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Cmb v Fund, Cattle And Management

Judgment Cited authorities 1 Cited in Precedent Map Related
Vincent
JurisdictionHong Kong
Judgment Date15 March 2023
Neutral Citation[2023] HKCFI 760
Subject MatterConstruction and Arbitration Proceedings
Judgement NumberHCCT34/2022
HCCT34/2022 CMB v. FUND, CATTLE AND MANAGEMENT

HCCT 34/2022

[2023] HKCFI 760

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 34 OF 2022

________________________

IN THE MATTER OF a co-investment contract dated 17 March 2014 between Fund plus Cattle with CMB, which incorporated the parties’ adoption of the laws of the Hong Kong SAR to govern their contract plus their arbitration agreement for disputes between them to be settled by ICC arbitration in Hong Kong
and
IN THE MATTER of the Arbitration Ordinance, Cap 609

________________________

BETWEEN

CMB Plaintiff
and
FUND 1st Defendant
CATTLE 2nd Defendant
MANAGEMENT 3rd Defendant

________________________

Before: Hon Mimmie Chan J in Chambers
Date of Hearing: 20 February 2023
Date of Decision: 15 March 2023

___________________

D E C I S I O N

___________________


Introduction

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

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

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

Background

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

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

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

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

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

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

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

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

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

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

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

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

(7) HCA is time-barred.

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

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

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

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

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

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

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

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

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

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

17. On 12 November 2020, CMB filed and served an Amended Statement of Claim in the HCA. This (as the Arbitrator pointed out in the Award of 10 March 2022)...

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