Pi 1 & Pi 2 v. Mr

HCCT 100/2024

[2025] HKCFI 1110

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 100 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.Before this Court is the application made by the Plaintiffs under section 34 of the Arbitration Ordinance, which gives effect to Article 16(3)  of the Model Law, to set aside the order made by an arbitral tribunal (“Tribunal”)  that it has jurisdiction over the claims made by the Defendant named in this action in an arbitration which the Defendant had commenced against the Plaintiffs in Hong Kong (“Arbitration”).

2.The application under Article 16(3)  is for the Court to decide the matter of the Tribunal’s jurisdiction, on a de novo basis. There is no dispute about this.

3.The 1^st Plaintiff is a company incorporated in the Cayman Islands, with its principal place of business in Hong Kong. It carries on a business of acquiring land and developing and leasing science and industrial parks in Mainland China. The 2^nd Plaintiff is a company incorporated in the British Virgin Islands and holds 60% of the issued share capital of the 1^st Plaintiff.

4.The Defendant is a company incorporated in the Cayman Islands, holding 40% of the issued share capital of the 1^st Plaintiff, and accordingly is its minority shareholder.

5.The parties entered into the following transaction agreements (“Transaction Agreements”):

(1)  a Share Subscription Agreement on 7 August 2017 (“SSA”), whereby the Defendant subscribed for shares in the 1^st Plaintiff and became the minority shareholder of 32.5% of the issued share capital of the 1^st Plaintiff;

(2)  a Shareholders’ Agreement on 20 March 2018 (“SHA”), which (as described by the Plaintiffs)  contain provisions on the 1^st Plaintiff’s corporate governance, decision making, shareholders’ rights to information, and exit mechanisms; and

(3)  on 20 March 2018 a further Share Subscription Agreement and a further Shareholders’ Agreement, pursuant to which the Defendant subscribed for additional shares in the 1^st Plaintiff, bringing the Defendant’s total shareholding to 40%.

6.All the Transaction Agreements contain an identical arbitration clause which states:

“Any dispute, controversy, difference or claim arising out of or relating to this Agreement, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall first be resolved through good faith discussion and negotiation among the Parties, and if any such dispute cannot be resolved through such discussion and negotiation within thirty (30)  days after such dispute is referred to the Parties’ discussion and negotiation, then such dispute shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (‘HKIAC’)  under the HKIAC Administered Arbitration Rules in force when the Notice of Arbitration is submitted….”

7.There is no dispute, that the Transaction Agreements and the arbitration agreement are governed by and construed in accordance with the laws of Hong Kong.

8.The Defendant commenced the Arbitration on 6 October 2023. The Statement of Claim (“SOC”)  and Defence and Counterclaim were filed, the latter after the Plaintiffs as respondents in the Arbitration had reserved their right to challenge the jurisdiction of the Tribunal.

9.On 4 June 2024, the challenge to the jurisdiction of the Tribunal was made by the Plaintiffs, on the ground that the Defendant’s claims in the Arbitration do not fall within the scope of the parties’ submission to arbitration under the arbitration agreements contained in the Transaction Agreements, and are outside the jurisdiction of the Tribunal. It was alleged that the claims made by the Defendant under section 95(3)  of the Cayman Islands Companies Act 2023 (“Companies Act”)  were within the exclusive jurisdiction of the Cayman Court, to wind up companies on the just and equitable ground.

10.The Plaintiffs highlighted the fact that the Defendant then sought to amend its SOC in the Arbitration, to remove and delete all express references to section 95 of the Companies Act, but maintained the substance of its claims, of there being unfairly oppressive and/or discriminatory conduct and the loss of trust and confidence between the parties.

11.On 2 August 2024, the Plaintiffs’ challenge was dismissed by the Tribunal, which also allowed the Defendant to amend its Statement of Claim.

12.On 28 August 2024, the Plaintiffs applied to this Court for an order to set aside the decision of the Tribunal on its jurisdiction, seeking a declaration from the Court that the Tribunal “does not have jurisdiction over the claims by the Defendant in the Arbitration alleging unfairly oppressive and/or discriminatory conduct and/or loss of trust and confidence” as pleaded in the Amended SOC in the Arbitration (“ASOC”).

13.In their submissions to the Court, Counsel for the Plaintiffs made it clear that their claims are twofold. Firstly, they contend that the Defendant’s claims made in the Arbitration of unfairly oppressive and/or discriminatory conduct on the part of the 2^nd Plaintiff (“Oppression Claims”)  are not arbitrable as they fall within the exclusive jurisdiction of the Cayman Court to wind up a company on the just and equitable ground. Secondly, they contend that the Defendant’s claims of alleged loss of trust and confidence in the 2^nd Plaintiff’s management of the 1^st Plaintiff’s affairs (“Loss of Confidence Claims”)  fall outside the scope of the arbitration clause in the Transaction Agreements, and exceed the contractual jurisdiction of the Tribunal.

14.In determining the Tribunal’s jurisdiction over the claims made by the Defendant in the Arbitration, the nature and substance of the claims made have to be considered.

15.As Counsel for the Defendant highlighted, the Defendant’s claims are that the Plaintiffs had acted in “multifarious breaches” of their obligations as stipulated under the Transaction Agreements and in particular the SHA made between the parties, on the basis of which the Defendant had agreed to subscribe for shares in the 1^st Plaintiff. The alleged and pleaded breaches of agreements have been categorized by the Defendant, as follows:

(1)  Unauthorized remuneration of Mr A[1], in breach of Clauses 5.8, 6.1, 6.2, 7.3, paragraphs 10 and 21 of Schedule 1, and/or an implied term of the SHA (paras 62-64 of the ASOC);

(2)  Unauthorized related-party transactions, in breach of Clauses 6.1 and 6.3, and paragraphs 7, 10 and/or 21 of Schedule 1, of the SHA (para 89 of the ASOC);

(3)  Failure to remit the Minimum Net Consideration of the sale of the Chang An Assets and failure to provide financial information in respect of the sale, in breach of Clauses 6.3 and 6.4 of the SSA and Clause 10.2(e)  of the SHA (para 113 of the ASOC);

(4)  Failure to provide financial and business information relating to the 1^st Plaintiff and its subsidiaries, in breach of Clause 11.3 of the SHA (para 115 of the ASOC);

(5)  Failure to allow the Defendant to inspect books of account and other records, in breach of Clause 11.4 of the SHA (para 117 of the ASOC);

(6)  Failure to appoint the Defendant’s nominated individual as a non-voting Observer, in breach of Clause 7.1 of the SHA (para 120 of the ASOC);

(7)  Failure to allow the Defendant’s appointed directors to attend the board meetings of the 1^st Plaintiff on 28 September 2023, in breach of Clauses 5.7(a), 5.8, 6.1, 7.3, and paragraphs 10 and 21 of Schedule 1, of the SHA (paras 125 and 127 of the ASOC);

(8)  Failure to implement and maintain appropriate corporate governance measures, in breach of Clause 11.1 of the SHA (para 132 of the ASOC);

(9)  Failure to comply with the October 2023 Exit Notice, in breach of Clause 12.3(d)  of the SHA (para 137 of the ASOC);

(10)  Failure to provide the Business Plan, in breach of Clause 5.11 of the SHA (para 139 of the ASOC);

(11)  Failure to comply with the January 2024 Exit Notice, in breach of Clause 12.3(d)  of the SHA (para 154 of the ASOC); and

(12)  Failure to co-operate to effectuate the change of the Defendant’s appointed director, in breach of Clause 5.5 of the SHA (para 164 of the ASOC).

16.The ASOC pleads that on the basis of the above breaches of the SHA and SSA, the 2^nd Plaintiff had acted in a manner that is unfairly oppressive and/or discriminatory and against the Defendant’s interest as minority shareholder of the 1^st Plaintiff, that there is a justifiable loss in trust and confidence in the 2^nd Plaintiff and in the conduct and management of the 1^st Plaintiff’s affairs, because the 2^nd Defendant has (inter alia)  repudiated the relationship established by the Transaction Agreements, and there has been serious misconduct and mismanagement of the affairs of the 1^st Plaintiff, leading to a loss of confidence in management.

17.The Plaintiffs contend that there is nothing objectionable in the Tribunal’s assuming jurisdiction and deciding the Defendant’s claims that the Plaintiffs had acted (allegedly)  in breach of the SHA and/or the SSA. The Defendant has readily accepted that the claims of breach of the Transaction Agreements and the relief sought in the Arbitration are made “with a view that the Tribunal will make findings that may be deployed as a precursor for the Cayman Courts in potential applications by the Defendant to wind up the 1^st Plaintiff on the just and equitable ground, or alternatively, to grant buy-out relief”. On the Plaintiffs’ case, this is not permissible, as the Tribunal does not have any jurisdiction to make any order on the parties’ conduct, or breach, which is tantamount to seeking an order or declaration for a Cayman company (such as the 1^st Plaintiff)  to be wound up on just and equitable grounds under the Companies Act. On behalf of the Plaintiffs, Mr Wong argued that there is no other utility for the order or relief sought by the Defendant, other than to show that a ground has been established under the Companies Act for the 1^st Plaintiff to be wound up. This, Mr Wong submitted, is not permissible since the statutory cause of action of winding up on just and equitable grounds belongs exclusively to the domain of the Cayman Court, as the Privy Council held in Family-Mart China Holding Co Ltd v Ting Chuan (Cayman Islands)  Holding Corp [2024] Bus LR 190.

18.On the Defendant’s case, Family-Mart has authoritatively stated the matter in favor of the Defendant in this case - that the claims now made by the Defendant in the Arbitration and which are disputed by the Plaintiffs are not within the exclusive purview of the Cayman Courts, and are arbitrable.

Whether the Oppression Claims are arbitrable

19.I agree with Counsel for the Defendant, that the question has been carefully considered and explained by the Privy Council in Family-Mart. Mr Dawes for the Defendant argued that the decision is in fact on all fours with the present case. The petitioner in Family-Mart was the minority shareholder of the Cayman company, and it claimed that it had lost trust and confidence in the majority shareholder and in the management of the affairs of the company, such that the relationship between the shareholders had irretrievably broken down. A petition was presented on that basis to the Cayman Courts under section 92 of the Companies Act, for the company to be wound up on the just and equitable ground, and alternatively, for an order that the shareholder’s stake be bought out.

20.In gist, the Board held in Family-Mart that matters such as whether one party had breached its obligations under a shareholders’ agreement, or whether equitable rights arising out of the relationship between the parties had been flouted, were arbitrable in the context of an application to wind up a company on the just and equitable ground, and an arbitration agreement is not inoperative just because the tribunal did not have power to make a winding up order or grant a buyout order. It was also held by the Board that whether the petitioner had lost trust and confidence in the majority shareholder and the management, and whether the relationship between the shareholders had broken down, were substantive disputes that fell within the scope of the arbitration agreement and had to be determined by an arbitral tribunal.

21.Mr Wong has pointed out that the parties in Family-Mart had agreed that the matters of breakdown of relationship, and breach of equitable rights, were matters within the scope of their arbitration agreement. It was not a question decided by the Board.

22.The relevant arbitration clause in Family-Mart provides for “any and all disputes in connection with or arising out of” the agreement to be arbitrated.

23.At paragraph 23 of the judgment of Lord Hodge DPSC, the five matters comprising the petition for winding up in the case were identified as follows:

(1)  whether the minority shareholder has lost trust and confidence in the majority shareholder and in the conduct and management of the company’s affairs;

(2)  whether the fundamental relationship between the shareholders has irretrievably broken down;

(3)  whether it is just and equitable that the company should be wound up;

(4)  whether the minority shareholder should be granted the alternative relief under section 95(3)(d)  of the Companies Act (an order requiring the majority shareholder to sell its shares)  and if so, the value of those shares; and

(5)  whether, if such alternative relief is not appropriate, an order winding up the company should be made and whether the persons identified by the minority shareholder should be appointed as joint official receivers.

24.In his judgment, Lord Hodge found that an arbitral tribunal does not have the power to make rulings on matters (3)  (4)  and (5), but that the tribunal can decide matters (1)  and (2)  as they are controversies relating to legal or equitable rights, which lie at the heart of the legal proceedings in the Cayman Islands for an order under section 95 of the Companies Act. It was pointed out that a declaration that the majority shareholder had breached equitable rights of the minority shareholder, and that the relationship had broken down, would be highly relevant to the application for a just and equitable winding up of the company, or in the alternative, a share buy-out. However, that did not stop His Lordship from concluding that such matters could and should be decided by the tribunal.

25.In his valiant attempt to get around the decision in Family-Mart, Mr Wong sought to argue that it is not permissible for the Tribunal to make findings of fact and law on whether oppression and discriminatory conduct existed, as these are findings on what in law comprises the ground for winding up under section 92, and that is a precursor which is for the Cayman Court to decide. In his arguments, Mr Wong highlighted the fact that matter (3)  as identified at paragraph 23 of the Family-Mart judgment is not a question of the relief to be granted, but goes to the statutory cause of action for winding up, and whether the cause of action for winding up can be established.

26.By so contending, Counsel effectively adopted the reasoning of Moses JA (of the Court of Appeal of the Cayman Islands, from which the appeal was brought to the Board), which is referred to at paragraphs 19 and 84 of Lord Hodge’s judgment, and dealt with by His Lordship at paragraph 85:

“19 Moses JA distinguished those cases, holding that under section 92 of the Company’s Act the court’s consideration of whether it is just and equitable that a company should be wound up is a threshold question and not a question of relief. Section 92 was the sole gateway to obtaining alternative relief under section 95(3)…

…

84 Moses JA further reasoned that, as the majority directors and the company were not parties to the SHA and to the arbitration agreement which it contained, and as the allegations made against Ting Chuan could not be separated from the threshold issue of whether the court was of the opinion that it was just and equitable that the company be wound up, the arbitration agreement was inoperative. His conclusion has been summarised in a first instance decision of the High Court of England and Wales in these terms:

“Where … a necessary precursor to any form of relief is a decision by the court that it would be just and equitable to wind up the company, then bifurcation will not be possible.”

See Riverrock Securities Ltd v International Bank of St Petersburg [2021] 2 All ER (Comm)  1121, para 68, per Foxton J. See also NDK Ltd v HUO Holding Ltd [2022] Bus LR 761, para 64 in which Foxton J recorded the proposition from Riverrock as common ground between the parties. The issue before the Board in relation to matters (1)  and (2)  is whether that statement is correct.

85 Mr Lowe advanced several submissions as to why the Court of Appeal had decided this case correctly. On the question of statutory interpretation, he argued that the Companies Act made it clear that no private arbitral tribunal could make the critical decision whether it is just and equitable to wind up the company. The Board agrees for the reasons discussed above but that argument goes only to matters (3)  and (4).”

27.As Mr Dawes for the Defendant pointed out, and as can be seen from paragraph 85 of Lord Hodge’s judgment, the reasoning of Moses JA was not adopted by the Board on appeal, as Lord Hodge found that the argument is valid only with regard to matters (3)  and (4). Matter (3)  is the question whether it is just and equitable that the company should be wound up. This is not what the Tribunal is asked to consider or to order in the Arbitration.

28.The relevant passages of the judgment in Family-Mart, which have been referred to by both counsel, are set out below:

“77 Similarly, in an application to wind up a company on the just and equitable ground there may be matters in dispute between the parties, such as allegations of breaches of a shareholders’ agreement, which can be referred to an arbitral tribunal for a determination, which is binding on the parties, notwithstanding that only a court can make a winding up order: Fulham, Patten LJ at para 76; Quiksilver, Harris J at paras 14, 21-22; Tomolugen, Sundaresh Menon CJ at paras 96-103; WDR Delaware, Foster J at paras 161-164….

78 In WDR Delaware Foster J summarised his conclusion on this matter at para 164:

“With the exception of that part of the present proceeding which involves the court forming an opinion as to whether the plaintiffs are entitled to a winding up order, the questions of fact and law which mark out the substantive controversy between the parties in this proceeding are all matters which are capable of resolution by arbitration. Any award or awards which determine those matters will be taken into account when the court comes to consider whether a winding up order should be made. If, at the end of the arbitral process, the award or awards do not address satisfactorily or comprehensively all of the grounds relied upon by the plaintiffs in support of their claims for relief made in the present proceeding, then it will be open to them to supplement or explain the terms of the relevant award or awards by evidence. The process by which that would be done is the everyday process of applying the law of evidence.”

The Board agrees as a general rule with this approach to discrete matters which involve inter partes disputes in the context of a winding up application. Matters, such as whether one party has breached its obligations under a shareholders’ agreement or whether equitable rights arising out of the relationship between the parties have been flouted, are arbitrable in the context of an application to wind up a company on the just and equitable ground and the arbitration agreement is not inoperative because the arbitral tribunal cannot make a winding up order.

9 The application of the FAAEA to the facts of this case

79 The first matter which the Board must address is the interpretation of the Companies Act. As stated in para 14 above, section 92 of that Act sets out the grounds on which the court may wind up a company including the ground which is relevant in this appeal, i e that the court is of the opinion that it is just and equitable that the company should be wound up. Section 95 of that Act sets out the powers of the court, which include the power to make a winding up order or on a contributory’s petition on the just and equitable ground, an alternative order providing, among other things, for the purchase of the shares of any members of the company by other members of the company.

80 The Board agrees with Moses JA that the court’s consideration under section 92 of the Act whether it is just and equitable that the company should be wound up is a threshold question which is to be answered before a petitioner can get access to any of the remedies available under section 95. That is clear from a straightforward reading of the wording of the Act. The Board also accepts, as Moses JA held, that the court has exclusive jurisdiction to make a winding up order. A winding up order is an order in rem which only a court can make. It is beyond the jurisdiction of an arbitral tribunal as parties cannot confer such a power on an arbitral tribunal by private agreement. An arbitral agreement that purported to confer such a power would be inoperative to that extent.

81 Further, in deciding whether to make a winding up order on the just and equitable ground, the court conducts a wide-ranging enquiry into and evaluation of the facts. The court takes the decision whether it is just and equitable to wind up a company with regard to all the relevant circumstances at the date of the hearing: Lau v Chu [2020] 1 WLR 4656 (“Lau v Chu”), para 43, per Lord Briggs JSC, giving the judgment of the Board. A decision by an arbitral tribunal on whether it was just and equitable to wind up the company by reference to the circumstances which existed on an earlier date could not determine the issue which the court has to consider. Such a decision would be an ineffective legal judgment. The Board therefore respectfully disagrees with the obiter suggestion by Patten LJ in Fulham, para 83 (and its endorsement by Sundaresh Menon CJ in Tomolugen, para 100)  that an arbitrator could make a ruling on whether it would be appropriate for a complainant to initiate winding up proceedings or be limited to some lesser remedy. A ruling by an arbitral tribunal that it was of the view that it was just and equitable that a company be wound up would be ineffective; it could not bind the parties in a hearing before the court and, given the interests of third parties in a possible winding up of the company, it could not bind the court. In deciding on the appropriate remedy under section 95 the court takes into account the interests of third parties, including the company’s directors and employees, and businesses which have dealings with the company, who will be affected if a winding up order is made. See, by way of analogy, Fulham, para 46; In re Neath Rugby Ltd (No 2); Hawkes v Cuddy (No 2) [2009] BCLC 427, para 84; and In re Asia Television Ltd [2015] 1 HKLRD 607, paras 55-58.

82 The parties were therefore correct in their agreement that an arbitral tribunal does not have the power to decide the fifth matter listed in para 23 above, i e whether a winding up order should be made and whether the persons identified by FMCH should be appointed joint liquidators of the Company. Further, for the reasons set out above, the Board agrees with Mr Thomas Lowe, counsel for FMCH, that an arbitral tribunal does not have power to make a ruling on matters (3)  and (4), i e whether it is just and equitable that the company should be wound up or whether the remedy of a share buy-out should be granted under section 95 of the Companies Act.” (Emphases added)

29.In my view, the decision of the Board makes it clear that:

(1)  Matters which involve disputes between the parties as to whether one party has breached its obligations under an agreement made between them, or whether equitable rights arising out of the relationship between the parties have been disregarded, can be decided by the tribunal, even in the context of an application made to the court to wind up a company on the just and equitable ground, and even if these matters can be said to be “precursors” to the eventual question set out at (2)  below (paras 77 and 78 of the judgment).

(2)  It is a decision for the Court to make, in the exercise of its discretion, whether it is just and equitable to wind up a company, and whether a winding up order should be made on that ground (para 80 of the judgment).

(3)  Whether it is just and equitable that the company should be wound up is a “threshold” question, to be answered before a petitioner can get access to any of the remedies available under section 95 (including an order to wind up and a buy-out order)  (para 80 of the judgment).

30.However, there is nothing I can find in Lord Hodge’s judgment that supports Mr Wong’s further argument, that because a tribunal cannot decide the threshold question or the “cause of action” of “whether it is just and equitable to wind up a company”, the tribunal is for that reason precluded from deciding disputed questions of fact, that there were breaches of agreement or, as in this case, that there was oppressive or discriminatory conduct, which may in due course establish and support the ground of petitioning the Court to make an order to wind up a company because it is just and equitable to do so.

31.What the judgment in Family-Mart makes clear is simply that it is for the Court to form its own opinion as to whether a petitioner is entitled to a winding up order, on the basis of the Court’s own consideration of the facts and circumstances at the time of the hearing of the petition, and for that reason, it is not for the tribunal to make any effective or binding opinion of its own on such matter, of whether it is just and equitable to wind up the company.

32.Mr Wong argued that “oppressive” and/or “discriminatory” conduct are not matters which can be determined and found by the Tribunal as questions of facts. They are, he contended, difficult and complex concepts based on and rooted in broader principles of Cayman Islands company law and equitable considerations regarding the winding up jurisdiction of the Cayman Islands courts. In my judgment, that does not mean that the Tribunal cannot decide these questions (assisted by expert evidence on Cayman law, if appropriate and necessary)  even if they involve questions of mixed fact and law as Counsel suggests. It only follows from the judgment in Family-Mart that if the Cayman Court hearing the petition for winding up on just and equitable grounds considers that the oppressive and discriminatory conduct found by the Tribunal on the evidence before it is not sufficient, or is somehow different to the concept recognized by the Cayman Court as a ground for winding up a company under the Companies Act, the Court can come to its own decision and opinion on whether it would, in all the proper and relevant circumstances recognized by the Cayman Court, make the order or grant the relief that the company be wound up under section 95 of the Companies Act.

33.The Cayman law expert opinion relied upon by the Plaintiffs is not disputed by the Defendant. The opinion does not raise any novel issue, and relies essentially on Family-Mart.

34.In the ASOC, what the Defendant seeks from the Tribunal are (according to para 6):

(1)  a declaration that the Plaintiffs “are in breach of the (Transaction Agreements)”;

(2)  “factual findings that the (Plaintiffs)  have acted in a manner that is unfairly oppressive and/or discriminatory and against the (Defendant’s)  interest as a minority shareholder”; and

(3)  “factual findings” that the Defendant has lost trust and confidence in the 2^nd Plaintiff and in the conduct of the 1^st Plaintiff’s affairs, because there had been a want of probity and/or fair dealing on the part of the directors of the 1^st Plaintiff procured by the 2^nd Plaintiff, and/or because the 2^nd Plaintiff has repudiated the relationship established by the Transaction Agreements, and/or there has been serious misconduct and mismanagement of the affairs of the 1^st Plaintiff, leading to a loss of confidence in management.

35.In the Request for Relief set out in the ASOC, the declaration sought in paragraph 6 is repeated.

36.The Plaintiffs pointed out that originally, the Defendant’s pleading included the reference to the Plaintiffs acting “otherwise in a manner which entitles the Defendant to one or more reliefs under section 95(3)  of the Cayman Islands Companies Act”. That was deleted in the amendment, but Mr Wong argued that it makes no difference in substance.

37.In my view, and from reading paragraph 6 of the ASOC, the claims and declaration sought from the Tribunal are based on duties said to arise under the Transaction Agreements and breaches thereof, and confined to claims as to whether the Plaintiffs had acted in a manner which is unfairly oppressive and discriminatory, or constituting in law a repudiation of the Transaction Agreements. These questions do not fall within the subjects held in Family-Mart to be outside the jurisdiction of any arbitral tribunal.

38.On behalf of the Plaintiffs, it was contended that the winding up order on just and equitable grounds follows from and is the automatic consequence of the finding or declaration on the existence of the oppressive and discriminatory conduct. I do not agree, as the Cayman Court exercising its undisputed discretion and jurisdiction is still entitled to consider whether, by reason of the oppressive and discriminatory conduct considered and found by the Tribunal, the Court should in its own opinion find, on the evidence adduced before it at the hearing of the petition, that it will be just and equitable to wind up the company (according to the “concept” recognized by the Cayman Court), and if yes, to grant the winding up order sought in the petition.

39.In Family-Mart itself, the Board recognized that the tribunal’s determination of matters of alleged loss of trust and confidence, alleged breach of directors’ duties and alleged breakdown of relationship under matters (1)  and (2)  are “essential precursors to the court’s formation of its opinion whether it is just and equitable to wind up the company” (para 103 of the judgment). Despite being precursors to the grant of a winding up order or relief on the just and equitable ground, the Board did not consider that decision on these matters would be outside the jurisdiction of the tribunal. Instead, it found that determination of these issues should be stayed to arbitration. There is, in my judgment, no cause to distinguish those issues from the issues raised by the Oppression Claims in this case.

40.I agree with the Defendant, that the findings of “unfair oppression” or “discrimination” are not remedies to be granted. The remedies are the winding up orders, buyout orders or other alternative relief which may be granted by the Court under section 95 of the Companies Act. In seeking the declaration in the Arbitration, the Defendant is not seeking from the Tribunal any remedy under section 95 of the Companies Act which only the Court is empowered to grant.

41.Mr Dawes referred to paragraph 105 of the judgment in Family-Mart, which expressly rejects the contention that questions of mixed fact and law which may provide “the factual basis” for the winding up petition on just and equitable grounds cannot be determined by the arbitral tribunal:

“105 Matters (1)  and (2)  are substantive disputes between FMCH and Ting Chuan which provide the factual basis for the winding up petition on the just and equitable ground. Those matters fall within the scope of the parties’ arbitration agreement and must be determined by an arbitral tribunal unless the parties waive their right to arbitration.”

42.Having considered the judgment in Family-Mart in full, I agree with the Defendant that the decision is in favor of the Defendant in the present case, and there is no authority to support the contention that either the Oppression Claims or the Loss of Confidence Claims are not arbitrable.

Whether the Loss of Confidence Claims fall within the scope of the arbitration agreement

43.The Plaintiffs’ challenge in relation to the Loss of Confidence Claims is not that they are non-arbitrable, but simply that these claims are outside the scope of the arbitration agreement.

44.The Plaintiffs placed reliance on the Court’s decision in Dickson Holdings Enterprise Co Ltd v Moravia CV [2019] HKCLC 397. In that case, G Lam J (as His Lordship then was)  held that there are “special features of company law” that exist independently of the contractual agreements between the parties, and do not fall within the scope of arbitration clauses even if they contain general words having a wide import. On the strength of Dickson Holdings, Counsel for the Plaintiffs argued that the claims made and disputes arising in this case, as to whether there was a breakdown and loss of confidence between the Plaintiffs and the Defendant by virtue of the matters complained of by the Defendant, are not reliant on but are separate to and arise independently of the contractual sphere of the Transaction Agreements, to fall outside the scope of the parties’ agreement to submit their dispute to arbitration.

45.Dickson Holdings concerns a petition made by DHE against the 1^st respondent (Moravia, a Netherlands company), in which complaint was made against a transfer of DHE’s shares in a Hong Kong company and the forfeiture of such shares, with relief sought from unfairly prejudicial conduct under the Companies Ordinance of the laws of Hong Kong. The company was set up and the shareholders agreement was made in relation to a project of constructing a shopping mall and hotel complex on the Mainland. The overarching complaint in the petition was that the affairs of the company had been conducted by Moravia in a manner unfairly prejudicial to DHE, at a time when DHE was a shareholder of the company. The initial complaint made in relation to the wrongful transfer of DHE’s shares was abandoned and ultimately, the hearing of the petition concerned whether a resolution passed by the board of directors was unilaterally, arbitrarily and wrongfully imposed by Moravia and the directors, when the resolution sought to seek payment from the shareholders in respect of their unpaid shares in the company, and for such shares to be forfeited and cancelled in the event of non-payment, and for new shares to be adopted (the so-called “Share Forfeiture Scheme”). The claim made was that no notice of the relevant board meeting as required under the articles of association had been given to DHE, and that the resolution was accordingly invalid. It was further claimed that the share forfeiture was in breach of a common understanding with DHE, and that the purpose of the Share Forfeiture Scheme was to misappropriate DHE’s shareholding and to enable Moravia to exercise complete control over the company and to oust DHE completely. By way of relief, DHE claimed declarations that the board resolution and the Share Forfeiture Scheme were invalid, an order for rectification of the share register, and an order that Moravia purchase DHE’s 50% shareholding in the company at a price to be determined.

46.The respondents in Dickson Holdings applied to strike out the petition and to stay the proceedings in favor of arbitration pursuant to the arbitration agreement contained in a shareholders agreement made between the parties. The Court refused to grant the stay, holding that there was no prima facie case that the matter or substance of the dispute falls within the ambit of the arbitration clause, which provides for “any dispute, controversy or claim arising out of or relating to (the agreement), or the breach, termination or invalidity thereof” to be settled by arbitration.

47.In Dickson Holdings, it was argued that DHE had failed to perform its duties under the shareholders agreement to manage, supervise and to take steps to ensure the success of the project. In relation to the claim regarding the forfeiture of DHE’s shares, G Lam J made the following observations (at paragraph 35 of the judgment):

“The forfeiture of DHE’s remaining 275,000 shares seems to me to stand on a different footing. The nature of the complaint is, first, a breach of the articles of association, in a form of failure to give notice of the proposed directors’ resolution and wrongful application of the forfeiture provisions to shares which had in fact been paid up. In addition, the petition alleges an exercise of directors’ powers for wrongful purposes (and implicitly, therefore, in breach of fiduciary duties). It appears from the likely defence, as gleaned from the affirmations filed thus far, that the principal contentions will revolve round the questions of notice, payment, and purpose. The dispute does not seem to me on its face to have any direct connection with the Shareholders Agreement. “

48.When construing the arbitration clause and its scope, His Lordship held:

“40 The presumption of one-stop adjudication, as counsel put it, must be approached in this case having regard to the special features of company law. Once the parties became shareholders in the Company, they did not only enter into a contractual relationship arising from and governed by the Shareholders Agreement, but also a relationship governed by the company law of Hong Kong as well as the articles of the Company arising simply from the fact that they were shareholders in the Company. There are various rights and obligations associated with membership of a company that exist independently of any shareholders’ agreement. There can be various types of disputes between shareholders on questions on which their shareholders’ agreement, as such, makes no provision at all. It has to be borne in mind that the arbitration clause in this case applies to disputes arising out of or relating to the Shareholders Agreement or the breach, termination or invalidity thereof, not arising out of or relating to any affairs of the Company. If the parties had intended otherwise, they could have easily devised an arbitration clause that expressly applied to any dispute between them relating to any affair of the Company. An example of a provision inserted into the articles of a company, requiring any difference relating to “any of the affairs” of the company to be referred to arbitration, may be found in Newmark Capital Corporation Ltd & Others v Coffee Partners Ltd & Another [2007] 1 HKLRD 718, §13.

41 For this reason, even general words having a wide import may not be apt to encompass all disputes concerning shareholders’ rights. In the present case the complaint is based on a breach of the articles and of the fiduciary duty of directors. The Shareholders Agreement makes no provision concerning notice of board meetings, payment for shares or forfeiture of shares. The proprietary rights of a member to its shares in the Company is not the subject matter of the Shareholders Agreement at all, but governed by ordinary company law. As I understand the position, the Shareholders Agreement is neither relied upon for the claim nor for the defence. While the respondents do allege that DHE had failed to perform its obligations under the Shareholders Agreement for the promotion of the project and the procurement of funding, such allegations appear to form only the backdrop to the respondents’ case rather than to provide a legal defence to DHE’s complaint. The dispute in the petition concerns the legal validity of the share forfeiture, not the motives for or commercial reasons leading to it. In my judgment, the dispute cannot be said to have arisen out of or to relate to the Shareholders Agreement or its breach, termination or invalidity.” (Emphases added)

49.From the above highlighted parts of the judgment in Dickson Holdings, it can be seen that the case is clearly distinguishable from the present one. His Lordship’s finding that the dispute and claims made in Dickson Holdings fell outside the scope of the relevant arbitration clause was due to the fact that the shareholders agreement in question did not make provision for the matters which were the subject matter of the claims made, which claims concern the requirement for notice of meetings and how shares can be forfeited, and the Shareholders Agreement between the parties in Dickson Holdings was not even relied upon in the claim. Those claims in Dickson Holdings can therefore properly be said to exist independently of the agreement made between the parties, and it cannot be said that the disputes which had arisen between the parties arose out of or related to the relevant agreement, or the breach, or termination thereof.

50.Contrasted with the claims made in Dickson Holdings, those which are made in the present proceedings against the Plaintiffs relate precisely to obligations provided for and arising under the Transaction Agreements, which obligations and provisions are said to have been breached by the 2^nd Plaintiff, and which are claimed to be the evidence and cause of the loss of trust and confidence. Whether these provisions are of the effect alleged by the Defendant, and were indeed breached, so as to establish a loss of trust and confidence, or constitute oppression or discriminatory conduct, are for the ultimate decision by the Tribunal, in accordance with the dispute resolution mechanism agreed to by the parties to the Transaction Agreements.

51.Mr Dawes for the Defendant drew attention to the fact that the arbitration clause in the Transaction Agreements is drafted in terms wider than the language used in the arbitration clause in Dickson Holdings. The arbitration agreement in this case refers to and includes any dispute “regarding non-contractual obligations arising out of or relating to” the Transaction Agreements. It covers tortious claims, as well as disputes in respect of any other obligations which are not purely contractual.

52.The Plaintiffs highlighted the fact that the arbitration clause in the Transaction Agreements does not refer to or include disputes as to “the affairs of the company”, as suggested by G Lam J in Dickson Holdings. That is true, but so long as it can be established that the claims of breach of the Transaction Agreements arise out of, or relate to disputes in connection with the existence, interpretation and performance of the obligations provided for in the Transaction Agreements and the alleged breach thereof, as I find that they do on the face of the ASOC in this case, such claims will fall within the scope of the arbitration agreement, and hence within the scope of the Tribunal’s jurisdiction. I do not consider that the claims of breach made in the Arbitration are independent of or separate to the Transaction Agreements.

53.Nor are the Plaintiffs assisted by the other cases referred to by Counsel, namely ZPMC-Red Box Energy Services Ltd [2021] HKCFI 3501 and Joseph Ghossoub v Team Y&R Holdings Hong Kong Ltd & ors, unreported, HCMP 3136/2016, 21 July 2017. The former relates to claims made against the director and CEO of the plaintiff for breaches of fiduciary duties, contractual duties and/or breach of trust, and the Court held that since the director/CEO was not a party to the shareholders agreement, it was difficult to see how the plaintiff’s disputes with him can arise out of or in connection with the shareholders agreement, within the terms of the arbitration clause. The decision in Joseph Ghoussoub, refusing a stay of the petition pending determination by the English courts, was based primarily on the fact that the English court does not even have jurisdiction to determine a claim for unfair prejudice in respect of the company incorporated in Hong Kong.

54.It was argued for the Plaintiffs that in making the Loss of Confidence Claims, the Defendant is in essence making serious allegations of misconduct against the directors of the 1^st Plaintiff, who are strangers to the arbitration agreements contained in the Transaction Agreements. It was contended that the Tribunal has no jurisdiction over the directors and the conduct.

55.However, as Counsel for the Defendant correctly pointed out, claims of breach of directors’ duties were raised in Family-Mart, but that did not lead the Board to conclude either that the arbitration agreement was inoperative, or that the precursor claims are so inextricably linked to the question of whether it was just and equitable to wind up the company, that they cannot be decided by the tribunal. The reliance on Riverrock Securities was rejected by the Board in Family-Mart, when it held (at paragraph 84)  that it is not correct to state that this prevents bifurcation of matters (1)  and (2)  or exclusion of such matters from the tribunal’s decision. Further and more pertinently, it was highlighted by the Defendant in this case that in the Arbitration, it is only seeking relief against the Plaintiffs, and not against the directors of the 1^st Plaintiff, so that the Tribunal is not being asked to make any findings against the directors.

56.In my judgment, both the Oppression Claims and the Loss of Confidence Claims fall within the scope of the arbitration agreement between the parties.

Disposition

57.The Plaintiffs’ application to set aside the order and decision of the Tribunal on jurisdiction is dismissed, with costs to be paid by the Plaintiffs to the Defendant, on indemnity basis, with certificate for 2 Counsel.

Mr William Wong SC, Mr Look-Chan Ho and Mr Joshua Yeung, instructed by So, Lung & Associates, for the 1^st & 2^nd plaintiffs

Mr Victor Dawes SC and Ms Bonnie YK Cheng, instructed by DLA Piper Hong Kong, for the defendant