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Aw And Others v Py And Another

Judgment Cited authorities 7 Cited in 1 Precedent Map Related
Vincent
Judgment Date13 May 2022
Neutral Citation[2022] HKCFI 1397
Year2021
Judgement NumberHCCT47/2021
Subject MatterConstruction and Arbitration Proceedings
CourtCourt of First Instance (Hong Kong)
HCCT47/2021 AW AND OTHERS v. PY AND ANOTHER

HCCT 47/2021

[2022] HKCFI 1397

(redacted and amended copy)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 47 OF 2021

____________________

IN THE MATTER of an Arbitration administered by the Hong Kong International Arbitration Centre (“HKIAC”) in HKIAC xxxxx (the “Arbitration”);
and
IN THE MATTER of section 81 of the Arbitration Ordinance (Cap 609) and Article 34 of the UNCITRAL Model Law on International Commercial Arbitration;
and
IN THE MATTER OF Order 73 of the Rules of the High Court (Cap 4A)

____________________

BETWEEN
AW 1st Plaintiff
AW BJ 2nd Plaintiff
AW BJT 3rd Plaintiff
G 4th Plaintiff
WX 5th Plaintiff
PT 6th Plaintiff
and
PY 1st Defendant
W 2nd Defendant

____________________

Before: Hon Mimmie Chan J in Chambers
Date of Hearing: 3 March 2022
Date of Decision: 13 May 2022

_____________

D E C I S I O N

_____________

Background

1. These proceedings again concern the disputes amongst the shareholders of AW, which had produced two arbitrations and various proceedings in Hong Kong relating to the awards made.

2. The main protagonists are G and PY. They and others were the beneficial owners of a Mainland company, AW BJ, which carried on a mobile advertising application business on the Mainland. G and PY had transferred their substantial interests in AW BJ to AW (a Cayman Islands company), through a series of variable interest entity (“VIE”) contracts. It was through these VIE contracts and structure that the profits of AW BJ were channeled to AW, of which G and PY (through his company W) were shareholders. The actual shareholding in AW reflected the true ownership of the interests in AW BJ.

3. Some time in 2012, PY/W had transferred some of W’s beneficial interest in AW to 3 individuals, L, Wg and F.

4. In June 2015, an opportunity arose (referred to in the arbitrations as the “DGCM Transaction”), whereby the shareholders of AW had the chance to sell their investment in AW to a Mainland company known as DGCM for substantial gain. DGCM approached the management of AW BJ and negotiated for its acquisition of approximately 80% of the shareholding in AW BJ. A Memorandum of Intent was signed for the acquisition at a consideration of RMB 1.04 billion. AW BJ was valued at RMB 1.3 billion, and the proceeds of the sale of the shares were to be distributed to the shareholders of AW based on the classes and percentage of their shareholding, pursuant to which PY was to receive a sum of RMB 152 million for the shares he held in AW in the name of W. The DGCM Transaction and the potential gain to be made by the shareholders of AW by virtue of their interest in AW BJ became the source of the disputes which subsequently erupted, and led to the arbitrations producing the 2 awards which have been made the subject of the setting aside proceedings in Hong Kong.

5. The opportunity posed by the DGCM Transaction necessitated the termination of the VIE structure, so that DGCM could hold AW BJ directly, and in anticipation of the acquisition, a series of agreements were executed between September and December 2015. First, the existing VIE contracts for AW BJ were terminated by a VIE Termination Agreement. A Framework Agreement was then signed on 21 September 2015 amongst the shareholders of AW, whereby the parties’ rights in relation to and under the DGCM Transaction were set out. W/PY was (inter alia) granted a right to restore their interest in AW if the DGCM Transaction should fall through. On 11 and 12 September 2015, W also repurchased from Wg and F the AW shares it had sold in 2015 (“Repurchase”). Finally, on 15 December 2015, the Share Redemption Agreement was entered into between W and AW. Under the Share Redemption Agreement, AW agreed to redeem from W, and W agreed to sell to AW, approximately 15.8 million shares at the purchase price of RMB 87.5 million.

6. As it transpired, the DGCM Transaction was not completed. A series of proceedings ensued.

7. On 25 January 2017, PY and W as claimants commenced arbitration against AW, AW BJ and others as respondents under the Framework Agreement (“Arbitration 1”). They claimed that the respondents were in breach of the Framework Agreement, clause 6 of which provided that if the DGCM Transaction was not completed by 30 June 2016, the parties to the Framework Agreement would cooperate to restore PY’s shareholding in AW BJ to 34%, and restore W’s shareholding in AW to 16.4%. The claimants sought specific performance of the Framework Agreement, and alternatively, damages.

8. In defence, AW, AW BJ and the other shareholders (for convenience, referred to collectively hereunder as “AW Group”) claimed that PY and W were barred from seeking equitable relief. They claimed (inter alia) that at the time of the Framework Agreement in September 2015, PY and/or W, as PY’s nominee, had made misrepresentations as to PY/W’s 16.4% shareholding in AW prior to and at the time of the Termination Agreement (“Shareholding Representation”), and that such ownership was not subject to any actual or potential disputes (“Disputes Representation”). The respondents counterclaimed damages for misrepresentation, and for breach of the Framework Agreement and PY’s breach of fiduciary duties.

9. On 23 June 2017, AW as claimant commenced arbitration against W (“Arbitration 2”) under the Share Redemption Agreement. In Arbitration 2, AW claimed that the Share Redemption Agreement had been induced by misrepresentations made by W, in that PY had assigned a part of his shareholding in AW to Wg, F and L, that proceedings had been commenced by Wg and F against PY in August 2016, and that PY did not in fact own 16.4% of the shareholding in AW prior to and at the time of the Termination Agreement on 10 September 2015. AW claimed in Arbitration 2 that the Share Redemption Agreement had been rescinded by W’s misrepresentations and sought damages. The same claims of misrepresentations were made in Arbitration 1 and Arbitration 2, regarding PY’s shareholding prior to and at the time of the Termination Agreement, and the absence of disputes affecting such shareholding at the time.

10. The Tribunal in Arbitration 1 (“Tribunal 1”) issued its Award on 13 March 2020, dismissing AW Group’s counterclaim of misrepresentation (“Award 1”). On 13 July 2020, the Tribunal in Arbitration 2 (“Tribunal 2”) issued its Award, allowing AW’s claim of rescission of the Share Redemption Agreement for misrepresentation (“Award 2”). In short, the 2 Tribunals arrived at different conclusions and findings on the same facts underlying the misrepresentation claims.

11. On 12 October 2020, W applied to the Court to set aside Award 2, on the ground that it was in conflict with the public policy of Hong Kong, as Tribunal 2 had ignored findings on common issues which had already been determined between the same parties in Award 1, and instead made inconsistent findings despite the fact that one arbitrator had sat on both Tribunal 1 and Tribunal 2, and he did not explain in Award 2 why Tribunal 2’s findings on the same facts were different, or why he did not consider the parties to be bound by the findings he and the other members of Tribunal 1 had already made in Award 1. The details of the setting aside application were set out in this Court’s decision on security, handed down in HCCT 70/2020 on 17 June 2021, and in the Judgment of A Chan, J handed down on 26 January 2022 when His Lordship set aside Award 2.

12. On 10 June 2021, AW Group applied in these proceedings to set aside Award 1 which had been made against it. The grounds relied upon by AW Group are that Tribunal 1’s Partial Final Award in Arbitration 1, dated 13 March 2020 and corrected by the Correction and Interpretation Award of 30 April 2020, and Tribunal 1’s Final Award on Costs dated 13 April 2021 (“Costs Award”), were procured by fraud, in that W and PY had dishonestly concealed relevant and material evidence from AW Group and from Tribunal 1 in Arbitration 1. AW Group had consequently been deprived of the reasonable opportunity to present their case in Arbitration 1, Arbitration 1 had not been conducted in accordance with the arbitration agreement or the agreed procedures, and further, enforcement of Award 1 including the Costs Award would be in conflict with the public policy of Hong Kong.

13. AW Group also seek to set aside the Costs Award in that Tribunal 1 had failed to consider and deal with the submissions of AW Group on W’s concealment of evidence, which was relevant to the Tribunal’s determination on costs. It was also claimed that Tribunal 1 had reached findings in the Costs Award which were inconsistent with findings in the Partial Final Award and other parts of the Costs Award, and that enforcement of the Costs Award would be contrary to public policy.

14. Finally, AW Group claim that the Partial Final Award of 13 March 2020, the Correction and Interpretation Award of 30 April 2020 and the Costs Award were authored by unauthorized and unknown third parties. On that basis, AW Group claim that they had been deprived of the right to make submissions on Tribunal 1’s delegation of the award‑writing exercise and the deliberation process to third parties, that Tribunal 1 had exceeded its jurisdiction by such delegation and had failed to adhere to the agreed arbitration procedure, and/or breached its obligations of confidentiality, such that enforcement of the awards would be in conflict with the public policy of Hong Kong. I shall refer to this as the “Authorship Ground”.

15. There is no dispute that by the time the application was made in these proceedings on 10 June 2021, almost a year had lapsed from AW Group’s receipt of Award 1 and the Correction and...

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1 firm's commentaries
  • Hong Kong Court Refuses To Enforce Award Due To "Grossly Unfair And Unjust" Procedure
    • Hong Kong
    • Mondaq Hong Kong
    • March 30, 2023
    ...case, the time limit of 3 months is stipulated in the Arbitration Ordinance and the court has no jurisdiction to extend it (AW v PY [2022] HKCFI 1397). In the latter case, the time limit will be stipulated in the enforcement order of the court and the court has the discretionary power to ex......

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