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HCCT 54/2018
[2019] HKCFI 1257
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO 54 OF 2018
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IN THE MATTER of Order 73 rule 5 of the Rules of High Court (Cap 4A) |
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and |
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IN THE MATTER of Arbitration Award dated 25 May 2018 in Case No HKIAC/PA15047 made by the Hong Kong International Arbitration Centre |
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and |
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IN THE MATTER of section 81 of the Arbitration Ordinance (Cap 609) and Article 34 of The UNCITRAL Model Law on International Commercial Arbitration |
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| BETWEEN |
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WEILI SU |
1st Plaintiff |
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FLASH BRIGHT POWER LIMITED |
2nd Plaintiff
(Respondents in the Arbitration)
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and |
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SHENGKANG FEI |
1st Defendant |
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RICHARD YUQIANG LU |
2nd Defendant
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RANRAN XU |
3rd Defendant
(Claimants in the Arbitration)
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Before: Hon Mimmie Chan J in Chambers
Date of Hearing: 3 May 2019
Date of Decision: 7 May 2019
Date of Reasons for Decision: 15 May 2019
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REASONS FOR DECISION
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Background
1. By an Originating Summons issued on 24 August 2018, the Plaintiffs in these proceedings applied to set aside an arbitral award dated 25 May 2018 (“Award”) made in an arbitration by HKIAC in Hong Kong (“Arbitration”). The Arbitration concerns a dispute between the Defendants as Claimants, and the Plaintiffs as Respondents, arising under a Shareholders Agreement dated 22 January 2010 (“Agreement”) made between the parties concerning their shareholding in Sky Solar Holdings Co Ltd (“Company”), a Cayman Islands company. The 1st and 2nd Plaintiffs (and Respondents in the Arbitration) were respectively the founder and controlling shareholder of the Company. The Defendants (and Claimants in the Arbitration) were the minority shareholders of the Company.
2. In the Arbitration, the Claimants complained that the Respondents had restructured the Company to exclude the Claimants from the benefit of an initial public offering (“IPO”) of shares. As part of the restructuring, there was a share swap whereby shareholders in the Company were given the right to swap their shares in the Company for the shares in Sky Power Group Ltd (“New Solar”). A new company Sky Solar Holdings Limited (“Listco”) was then formed as a subsidiary of New Solar, and Listco was then listed, instead of the Company. The Claimants complained that this was in breach of the covenants given by the Respondents in the Agreement. In particular, the Claimants alleged in the Arbitration that the Respondents had acted in breach of their obligations under the Agreement to use “commercially reasonable best efforts” to facilitate an IPO for the Company.
3. The tribunal in its Award found the Respondents to be in breach of the Agreement, and ordered the Respondents to pay to Mr Shengkang Fei (the 1st Claimant) the sum of US $7,552,500, to Mr Richard Yuqiang Liu (the 2nd Claimant) the sum of US $4,531,500, and to Madam Ranran Xu (the 3rd Claimant) the sum of US $377,625, together with interest and the costs and fees of the Arbitration, totaling US $13.7 million.
4. By these proceedings, the Plaintiffs (namely, the Respondents in the Arbitration) applied to set aside the Award, on the grounds that: (1) there was no valid arbitration agreement between the parties; (2) the composition of the tribunal was not in accordance with the agreement; (3) the Defendants (as Claimants in the Arbitration) had failed to plead and particularize their case, as a result of which the tribunal had acted in excess of jurisdiction, and/or contrary to public policy and/or the Plaintiffs were deprived of a fair opportunity to present their case; (4) the tribunal had made findings without evidential basis, in excess of jurisdiction and/or contrary to public policy and/or the Plaintiffs were deprived of a fair opportunity to present their case. A final catchall paragraph was included in the Originating Summons, to cover “any other grounds pursuant to section 81 of the Arbitration Ordinance or otherwise as the Court sees fit”.
5. In opposition to the Plaintiffs’ application to set aside, and by way of counterclaim, the Defendants seek leave to enforce the Award, and further seek security under section 86 (4) of the Arbitration Ordinance (“Ordinance”) and O73 r 10A RHC as a condition for the further conduct of the setting aside application.
6. On 20 November 2018, the Defendants in this action applied for and obtained an ex parte injunction order (“HK Injunction”) against the 1st Plaintiff (“Su”) and a third party (“Chen”), whereby Su was restrained from removing or disposing of any of his assets in Hong Kong, and from using any legal or beneficial shareholder equity which forms part of his assets, or cause such equity to be used, so as to cause or procure Sky Solar (Hong Kong) International Co Ltd (“SS HK”) and other named companies (“Scheduled Companies”) to dispose of any of their assets, other than in the ordinary course of their business. Under the HK Injunction, Chen was also restrained from disposing of the shares in SS HK, and any assets within Hong Kong held by Chen for, on behalf of and/or on trust for Su, and from using any shareholder equity to cause or procure SS HK and the Scheduled Companies to dispose of any of their assets, other than in the ordinary course of their business.
7. The HK Injunction requires Su to inform the solicitors for the Defendants all of his assets of an individual value of HK $50,000 or more in Hong Kong, and all the assets held by each of the Scheduled Companies of an individual value of HK $50,000 or more in Hong Kong, as at the date of the HK Injunction, whether in Su’s own name or not, and whether jointly or solely owned.
8. On 9 April 2019, Su applied to Set Aside the HK Injunction. Upon joint application made by the Plaintiffs and the Defendants, directions were made by the Court, by consent, on 12 April 2019, for the Defendants’ application to continue the HK Injunction and Su’s application to discharge the same to be heard together. These have been fixed for hearing on 4 June 2019.
9. On 30 October 2018, again on the parties’ joint application, directions were made by the Court by consent, giving leave to the parties to file evidence in opposition and reply to the Defendants’ application for security, for the application for security to be adjourned for argument, and at the same time, for evidence to be filed in relation to the Plaintiffs’ application to set aside the Award, and the Defendants’ application (by counterclaim) for leave to enforce the Award. The setting aside application and the counterclaim have been scheduled for hearing on 30 May 2019.
Application for security
10. The Defendants’ application for security came up for hearing by this Court on 3 May 2019.
11. Dealing first with the Plaintiffs’ objection on the basis that the Defendants’ application for security has not been made by summons as required under O 73 rr 1 and 2, any irregularity arising therefrom does not nullify the proceedings. Having been given notice of the substance of the application, having consented to a full contested hearing of the application and to directions for the filing of evidence in connection with such application, and having filed evidence in opposition to the application for security, the Plaintiffs have clearly consented to the application being put before the Court for determination, and waived any irregularity. Further, I can see no prejudice whatsoever having been sustained by the Plaintiffs as a result of any such irregularity. They have considered the Defendants’ evidence and arguments in support of the application for security, made their arguments to oppose the application, and have filed all the evidence they seek to adduce in opposition.
12. The legal principles applicable to determination of an application for security are not disputed between the parties. They are as set out in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 at 212, applied in Guo Shun Kai v Wing Shing Chemical Co Ltd [2013] 3 HKLRD 484 and Dana Shipping and Trading SA v Sino Channel Asia Ltd [2017] 1 HKC 281. They will not be repeated here.
The strength of the argument that the Award is invalid
13. The strength of the argument that the Award is invalid, as perceived on a brief consideration by the court, is the first important factor to be considered on an application for security. As Staughton LJ explained in Soleh Boneh, if the award is manifestly invalid, there should be an adjournment and no order for security, and if it is manifestly valid, there should be either an order for immediate enforcement, or else an order for substantial security. In between where there are various degrees of plausibility in the argument for invalidity, the court must be guided by its preliminary conclusion on the point.
14. On my brief consideration of the grounds set out in the Originating Summons, I take the view that the Award is manifestly valid. The following are my preliminary but clear views.
Whether there was an arbitration agreement between the parties
15. The Plaintiffs do not dispute that the Defendants were parties to the Agreement (paragraph 20 of the 1st affidavit of Michael Kan, solicitor for the Plaintiffs, sworn on 24 August 2018 (“Kan Affidavit”)). However, they allege that the Defendants are not parties to the arbitration agreement contained in clause 15 of the Agreement.
16. Clause 15.2 of the Agreement provides that “any dispute or claim arising out of or in connection with or relating to” the Agreement, “of the breach, termination or invalidity thereof (including the validity, scope and...
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