration... of US$1.00” (emphasis added).

c. Updated register of members. The third step was that “[C Parties] shall instruct the registered agent of [ManCo] to update the register of members of ManCo to reflect such transfer.”

d. Deed of adherence. Finally, the Second Sentence included the following proviso: “provided, that as a condition to the consummation of any such transfer, the transferee shall [have] executed a deed of adherence in a form mutually acceptable to such Person and [C Parties] pursuant to which such Person and such Person’s beneficial ownership in [CPG] shall be subject to all applicable restrictions set forth in [the 2007 Agreements]” (emphasis added).

48.The arbitrator then set out and considered the construction of section 7.2, as submitted by IBS and C Parties respectively. At paragraph 507, the arbitrator pointed out that the parties to the SPA referred to C Parties, rather than Mr L, as the initial holder of the ManCo equity. He also referred to the fact that although ManCo was acknowledged in section 7.2 to “currently hold” the Class B Common Shares, beneficial ownership of those shares was reserved for eventual transfer to members of the management team of CPG or for any other disposition directed by the CPG board, meaning that until such time as its transfer in accordance with section 7.2 had been consummated, beneficial ownership of each Class B Common Shares remained under the direction and control of the CPG board.

49.At paragraph 509 of the Award, the arbitrator made the following observations:

“509. The second and more consequential point of disagreement between the Parties concerns the relationship between the First Sentence and the Second Sentence of Section 7.2. To recall, clause (iii) of the First Sentence contemplated two alternative ways in which beneficial ownership of the Class B Common Shares could be dealt with under Section 7.2 - namely, such beneficial ownership could be either (i) transferred for nominal consideration to members of the management team of CPG (“transfer to management”); or (ii) otherwise disposed of (“otherwise disposed of”) as may be agreed by the CPG Board. CPG and C Parties argue that clause (iii) refers to a decision of the CPG Board only in the “otherwise disposed of” scenario and not in the “transfer to management” scenario. It follows, according to CPG and C Parties, that the entire Second Sentence, which establishes the steps to be taken “following adoption of a resolution of the CPG Board,” applies only to share dispositions made pursuant to the “otherwise disposed of” route and has no application to transfers to management. IBS, for its part, rejects this construction and argues that the procedure established by the Second Sentence applies to any purported transfer of beneficial ownership of the Class B Common Shares pursuant to First Sentence clause (iii), whether involving a transfer to management or to any other person.

510. I cannot accept the construction advanced by CPG and C Parties, which would restrict the scope of application of the Second Sentence in a manner inconsistent with the objective intention of the parties as reflected in the ordinary meaning of Section 7.2, read in light of the purpose of the SPA and of Section 7.2, other relevant provisions of the 2007 Agreements, the relevant factual matrix, and commercial common sense.”

50.The Tribunal’s finding on the construction of section 7.2 is therefore set out at paragraph 511 of the Award:

“For the foregoing reasons, I hold that, as a matter of construction of SPA Section 7.2, compliance with the Second Sentence was a condition to the effectiveness of any purported transfer of beneficial ownership of Class B Common Shares pursuant to Section 7.2, whether or not the transferee was a member of the management team of CPG. ...”

51.The arbitrator then proceeded to construe the relevant provisions of the AAA and the Plan thereunder. Clause (1) of the Plan states:

“[Mr L] will transfer the shares owned by him in [ManCo] to [Mr Z], for a total consideration of US $1.00. [Mr Z] will subsequently hold 100% of equity shares in [ManCo].”

52.It was pointed out (at paragraph 514 of the Award) that:

“The parties vigorously dispute the purpose, meaning, and effect of section 2.1 of the AAA and clause (1) of the [Plan], particularly in relation to the interaction between those provisions and SPA section 7.2, which … governed transfers of beneficial ownership of the Class B Common Shares. The dispute is, as Mr Yu pointed out in closing argument on behalf of CPG and [C Parties], ‘primarily a question of construction of the AAA in light of the factual matrix’.”

53.The arbitrator set out and considered the parties’ competing constructions of the AAA. As his construction of section 7.2 of the SPA and clause (1) of the Plan form the basis of, and explain, his award on the Counterclaim and the declarations which are impugned, the contentions made by C Parties (which were eventually rejected by the arbitrator) and the arbitrator’s analyses thereof are set out in full below:

“515. The Parties have offered three competing constructions of the AAA, the first two of which are advanced (apparently in the alternative) by CPG and C Parties, and the third by IBS. Depending on the construction chosen, Section 2.1 of the AAA and Clause (1) of the Restated Restructuring Plan should be understood either to:

a. implement the SPA Section 7.2 transfer mechanism by using a transfer of ManCo equity to effectuate a corresponding transfer of beneficial ownership of Class B Common Shares to a member of the management team of CPG (viz., Mr Z), as contemplated by Section 7.2 (“Construction Alternative One”); or

b. supersede and override the SPA Section 7.2 transfer mechanism in favor of simply deciding by agreement among IBS and C Parties that all 2.1 million Class B Common Shares would be given beneficially to Mr Z without regard to the procedures in the Second Sentence of Section 7.2 (“Construction Alternative Two”); or

c. alter the starting point of the SPA Section 7.2 transfer mechanism by substituting Mr Z in place of C Parties/Mr L as the caretaker owner of ManCo (i.e., Initial ManCo Holder) pending subsequent action by the CPG Board to allocate beneficial ownership of the Class B Common Shares pursuant to Section 7.2 (“Construction Alternative Three”).

516. CPG and C Parties’ primary position (Construction Alternative One) is that Clause (1) of the Restated Restructuring Plan was an implementation of the intention expressed in clause (iii) of the First Sentence of Section 7.2, that “beneficial ownership of [the] Class B Common Shares held by [ManCo] is intended to be transferred for nominal consideration to members of the management team of [CPG].” In other words, the contention is that, by stipulating that Mr L would transfer 100 percent of the equity of ManCo to Mr Z for one dollar (which in fact had already occurred four months prior - i.e., the 2007 ManCo Transfer), the parties should be understood to have been agreeing that Mr Z would - by virtue of the 2007 ManCo Transfer - become the beneficial owner of 100 percent of the Class B Common Shares that would be issued to ManCo at the Closing.

517. It should be apparent that Construction Alternative One is linked to CPG and C Parties’ preferred construction of SPA Section 7.2, which I have already rejected above - namely, that beneficial ownership of Class B Common Shares could validly be transferred to members of the management team of CPG without complying with the requirements of the Second Sentence of Section 7.2 (in particular, a CPG Board resolution and a deed of adherence to the 2007 Agreements executed by the transferee). Here, there was no CPG Board resolution designating Mr Z as a Section 7.2 Transferee and there was no deed of adherence signed by Mr Z. It is thus difficult to see how Clause (1) of the Restated Restructuring Plan could be viewed as an effective implementation of Section 7.2, properly construed.

518. Perhaps in recognition of this potential weakness in Construction Alternative One, CPG and C Parties advanced an alternative position that - even if Clause (1) of the Restated Restructuring Plan were ineffective to implement Section 7.2 as written (because the conditions of the Second Sentence were not met), the AAA nevertheless was effective in transferring beneficial ownership of the Class B Common Shares to Mr Z because the AAA was a subsequent agreement of the parties that superseded any contrary conditions or procedures in Section 7.2 (Construction Alternative Two). In other words, the contention is that, by agreeing to Clause (1) of the Restated Restructuring Plan, the parties should be understood to have agreed to override the provisions of Section 7.2 and replace them with an agreement between IBS and C Parties that all 2.1 million Class B Common Shares would be given beneficially to Mr Z without the need for a CPG Board resolution and without the need for Mr Z to sign any deed of adherence to the 2007 Agreements.

519. For CPG and C Parties, Construction Alternatives One and Two are two paths to the same result - namely, that, as of the Closing, Mr Z became the beneficial owner of 100 percent of the Class B Common Shares (totaling 21 percent of the equity of CPG) and, because he had not been required to enter into a deed of adherence to the 2007 Agreements, he was free to transfer such beneficial ownership “to anyone he like[d],” and neither he nor his beneficial interest in the Class B Common Shares was subject to any of the share transfer restrictions or voting restrictions in the 2007 Agreements.”

54.In the arbitrator’s actual analysis and construction of the relevant clauses, the ordinary and natural meaning of the words of the contract were used as the starting point. He considered section 2.1 of the AAA, which stated as follows:

“Each of the parties hereby acknowledges and agrees that Exhibit M to the SPA [Restructuring Plan] shall be deemed to have been replaced in its entirety with Exhibit M (the Plan) attached hereto.”

55.The arbitrator pointed out that the meaning of the clause is straightforward and not in dispute, namely that the Plan was deemed to replace the original Restructuring Plan exhibited to the SPA in its entirety, and that the intention was to treat the Plan as if it had been in place to the SPA from the time of execution on 3 May 2007.

56.As for the text of clause (1) of the Plan (set out above), the arbitrator pointed out that although it states that after Mr L’s transfer to Mr Z, the latter would “hold 100%” of the equity of ManCo, the clause leaves open the critically important question, the interaction between section 2.1 of the AAA and clause (1) of the Plan on the one hand, and section 7.2 of the SPA on the other hand.

57.After an analysis of the SPA and the Plan as a whole, against the relevant background and factual matrix together with the evidence of the witnesses, the tribunal reached its conclusion on the construction of the AAA and the Plan which was set out at paragraph 576 and 577 of the Award:

“576. ... I hold that, on its true construction, Clause (1) of the Plan stated the Parties’ agreement that Mr Z would hold 100 percent of the equity securities of ManCo subject to the provisions of SPA Section 7.2, which continued to be in full force and effect. Clause (1) of the Restated Restructuring Plan (a) was not a substitute for, and did not implement, override, or replace, the procedures stipulated in the Second Sentence of Section 7.2; and (b) did not constitute or effect a transfer to Mr Z of beneficial ownership of the Class B Common Shares. Accordingly, pursuant to Clause (1) of the Restated Restructuring Plan and SPA Section 7.2, Mr Z was to hold the ManCo Ordinary Share pending and subject to further action by the CPG Board pursuant to Section 7.2.

577. I further hold that it was the objective intention of the parties (including IBS, C Parties, and CPG) that (1) Mr Z would hold the ManCo Ordinary Share in a caretaker capacity, rather than as personal property, and would not be free to deal with it other than as directed by the CPG Board; and (2) if, contrary to such restriction, Mr Z were to purport to transfer the ManCo equity other than as directed by the CPG Board, such transfer would not be effective in conveying beneficial ownership of the Class B Common Shares held by ManCo.”

58.It is therefore clear from the analyses and reasons given by the arbitrator in the Award, that on his construction of the relevant provisions of the Plan and section 7.2 of the SPA, the conditions and the mechanism set out in the second sentence of section 7.2 continued to apply to any transfer of the ManCo Share, such that Mr Z only held the ManCo Share in a caretaker capacity rather than in any personal capacity, pending and subject to action and direction by the CPG board. The Tribunal held that there was no intention to effect any transfer of the beneficial ownership of the Class B Common Shares held by Mr Z, and that any transfer contrary to the restrictions contained in section 7.2 of the SPA would not be effective to convey the beneficial ownership of the Class B Common Shares, and in short, the transfers would be invalid. This was made clear at paragraphs 579 to 581 of the Award, in relation to the 2007 Transfer:

“579. The 2007 ManCo Transfer itself could not have effected a transfer of beneficial ownership of the Class B Common Shares for the simple reason that ManCo did not yet hold any CPG equity as of the date of that transfer (28 June 2007). CPG issued the Class B Common Shares to ManCo on 31 October 2007, as part of the Closing of the transactions contemplated by the 2007 Agreements. The relevant question thus is whether CPG’s issuance of such shares to ManCo had the effect of indirectly transferring beneficial ownership of those shares to Mr Z, who by virtue of Clause (1) of the Restated Restructuring Plan and the 2007 ManCo Transfer held 100 percent of the equity of ManCo at that time. For all of the reasons discussed in Part VI.B.4.b above, I hold that CPG’s issuance of the Class B Common Shares to ManCo pursuant to the 2007 Agreements objectively was not intended to, and did not, effect a tansfer of beneficial ownership of such shares to Mr Z. Rather, beneficial ownership of the Class B Common Shares continued to be reserved for allocation by the CPG Board in accordance with the procedures of SPA Section 7.2. Those procedures - including in particular the requirements of a CPG Board resolution and a deed of adherence by the transferee - were not implemented or satisfied in connection with any of (a) the 2007 ManCo Transfer; (b) the AAA/Restated Restructuring Plan; or (c) the Closing.

580. It follows from the foregoing that, as of the Closing on 31 October 2007, (1) Mr Z held the ManCo Ordinary Share pending and subject to further action by the CPG Board pursuant to Section 7.2; (2) Mr Z had no right or entitlement to deal with the ManCo Ordinary Share other than as directed by the CPG Board; and (3) ManCo held the Class B Common Shares subject to the reservation that beneficial ownership thereof was not intended for ManCo itself but rather was intended to be transferred to members of the CPG management team or otherwise disposed of in the discretion of the CPG Board.

581. I note that the foregoing decision is also consistent with the fact that, in the nine years that he held record ownership of 100 percent of the equity of ManCo, there is no record of (a) Mr Z ever holding himself out as a beneficial owner of the Class B Common Shares or (b) ManCo or Mr Z ever seeking to exercise any rights appurtenant to such shares. Moreover, as discussed above, during that same time period, Mr Z made reports to the Management Committee of IBS and to the Board of CPG in which he acknowledged that beneficial ownership of the Class B Common Shares had not yet been allocated by the CPG Board.” (Emphases added)

59.From the analysis made and reasons given by the Tribunal, the findings and decision on the Beneficial Ownership Issue are clearly based on and related to the issue of the validity of the ManCo Transfers under Section 7.2 of the SPA and the articles of CPG.

60.It is also clear from reading the Award that the Tribunal’s findings on the invalidity of the 2016 Transfer from Mr Z to C5, and of the 2020 Transfer from C Parties to U Co, followed from the findings it had made that the 2007 Transfer was invalid and ineffective. At paragraph 583 of the Award, the arbitrator stated:

“I have already held above that Mr Z was holding the ManCo Ordinary Share in a caretaker capacity, pending and subject to further action by the CPG Board pursuant to SBA Section 7.2, and that Mr Z had no right to deal with the ManCo Ordinary Share other than as directed by the CPG Board. The CPG Board did not authorize the 2016 ManCo Transfer. It follows that Mr Z’s purported sale of the ManCo Ordinary Share to (C5) was a transaction in which Mr Z had no lawful authority to engage, and was contrary to and in breach of SPA section 7.2.”

61.The arbitrator also considered and rejected C Parties’ argument that Mr Z was not bound by any restriction on his ability to freely transfer the ManCo share, pointing out that the restrictions flowed (inter alia) from the 2007 Agreements, and that Mr Z had knowledge of the 2007 Agreements and the purpose for which ManCo was established, namely to serve as a holding platform for members of the CPG management team and other persons designated by the CPG Board.

62.Paragraphs 586 to 588 of the Award summarized the arbitrator’s findings on the 2016 Transfer, as follows:

“586. For all of the above reasons, I find that the 2016 ManCo Transfer was (a) a breach of SPA Section 7.2 by C Parties; and (b) an invalid and ineffective attempt by Mr Z to transfer beneficial ownership of the ManCo Ordinary Share as if it had been his personal property, which it was not. In any event, for the reasons discussed below, I find that even if there were no defect in the transfer of the ManCo Ordinary Share itself, the transaction still would not have been effective in transferring beneficial ownership of the Class B Common Shares.

587. Purported transfer of beneficial ownership of the Class B Common Shares. I have already held that Mr Z never obtained beneficial ownership of the Class B Common Shares, including because the procedures for the transfer of such beneficial ownership stipulated in SPA Section 7.2 (including in particular a Board resolution and deed of adherence), were never implemented. It necessarily follows that Mr Z could not have validly or effectively transferred beneficial ownership of the Class B Common Shares to C5.

588. Thus, even if (contrary to my finding above) the 2016 ManCo Transfer was effective in transferring legal and beneficial ownership of the ManCo Ordinary Share to C5, the latter would not thereby have obtained beneficial ownership of the Class B Common Shares held by ManCo. Rather, such beneficial ownership remained in a suspended state pending further action by the CPG Board pursuant to SPA Section 7.2.”

63.The findings on the 2020 Transfer were likewise on the basis of breach of section 7.2 of the SPA as construed by the Tribunal, and for non-compliance with the section 7.2 Mechanism. The relevant findings were set out at paragraphs 592 and 593 of the Award:

“592. The final in the series of ManCo Share Transfers is the 2020 ManCo Transfer, which, as discussed in Part V.N.7 above, was part of the Y Co Transaction and involved the purported sale of the ManCo Ordinary Share by C Parties (via C5) to U Co. I have already held that (a) C Parties’ attempt in 2016 to obtain ownership of the equity of ManCo was in breach of SPA Section 7.2; and (b) C Parties (via C5) never validly or effectively obtained beneficial ownership of the ManCo Ordinary Share. It necessarily follows that C Parties’ attempt to transfer ownership of the ManCo Ordinary Share to Y Co in 2020 was also (i) in breach of SPA Section 7.2; and (ii) invalid and ineffective.

593. Even if there had been no defect in the various transfers of the ManCo Ordinary Share itself, the 2020 ManCo Transfer still would not have been effective in transferring beneficial ownership of the Class B Common Shares to U Co for the same reasons as discussed above in connection with the 2016 ManCo Transfer. Namely, the procedures for the transfer of such beneficial ownership mandated by SPA Section 7.2 (including in particular a Board resolution and deed of adherence), were never implemented - not in 2007, nor in 2016, nor in 2020. As a result, even if (contrary to my finding above) the 2020 Manco Transfer was effective in transferring legal and beneficial ownership of the ManCo Ordinary Share to U Co, the latter would not thereby have obtained beneficial ownership of the Class B Common Shares held by Manco. Rather, such beneficial ownership has remained at all times in a suspended state pending further action by the CPG Board pursuant to SPA Section 7.2.”

Whether claims were pleaded

64.On behalf of the C Parties camp, it was argued that the Tribunal was not entitled to decide on the Beneficial Ownership Issue as it was never pleaded. It was contended that the lack of pleading shows that the said issue was not submitted to the Tribunal for determination, and further, that the C Parties camp had been taken by surprise and had not been given the opportunity to present its case and to adduce its evidence.

65.I am not persuaded by these submissions.

66.At paragraph 433 of the Award, the arbitrator had referred to the claims and allegations made by IBS in the Arbitration, with reference to (inter alia) the Re-Amended Statement of Defence and Counterclaim (“SODC”). Paragraph 93(1) of the SODC was referred to, and this pleads:

“93. At all material times, it was also agreed and/or understood between the Respondent, the Investors and the Management Company (or alternatively the Respondent’s legitimate expectation) that:

(1) Despite clause 7.2 of the SPA pleaded in paragraph 20(4) above (which allows the Investors for the time being to beneficially hold all shareholdings of the Management Company and therefore the Management Company’s 21% shareholding in the Claimant), the Investors (or their affiliates or successors) were not the ultimate intended beneficiaries of all those 21% shares.”

This is a clear pleading and averment that C Parties were not the beneficial owners of the relevant shares.

67.The Award also refers to paragraph 93(2) and (3) of the SODC:

“(2) Rather, by the Restructuring Plan which the parties agreed to realize under clause 7.3 of the SPA, it was envisaged that the Management Company would be 100% owned by Mr Z, and that the Investors would no longer have any shareholding in the Management Company.

(3) Although the Investors would beneficially own the Management Company until the Restructuring Plan was implemented, the Investors would not transfer the Management Company’s 21% shareholding to any other party since the 21% shareholding was intended to be transferred to the management team of the Claimant.”

The restrictions on transfer, which affect the validity of the disputed transfers, are clearly pleaded.

68.The arbitrator also referred to the pleading on the control of the Management Company, at paragraph 93(4) and (5) of the SODC:

“(4) The Investors (or their affiliates or successors) should not (and were never intended to) have a controlling majority shareholding in the Claimant through directly or indirectly exercising the Management Company’s voting rights. Rather, the parties intended that the Respondents should have the controlling majority shareholding in the Claimant.

(5) The Investors (or their affiliates or successors) should not (and were never intended to) be able to control the claimant’s Board through directly or indirectly exercising the Management Company’s voting rights.”

69.Paragraph 93(6) of the SODC further pleads the manner of the investors’ exercise of their 21% shareholding in IBS, as follows:

“(6) In any event, the Investors (or their affiliates or successors) should not (and were never intended to): (i) exercise the Management Company’s 21% shareholding in the Claimant, whether directly or indirectly, or (ii) cause the Management Company’s ownership to be transferred to any party other than Mr Z, in order to appoint a 5^th director to the Claimant’s Board pursuant to Article 73(d) of the M&A (‘Common Understanding/Legitimate Expectation regarding the Management Company’s 21% Shareholding’).”

70.Counsel for the C Parties camp argued that IBS had, by paragraph 93 (2) and (6) of the SODC, admitted that ManCo would be “100% owned” by Mr Z, and that Mr Z was to “hold 100% of the equity shares” in ManCo.

71.On behalf of IBS, Counsel pointed out that IBS had always accepted that the 2007 Transfer gave rise to a valid transfer of legal ownership of the ManCo Ordinary Share to Mr Z. However, IBS argued that the key issue in dispute (as the Tribunal also accepted) was whether the beneficial ownership in the Class B Common Shares had been effectively passed, as a result of valid 2016 and 2020 Transfers.

72.IBS highlighted the fact that the ultimate relief sought by IBS in its SODC was “a declaration that the direct or indirect transfer of control of ManCo’s 21% Class B Common Shares in CPG to (the School) and Y Co was in breach of (i) clause 7.2 of the SPA and/or (ii) the Common Understanding/Legitimate Expectation regarding (ManCo’s) 21% (Class B Common Shares in CPG) and accordingly invalid, of no effect, and/or inequitable”. The breach of clause 7.2 of the SPA was always a ground for the relief sought by IBS.

73.The scope of the submission to arbitration has to be considered not only in the confined context of the pleadings, but also against the background of the Arbitration, the submissions made, and “in the round”. In this respect, Counsel for IBS pointed out that at the early stage of the Arbitration in January 2021, in IBS’ Response to the Notice of Arbitration, IBS had already given notice of its intention to challenge CPG’s standing. IBS claimed then that CPG lacked authority to commence the Arbitration, on the grounds that the transfer of shares from C Parties to the School and Y Co, and their subsequent exercise of rights to gain control over the board and the general meetings of CPG, were wrongful.

74.I agree with Counsel for IBS, that the challenge to CPG’s standing and to the jurisdiction of the Tribunal meant that the Tribunal must rule on the validity of the constitution of the CPG Board, and it must have been clear to the parties that the dispute over CPG’s authority could only have been resolved by reference to the Beneficial Ownership Issue and the Voting Rights Issue as now contended by C Parties.

75.It can therefore hardly be said that C Parties could have been surprised that the Tribunal would rule on these issues, of whether Mr Z had beneficial ownership of the relevant shares by virtue of the 2007 Transfer, and whether the voting rights of the Class B Common Shares could be exercised as a result of the passing or transfer of beneficial ownership of the shares.

76.In my view, the SODC sufficiently pleaded and raised the issue of the C Parties camp: (1) not being the ultimate beneficiaries of ManCo’s 21% shareholding in CPG; (2) not being entitled to transfer the 21% shareholding since it was intended to be transferred to the management team; and (3) not being entitled to exercise ManCo’s 21% shareholding, or causing same to be transferred to any party other than Mr Z.

77.The Agreed List specifically included the issue of “what restrictions on transfers of shares in CPG” were in the 2007 Agreements (Item 10 of the Agreed List), and whether the transfer of shares were in breach of the 2007 Agreements and in particular clause 27.2 of the SPA (Items 15 and 16 of the Agreed List).

78.In any event, Counsel for IBS pointed further to the fact that in the witness statement of Mr D which was served by IBS before the commencement of the Arbitration, IBS had made it clear that the claim that Mr Z had enjoyed full ownership over ManCo was not true, and Mr D had claimed in his witness statement that Mr Z had acknowledged in meetings with Mr L in 2017 that beneficial ownership in ManCo’s shareholding had never been transferred to him, or to any member of the management team under clause 7.2 of the SPA. Whether such evidence is credible, reliable, or sufficient to support the Tribunal’s findings, is of course beyond the scope of this Court’s review.

79.I therefore cannot accept the submissions made for C Parties, that it was only in IBS’ opening submissions that the Beneficial Ownership Issue was raised for the first time, and that it had been raised to the surprise of C Parties. The interpretation and effect of section 7.2 of the SPA and of the Plan and the restrictions on the transfer of shares in ManCo were clearly live issues in the Arbitration.

80.These pleaded and listed issues were ultimately found in favor of IBS, and formed the basis of the Tribunal’s finding that the 2007, 2016 and 2020 Transfers were all invalid. The findings on the Beneficial Ownership Issue and the Voting Rights Issue were the consequence of the Tribunal’s finding on the invalidity of the Transfers according to its construction of the relevant provisions of the SPA and the Plan. The validity and effect of the Transfers and the construction of the SPA and the Plan were the very disputes put to the Tribunal, and the case which C Parties had come to meet in the Arbitration. As patently clear from the Award which referred to the submissions and arguments made for the C Parties camp, they had the reasonable opportunity to present their case, and had made their full submissions. These submissions were considered, but rejected by the Tribunal which ruled against them on their submissions. I agree with IBS that it is not open to the C Parties camp now to nitpick on and to find fault with either the pleadings, or the Award.

Whether the C Parties camp had the opportunity to present their case

81.It follows from my analysis above that the C Parties camp cannot be said to have been taken by surprise by the Beneficial Ownership Issue raised by IBS and decided by the Tribunal. The consequences flowing from the Tribunal’s findings on the interpretation of the relevant provisions of the 2007 Agreements ought to have been foreseen from the pleadings and the issues framed and submitted to the Tribunal for determination in the Arbitration. I do not accept that there was any new issue or difference raised, or that the C Parties camp had been prejudiced in any way.

82.It is trite, that a party cannot complain if it had been given reasonable notice of a live issue which was in the arena, but failed for its own reasons to make full submissions or to present evidence on the issue. I am satisfied on the facts and in the circumstances of this case, that the issues now claimed by C Parties to be material had been adequately raised in the Arbitration and of which the C Parties camp had been given reasonable notice, and that they had the full opportunity to make submissions and to present evidence thereon in the Arbitration. I do not accept that there was any egregious or serious denial of due process, to warrant this Court intervening to set aside the Award.

Public policy

83.Enforcement of an award may only be resisted on the ground of public policy if it is contrary to fundamental conceptions of morality and justice, clearly injurious to public good or wholly offensive to ordinary reasonable and fully informed members of the public (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111).

84.The public policy ground in this case is premised on the grounds of ultra vires and lack of notice/reasonable opportunity to present case. This ground fails when I find that there is no irregularity or egregious denial of due process. There is nothing shocking to the court’s conscience to render enforcement of the Award repugnant (A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389).

Declarations against Y Co, the School and ManCo

85.On behalf of the C Parties camp and the School, Counsel pointed out that the School, Y Co and ManCo were not parties to the 2007 Agreements and the arbitration agreements therein contained. As such, the declarations and rulings made on the 2016 and 2020 ManCo Share Transfers were made in excess of the jurisdiction of the Tribunal, which was appointed and constituted under the arbitration agreements in the 2007 Agreements only. It was highlighted that these parties did not have the opportunity to present their case to the Tribunal which made declarations that the 2016 and 2020 Transfers of shares to them were invalid.

86.Although undertakings had been given by the School, Y Co and ManCo to the Hong Kong Court (in winding up proceedings instituted by IBS against CPG, which were stayed in favor of arbitration), that they would be bound by the determinations made in the Arbitration, it was pointed out that these undertakings only extended to determination of issues arising from the submission to arbitration under the 2007 Agreements - as opposed to any arbitration under the 2016 and 2020 Share Transfer Agreements, of issues arising under these separate agreements.

87.My finding is that the Tribunal’s declarations and findings were made within its jurisdiction, on issues arising and submitted to the Tribunal for determination in the Arbitration, under the 2007 Agreements. The School, Y Co and ManCo undertook to the Court to be bound by the findings and determinations made in the Arbitration. The findings have now been made, and they are bound. Whether they should apply to be joined in the Arbitration, or to make submissions, were for their own choosing and they opted not to do so.

88.Moreover, as submitted by Counsel for IBS, the Declarations were purely declaratory, and were made against the parties to the Arbitration which were IBS, C Parties and the School. Technically, the Award is not directly binding on third parties, but in this case, Y Co, the School and ManCo chose to undertake to the Court in terms which extended to include all findings and determinations in the Arbitration which may affect their rights and obligations. It was on the basis of these undertakings that the Hong Kong Court stayed the winding up proceedings, and I see nothing unjust in accepting that Y Co, the School and ManCo should be bound by and according to the terms of their undertakings.

Disposition

89.The application to set aside the Award is dismissed, with costs on indemnity basis, with certificate for two Counsel.

90.The application to enforce the Award against all Defendants is allowed, with a similar order on costs.

Mr Benjamin Yu SC, Ms Bonnie YK Cheng and Mr Cedric Yeung

(Mr Yeung only present on 21 August 2024),

instructed by King & Wood Mallesons,

for the 1^st to 4^th plaintiffs in HCCT 32/2024 and

for the 2^nd to 5^th defendants in HCCT 33/2024

Mr Rimsky Yuen SC, Mr Alexsander Wong and Mr Justin Ho,

instructed by M/S Chong & Partners LLP,

for the defendant in HCCT 32/2024 and

for the plaintiff in HCCT 33/2024

The 1^st defendant in HCCT 33/2024 was not represented and did not appear