W v Aw

HCCT 70/2020

[2021] HKCFI 1707

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 70 OF 2020

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D E C I S I O N

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Introduction

1. This is a highly unusual case.

2. The Applicant (“W”) and the Respondent (“AW”) were parties to a Share Redemption Agreement made on 15 December 2015 (“Share Redemption Agreement”), for AW to redeem its shares held by W. W, AW, BJ AW (a company controlled by AW), Mr P (“PY”) who is the sole shareholder and director of W, and 3 other shareholders of AW and BJ AW were parties to a separate Framework Agreement made on 21 September 2015 (“Framework Agreement”). The Framework Agreement and the Share Redemption Agreement were both made in relation to the shareholding of PY/W in AW, and were part of a series of transactions leading up to an envisaged acquisition by a Mainland investor of 80% of the interests and shares in BJ AW.

3. Disputes arose between the parties under the two agreements, and such matters were referred to arbitration under and pursuant to the agreements: HKIAC xxxxx being the arbitration commenced by PY and W as Claimants, and AW, BJ AW and others as Respondents, under the Framework Agreement, on 25 January 2017 (“Arbitration 1”); and HKIAC yyyyy being the arbitration commenced by AW as Claimant against W as Respondent, under the Share Redemption Agreement on 23 June 2017 (“Arbitration 2”). W and AW were parties in both arbitrations.

4. The tribunal in Arbitration 1 consisted of Mr Anthony Neoh SC, Mr Tao Xiuming and Mr Philip Yang (“Tribunal 1”). The tribunal in Arbitration 2 consisted of Ms Winnie Tam SC, Mr Tao Xiuming, and Mr Ing Loong Yang (“Tribunal 2”). The common arbitrator was Mr Tao.

5. On 13 March 2020, the award in Arbitration 1 was handed down (“Award 1”). On 13 July 2020, the award in Arbitration 2 was handed down (“Award 2”). In Award 1, the tribunal found in favour of PY and W on their claims against the Respondents for breach of the Framework Agreement, and dismissed the Respondents’ Counterclaim, that the Framework Agreement had been induced by misrepresentations made by PY through W. In Award 2, the tribunal found in favour of AW’s claim of misrepresentation, and allowed AW to rescind the Share Redemption Agreement. Under Award 2, W is to repay a sum of US$3,792,558.70 to AW, with interest and costs.

6. On 12 October 2020, W applied in these proceedings to set aside the award in Arbitration 2, on the ground (inter alia) that Award 2 is in conflict with the public policy of Hong Kong, in that contrary to principles of fairness, due process and justice, the tribunal ignored findings on common issues which were already determined in Award 1, and instead made findings which were inconsistent with the findings made in Award 1 on the same issues between the same parties. It was highlighted that Mr Tao was a co-arbitrator in both arbitrations, and he had made findings in Award 2 which were inconsistent with the findings he had made in Award 1. The findings were essentially as to whether misrepresentations had been made by PY as to his shareholding (via his nominee W) in AW (“Shareholding Representation”), and/or that such ownership of shares was not subject to actual or potential disputes (“Disputes Representation”).

7. On 30 December 2020, AW applied by Summons for leave to enforce Award 2, for judgment to be entered in terms of Award 2, and for security to be provided by W in respect of the sums payable under Award 2, and for the costs of the proceedings (“Summons”).

Background

8. The relationship between the parties and the disputes were summarized in the affirmation of PY filed in these proceedings, and set out in detail in the section headed “Brief Background” of Award 2, and in the section headed “Material Facts” in Award 1.

9. WG is a company registered in the British Virgin Islands, and at all material times was wholly owned and controlled by PY, a Mainland citizen.

10. BJ AW was a Mainland company which carried on a mobile advertising application business. Prior to September 2015, BJ AW was subject to a series of variable interest entity (“VIE”) contracts, through which the profits of BJ AW were channeled to AW, which is a company registered in the Cayman Islands. WG was one of the shareholders of AW.

11. In 2012, PY and W had entered into share transfer agreements with 3 individuals (“L, Wg and F”), whereby W agreed to sell part of its shareholding in AW to these individuals. On PY’s case, which was disputed by AW and the other Respondents in Arbitration 1, the share transfer and sale agreement with L were later terminated on 20 January 2013.

12. In around June 2015, a third party investor on the Mainland approached the management of BJ AW and negotiated for its acquisition of approximately 80% of the shareholding in BJ AW, referred to in the arbitrations as the “DGCM Transaction” (“Acquisition”). A Memorandum of Intent was signed for the Acquisition at a consideration of RMB 1.04 billion. BJ AW was valued at RMB 1.3 billion, and the proceeds of the sale of the shares were to be distributed to the shareholders 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 the name of W.

13. A series of transactions were subsequently designed and entered into in order to pave way for the Acquisition.

14. On 11 and 12 September 2015, W repurchased from Wg and F the AW shares it had sold in 2012.

15. Also in September 2015, the VIE contracts for BJ AW were terminated by a VIE Termination Agreement (“Termination Agreement”).

16. On 21 September 2015, the Framework Agreement was signed by the shareholders of AW, whereby the parties’ rights in relation to and under the Acquisition were set out. Under the Framework Agreement, the total consideration for the shares held in the name of W was increased from RMB 152 million to RMB 175 million.

17. On 15 December 2015, the Share Redemption Agreement was entered into between W and AW, as required under the Acquisition. 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. In Arbitration 2, AW claims (in paragraph 9 of the Statement of Claim) that prior to and/or at the time of the Share Redemption Agreement made in 2015, W had through PY made the Shareholding Representation (that PY owned through W 16.4% of the shareholding in AW prior to and at the time of the Termination Agreement) and the Disputes Representation (that the ownership and/or control of AW and/or BJ AW pertaining to the shares held by PY/his nominee were not subject to any actual or potential disputes).

18. The Acquisition was not completed.

19. PY and W claim in Arbitration 1 that the Respondents in the arbitration, which include AW, BJ AW and their shareholders, were in breach of the Framework Agreement and in particular clause 6 thereof, which provided that if the Acquisition was not completed by 30 June 2016, the parties to the Framework Agreement would cooperate to restore the shareholding of PY in BJ AW to 34%, and restore W’s shareholding in AW to 16.4% (“Restoration Clause”). The relief sought by PY and W in Arbitration 1 were for specific performance of the Framework Agreement, and in particular the Restoration Clause, and alternatively, damages for breach of the Framework Agreement.

20. By way of Counterclaim in Arbitration 1, AW, BJ AW and the shareholders made the claim (in paragraph 13 of the Statement of Defence and Counterclaim) that prior to and/or at the time of the Framework Agreement in September 2015, PY and/or W as PY’s nominee had made the Shareholding Representation and the Disputes Representation: that PY/W owned 16.4% of the shareholding in AW prior to and at the time of the Termination Agreement, and that such ownership was not subject to any actual or potential disputes. The pleading of representations made in Arbitration 1 and Arbitration 2 are identical. AW and BJ AW as Respondents in Arbitration 1 counterclaim for damages for misrepresentation, as well as for breach of the Framework Agreement and breach of fiduciary duties on the part of PY.

21. In Arbitration 2, AW’s claim against W was based on misrepresentations which had been made by WG prior to and/or at the time of the Share Redemption Agreement. It was claimed that the Shareholding Representation which had induced WG to enter into the Share Redemption Agreement was false, in that: PY had in 2012 assigned a part of his shareholding in AW to Wg, F and L; that proceedings were commenced by Wg and F against BJ AW and PY in August 2016; and 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.

22. Despite the fact that the agreements which were the subject matter of...