AAA AND OTHERS v. DDD

HCCT 39/2023

[2024] HKCFI 513

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 39 OF 2023

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JUDGMENT

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I.  INTRODUCTION

1.  This case concerns a situation which not infrequently arises in commercial disputes today. That is the situation where there is a set of related contracts and two or more of those contracts have different dispute resolution clauses. More precisely, the issue here is whether the arbitration clause in a Loan Agreement confers jurisdiction on the Tribunal formed under it, to determine related disputes arising out of a Promissory Note which has its own arbitration agreement. The Tribunal, which was constituted under the 2018 Administered Arbitration Rules (the Rules) of the Hong Kong International Arbitration Centre (HKIAC), decided that it had jurisdiction to determine the related disputes. But the Borrower and the Guarantors (who are parties the Loan Agreement and the Promissory Note) disagree. They now appeal to this court against the Tribunal’s Decision on jurisdiction.

II.  BACKGROUND

A.  Events leading to the arbitration

2.  AAA, BBB and CCC are respectively the Borrower, Guarantor 1, and Guarantor 2. Guarantor 1 is a foreign corporation, while Guarantor 2 is a natural person. DDD is the Lender. All are parties to the Loan Agreement. The underlying arbitration is between the Lender as Claimant and the Borrower and the Guarantors as Respondents. In this Judgment, I shall therefore refer to the latter three persons collectively as “the Respondents”.

3.  By the Loan Agreement, the Lender (a foreign company) agreed to loan a Principal Amount to the Borrower (incorporated in US state Y) at a specified interest rate. By clause 6 of the Loan Agreement, the Guarantors each irrevocably guaranteed as primary obligor to the Lender:

“ (i) ... the prompt and complete performance by the Borrower of its obligations under the Transaction Documents, and (ii) [undertook] with the Lender that if for any reason the Borrower defaults in the performance of any of the foregoing obligations, including any of the payment obligations under the Transaction Documents, such Guarantor shall forthwith on demand by the Lender unconditionally perform (or procure the performance of) and satisfy (or procure the satisfaction of) such obligations; provided that [Guarantor 1] shall be released from the obligations under the Transaction Documents upon either (i) the novation of the Warrant is completed so that the Borrower has replaced [Guarantor 1] to assume all its rights and obligations under the Warrant, or (ii) all the underlying shares of any and all the Warrant have been issued and registered in the name of the Borrower and the share charge of such underlying shares in accordance with the Share Charge Agreement for the benefit of the Lender has been completed. ”

4.  The Loan Agreement defined the expression “Transaction Documents” as comprising “this Agreement [that is, the Loan Agreement], the Share Charge Agreements and the [Promissory] Note to be issued with the utilization of the Loan”. The “Warrant” was defined as “a warrant entered into by and between [Guarantor 1] and [Company X], pursuant to which [Guarantor 1] shall be entitled to purchase from [Company X] up to [a specified number of] shares, at a per share price of [a specified amount]”. At the time of the Loan Agreement, Guarantor 1 held Option Shares in Company X. The intention of the loan under the Loan Agreement was to enable the Borrower to acquire the Option Shares through an assignment of Guarantor 1’s option.

5.  The Borrower and the Guarantors allege that the Loan Agreement was later re-signed, with the re-signed document providing for both Guarantors (not just Guarantor 1) to be released once the conditions in the proviso to clause 6 have been met. The re-signing of the Loan Agreement is disputed by the Lender.

6.  The Loan Agreement provided for the Borrower to issue a Promissory Note to the Lender as security for the loan.

7.  On the same day as the Loan Agreement, the Borrower and Guarantor 1 entered into separate Share Charge Agreements with the Lender, whereby each charged certain assets to the Lender as security for the loan. Guarantor 2 also executed a Pledge in the Lender’s favour. The Loan Agreement, the Share Charge Agreements, and the Pledge each had their own dispute resolution clauses.

8.  The Loan Agreement is governed by Hong Kong law and has the following arbitration clause:

“ (a) Any dispute, controversy, difference or claim arising out of or relating to this contract, 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 be referred to and finally resolved by arbitration in Hong Kong administered by the Hong Kong International Arbitration Centre (the “HKIAC”) under the HKIAC Administered Arbitration Rules in force when the Notice of Arbitration is submitted. For the purpose of such arbitration, there shall be three arbitrators.

(b) All arbitration proceedings shall be conducted in English. The arbitrators shall decide any such dispute or claim strictly in accordance with the governing law specified in Section 10.1. Judgment upon any arbitral award rendered hereunder may be entered in any court having jurisdiction, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be.”

9.  The Share Charge Agreements are governed by foreign law, have different arbitration agreements from the Loan Agreement, and permit the Lender to commence legal actions concurrently or otherwise against the Borrower, Guarantor 1, or their respective properties “in any other jurisdiction”. The Pledge is governed by the law of US state Y, with each party to the Pledge waiving the rights to a jury trial in respect of any claim or cause of action. The Pledge has no arbitration clause.

10.  The Lender having wired monies to Company X pursuant to the Loan Agreement, the Borrower issued a Promissory Note signed by the Borrower and the Guarantors to the Lender. By the Promissory Note, the Borrower undertook to repay the Principal Amount at a specified interest rate. The Guarantors jointly and severally guaranteed the Borrower’s payment obligation under the Promissory Note. If the Borrower defaulted in its performance, each Guarantor would “forthwith on demand by the [Borrower] unconditionally perform (or procure the performance of) and satisfy (or procure the satisfaction of) such obligations”.

11.  The Promissory Note has the following dispute resolution clause:

“ Dispute Resolution. If the parties are unable to settle any dispute arising out of or in connection with this Note through negotiations within thirty (30) calendar days of initial notification of such dispute, such dispute shall be submitted to the Hong Kong International Arbitration Centre (the “HKIAC”) to be finally settled by arbitration in Hong Kong. Such arbitration shall be conducted in the English language. The arbitration shall be conducted in accordance with the HKIAC’s arbitration rules as in effect at the time of submission to arbitration.”

12.  The Loan Agreement was later amended by an Amendment Agreement. The Amendment Agreement stipulated that the Loan Agreement’s dispute resolution and governing law provisions “shall be incorporated into this [Amendment] Agreement as if set out in full in this [Amendment] Agreement”.

13.  The Borrower failed to repay the Principal Amount upon demand by the Lender. The Lender as Claimant therefore issued a Notice of Arbitration (NOA) against the Borrower and the Guarantors, initiating an HKIAC administered arbitration under the Rules.

B.  Events leading to the Tribunal’s Decision

14.  The NOA stated that the Lender’s claim was:

“ based on, inter alia, (i) [the Borrower’s] failure to fulfil its obligations to refund the Principal Amount (as defined below) and to pay the interest accrued thereon, and (ii) [the Guarantors] failure to guarantee [the Borrower’s] performance of such obligations. ”

The NOA defined the “Principal Amount” as the loan amount which the Lender provided under the Loan Agreement. The NOA mentioned the Promissory Note in its paragraph 12, reciting that the Borrower acknowledged receipt of the Principal Amount and issued a Promissory Note. The Promissory Note was exhibited to the NOA. But the NOA said nothing else on the Promissory Note. The NOA ended with a paragraph preserving the Borrower’s “full rights to add to, expand or modify the claims and relief set out herein”.

15.  Following the constitution of the Tribunal, the Lender submitted its Statement of Claim (SOC) in the arbitration. The Lender pleaded in SOC paragraph 53:

“ Even assuming [Guarantor 1’s] obligations under the Loan Agreement [have] been released, it remains to be jointly and severally liable under other Transaction Documents, in particular Section 2(b) of the [Promissory] Note. The [Promissory] Note was a stand-alone obligation independent from the Loan Agreement and the [Guarantor 1 Charge]. Section 2(c) of the Note provided that “each Guarantor’s performance under the Promissory Note is secured by the [Guarantor Charge]”, which indicated that the [Guarantor 1 Charge] was a security additional to being the Affiliate Guarantor. Section 6 of the Note further provided that the Claimant’s rights and remedies under the Note, the Loan Agreement and the [Guarantor 1 Charge] should be cumulative, and the Claimant should be entitled to all other rights and remedies provided by law or in equity.”

16.  SOC paragraph 55 further pleaded:

“ [Guarantor 2], as a primary obligor, shall be held jointly and severally liable for the repayment of the Outstanding Amount, as expressly agreed, inter alia, in Section 6.1 of the Loan Agreement, Section 2(b) and 6[1] of the [Promissory] Note.”

17.  The context behind SOC paragraph 53 is Guarantor 1’s defence that, by reason of the Warrant’s novation to the Borrower, Guarantor 1 was released from its obligation as guarantor under clause 6 of the Loan Agreement. SOC paragraph 53 could be read as responding that, even if Guarantor 1 has been released by the Warrant’s novation, Guarantor 1 remains liable under the Promissory Note as a “stand-alone obligation”. The context behind SOC paragraph 55 is similar. Relying on the re-signed version of the Loan Agreement, Guarantor 2 argues by way of defence to have been released from the obligation under clause 6 of the Loan Agreement to serve as guarantor. SOC paragraph 55 could be read as responding that Guarantor 2 remains liable to the Lender under clause 6 of the Loan Agreement and sections 2(b) and 6 of the Promissory Note.

18.  The prayer to the SOC seeks the following relief:

(a)  Declare that [the Borrower] has breached its obligations to repay the Principal Amount with accompanying interests under the Loan Agreement and the Amendment Agreement;

(b)  Declare that [the Guarantors] have breached their obligations of guarantee under the Loan Agreement;

(c)  Order [the Borrower] to pay the sum of [amount] and the interests accrued thereon up to the date of actual payment pursuant to Section 5 of Schedule I of the Amendment Agreement and Section 3.3 of the Loan Agreement and/or any relevant clauses under the Loan Agreement or the Amendment Agreement and/or damages to be assessed for non-payment of the sum due under the Loan Agreement to be paid to the Claimant;

(d)  Order [the Guarantors] to be held liable, on a several and joint basis, to pay the sum of [amount] and the interests accrued thereon up to the date of actual payment under the Loan Agreement and/or the Amendment Agreement and any of [the Borrower’s] obligations specified in the award.

(e)  Order [the Borrower and the Guarantors] to pay, pursuant to Sections 6.1, 7.2.2 and/or any relevant clauses of the Loan Agreement and/or the Amendment Agreement in an amount to be quantified in due course for all losses suffered by the Claimant [that is, the Lender] arising from the Respondents’ breach of their obligations, including but not limited to all attorney’s fees and costs, costs in relation to the present arbitral proceedings, and costs in relation to other proceedings initiated or to be initiated by the Claimant for the recovery of the loan.

(f)  Award the Claimant single interest at 8% per annum, on each of the said sums, from the date of the award until full payment of the same sums; and

(g)  Such further or other relief as the Tribunal may deem appropriate.

19.  It will be seen that the relief claimed by the Lender in the SOC neither seeks payment against the Guarantors under the Promissory Note, nor a declaration of the Lender’s right to enforce the Promissory Note against the Guarantors. However, the Lender later signalled its intention to supplement the presently relief sought in the SOC to include payment claims based on the Promissory Note.

20.  Upon receipt of the SOC and the Lender indicating its intention to include claims for payment under the Promissory Note, the Respondents complained that the Tribunal lacked jurisdiction over the Lender’s claims against the Guarantors based on the Promissory Note. The Respondents alleged (among other matters) that a dispute over payment under the Promissory Note had yet to crystallise. The Tribunal eventually heard submissions on the Respondents’ jurisdictional challenge. In June 2023, the Tribunal decided that it had jurisdiction over the Lender’s claims based on the Promissory Note.

C.  The Tribunal’s Decision

21.  In its Decision, the Tribunal pointed out that a payment demand sent by the Lender to the Respondents expressly referred to the Lender taking “all appropriate steps to protect its interest”. From this, the Respondents should have appreciated that the “appropriate steps” included enforcing the Promissory Note. The Respondents never reverted to say that they were agreeable to paying on the Promissory Note. It followed (the Tribunal reasoned) that, prior to the NOA, there was a dispute over the Lender’s entitlement to payment under the Promissory Note.

22.  The Tribunal considered that the NOA implicitly referred such dispute over payment under the Promissory Note to arbitration pursuant to the dispute resolution clause in the Promissory Note. This was evident (the Tribunal thought) from the fact that the NOA had mentioned the Promissory Note and exhibited a copy of the same. The Tribunal further observed:

“ The NOA describes the Claimant’s claim as based on the 1^st Respondent’s failure to refund the Subject Amount and Interest; and the 2^nd and 3^rd Respondents’ failure to guarantee the same. This description fits a claim under the Promissory Note as well.”

23.  Although the NOA only specifically seeks relief under the Loan and Amendment Agreements, the Tribunal pointed out that in final paragraph of the NOA the Lender had reserved the right to seek other relief. As for the contention that the NOA only expressly invoked the arbitration clause in the Loan and Amendment Agreements, the Tribunal took the view that by exhibiting a copy of the Promissory Note (including its dispute resolution clause), the Lender must be taken to have impliedly invoked the Promissory Note’s dispute resolution clause as well.

24.  The Tribunal referred to “without prejudice” negotiations among the parties and suggested that such negotiations could have met the pre-condition of negotiation in the Promissory Note’s dispute resolution clause. The Tribunal added:

“ In any case, we believe that this is not a disagreement which requires determination at this juncture. We agree with the Claimant that whether the negotiation requirement was satisfied goes only to the admissibility of the claim, and not to jurisdiction: C v D (Arbitration) [2022] CA 729.”

25.  The Tribunal accordingly dismissed the Respondents’ jurisdictional challenge.

III.  DISCUSSION

26.  The discussion here will be in three parts.

27.  Part A will examine difficulties with the Tribunal’s reasoning that it had jurisdiction over the parties’ dispute as to payment under the Promissory Note. Under the principle of competence-competence, an arbitral tribunal has competence to rule on whether it has jurisdiction (competence) to hear a dispute. See Arbitration Ordinance (Cap.609) (AO) section 34, giving effect to Article 16 of the UNCITRAL Model Law.[2] However, a tribunal’s ruling that it has jurisdiction is not final. A dissatisfied party has 30 days from the date of notice of the tribunal’s ruling on jurisdiction to appeal to the court against the same. See AO section 34 and Model Law Article 16(3). The Tribunal’s determination in the present case is therefore not binding on me. I am entitled to review the question of the Tribunal’s jurisdiction afresh. Nevertheless, in deference to the Tribunal, since it will be apparent from Part B that I am differing from its conclusion, I should explain in Part A why I am unable to accept its analysis.

28.  Part B will outline what I understand to be the approach in situations where there are conflicting dispute resolution clauses in multiple related contracts. By reason of the conflicting clauses, there is a need to determine whether a tribunal constituted under the dispute resolution clause in one contract has jurisdiction to resolve disputes arising in connection with the other contracts.

29.  Part C will apply the approach sketched in Part B to the facts of the present case.

A.  The Tribunal’s analysis

30.  The Tribunal concluded that there was (1) a dispute over the Lender’s entitlement to payment by the Guarantors under the Promissory Note, had crystallised before the NOA’s issue and (2) the Tribunal had jurisdiction over the Lender’s claims against the Respondents (especially, the Guarantors) under the Promissory Note.

31.  I will proceed on the basis that the Tribunal was right in reaching conclusion (1). A conclusion on whether a dispute has sufficiently matured or ripened to form the subject of an arbitration seems to be a matter that goes towards admissibility, rather than jurisdiction. Therefore, I should not interfere with the Tribunal’s view that a dispute has crystallised. Conclusion (1), however, begs the initial question whether the Tribunal has jurisdiction to consider a claim for payment under the Promissory Note. It is on that matter (that is, the Tribunal’s conclusion (2)) on which I differ with the Tribunal.

32.  The Tribunal reached conclusion (2) on the basis that the Tribunal had been convened under the dispute resolution clauses in the Loan Agreement, the Amendment Agreement, and the Promissory Note. In respect of the Loan and Amendment Agreements, the Lender had expressly invoked the relevant arbitration agreement in the NOA. In respect of the Promissory Note, the Tribunal believed that it had been implicitly appointed under the dispute resolution clause there, because the Promissory Note was mentioned and exhibited (along with its dispute resolution clause) in the NOA.

33.  I doubt that the mere reference to a document and the exhibition of the same to a request for arbitration, would be sufficient to bring home to any one’s mind that the arbitration agreement in the document was being invoked as the basis of arbitration. It seems to me that clear words are needed to indicate that one is bringing a dispute to arbitration under a specific provision in a particular contract. Mr John Chan (appearing on the Lender’s behalf) submits that there is no hard and fast requirement that one must refer to an arbitration clause in a request for arbitration. But, even on the assumption that Mr Chan is correct about that, the NOA in a section entitled “The Arbitration Agreement” expressly referred to arbitration as being brought under the dispute resolution provisions in the Loan and Amendment Agreements. Nothing is stated about the dispute resolution clause in the Promissory Note. On its face then, the NOA was only invoking the arbitration clause in the Loan and Amendment Agreements.

34.  But, regardless of what the NOA invoked or did not invoke, my difficulty with the Tribunal’s position on its implicit appointment under the Promissory Note, is that HKIAC’s correspondence with the Tribunal and the parties only acknowledges the Tribunal’s appointment under the arbitration clause in the Loan and Amendment Agreements. Nothing is mentioned about the Tribunal also being appointed under the dispute resolution clause in the Promissory Note.

35.  For instance, on 27 April 2022, following the issue of the NOA, HKIAC wrote:

“ Commencement of Arbitration

We understand that Claimant has commenced the arbitration against the Respondents under the 2018 HKIAC Administered Arbitration Rules ... pursuant to Section 10.2 of the Loan Agreement entered into among the parties ... and Section 6.1 of the Amendment Agreement entered into among the parties ...

....

In view of the above, we will proceed with this case under the Rules....

....

Constitution of the Arbitral Tribunal

We note that Section 10.2 of the Loan Agreement provides that “[f]or the purpose such arbitration, there shall be three arbitrators”. We also note that Claimant did not designate an arbitrator in the Notice. Pursuant to Articles 8.1(a), 8.2(a) and 3.6 of the Rules, we invite Claimant to designate a co-arbitrator by 3 May 2022. ”

36.  When confirming the Tribunal’s constitution in a letter to the parties, the HKIAC simply referred in the heading of its letter to the arbitration being “Re: Dispute relating to the Loan Agreement ... and the Amendment Agreement”. Plainly, as far as the HKIAC was concerned, presumably because of what was stated in the NOA, the HKIAC was only appointing the Tribunal pursuant to the arbitration clause in the Loan and Amendment Agreements. The HKIAC did not appoint the Tribunal under the dispute resolution clause in the Promissory Note.

37.  Under Article 9.1 of the Rules, “[a]ll designations of any arbitrator, whether made by the parties or the arbitrators, are subject to confirmation by HKIAC, upon which the appointments shall become effective”. The Tribunal’s mandate to act in the reference could therefore only have become effective under the arbitration clauses in the Loan and Amendment Agreements, not the dispute resolution clause in the Promissory Note. That was all that the HKIAC ever confirmed. The Tribunal could not of its own motion unilaterally declare itself to have also been appointed (whether expressly or impliedly) under the dispute resolution clause in the Promissory Note.

38.  Mr Chan submits that the “defect” which I have identified (namely, the lack of appointment and confirmation by HKIAC under the dispute resolution clause in the Promissory Note) is inconsequential. That is because the dispute resolution provisions in the Loan Agreement and the Promissory Note are substantially similar.

39.  I am unable to agree. There are two significant differences between the dispute resolution clauses in the Loan Agreement and the Promissory Note. First, the latter imposes a period of 30-days negotiation before arbitration, the former does not. Second, although both clauses stipulate HKIAC arbitration under the Rules, the former specifies that there should be three arbitrators, while the latter does not specify the number of arbitrators.

40.  The Tribunal did not think that the requirement of a 30-day negotiation period before the commencement of arbitration, was an impediment to the Tribunal having been appointed under the dispute resolution clause in the Promissory Note. It believed that such requirement simply raised a question of admissibility, which could be dealt with later. However, the Tribunal’s reasoning misses the point of the Respondents’ objection, which is that the dispute resolution clauses in the two contracts constitute distinct, non-fungible regimes for the resolution of disputes. The clauses cannot be treated in a broad-brush manner as essentially the same. More particularly, appointment and confirmation by HKIAC under one clause cannot be treated as tantamount to appointment and confirmation by HKIAC (expressly or impliedly) under the other, merely because both clauses specify HKIAC arbitration under the Rules. Let me focus on the second difference to bring home this point.

41.  Article 6.1 of the Rules stipulates:

“ If the parties have not agreed upon the number of arbitrators before the arbitration commences or within 30 days from the date the Notice of Arbitration is received by the Respondent, HKIAC shall decide whether the case shall be referred to a sole arbitrator or to three arbitrators, taking into account the circumstances of the case.”

42.  There is no evidence that the parties agreed at any time upon the number of arbitrators to be appointed under the dispute resolution clause in the Promissory Note. Instead, the Respondents objected to the Tribunal considering itself as having been appointed pursuant to the dispute resolution clause in the Promissory Note. Consequently, if the present case was genuinely an arbitration under the Promissory Note, it would be for HKIAC to decide whether the case should be referred to a panel of one or three arbitrators. In doing so, HKIAC must have regard to “the circumstances of the case”. In other words, a degree of flexibility has been built into the procedure for constituting a tribunal where the number of arbitrators has not been specified in an agreement. For instance, when claims are made under guarantees or promissory notes, there may prima facie be no arguable defence, so that to save time and cost, a sole arbitrator might be appropriate. On other occasions, there may be a substantial amount of money at stake and apparently arguable defences of a complicated nature, so that three arbitrators might make better sense.

43.  HKIAC never having considered whether there should be one or three arbitrators in relation to the dispute resolution clause in the Promissory Note, it is hard to see how the Tribunal could have claimed to have been formed under that clause. On the contrary, in deciding that it had jurisdiction, the Tribunal in effect deprived the parties of a potential benefit of the dispute resolution clause that they bargained for in the Promissory Note. The parties were denied the flexibility of having one or three arbitrators appointed by the HKIAC, in the exercise of its discretion, based on the nature and circumstances of the parties’ dispute in relation to the Promissory Note.

44.  Therefore, in my view, given that it was only appointed under the arbitration clause in the Loan and Amendment Agreements, the Tribunal did not satisfactorily explain why it had jurisdiction to deal with claims for payment under the Promissory Note. I add, by way of footnote, that none of the authorities or principles which I shall be discussing below were mentioned in the Tribunal’s Decision on jurisdiction. The Tribunal cannot be faulted for this, as the arguments on jurisdiction before the Tribunal were presented by different counsel from those before me and were substantially different from those now addressed to me.

B.  The approach to conflicting dispute resolution clause situations

B.1  Paradigm situations

45.  How then ought the Tribunal to have approached the question of its jurisdiction?

46.  It is convenient to identify three broad paradigms in which conflicting dispute resolution clauses can feature. The paradigms are not meant to be exhaustive of every permutation that can occur.

47.  A basic paradigm is the situation where there is a single contract with two or more conflicting dispute resolution clauses. An intermediate paradigm is the situation where there are multiple related contracts, but only one of the contracts contains a dispute resolution clause, while the others do not. Thus, the conflict in the intermediate paradigm is not so much between two or more contrary clauses, as opposed to whether (say) an arbitration clause in a single contract should be treated as governing disputes arising out a related contract which has no dispute resolution clause, or whether the latter disputes must be litigated before the court. A generalised paradigm is where there are multiple related contracts with conflicting dispute resolution clauses in two or more (but not necessarily all) of the contracts.

48.  By multiple related contracts, I mean agreements that appear to form a package aimed at achieving some objective. Typically, the related contracts will have been executed at about the same time and the parties to the contracts will be the same or nearly the same. If the parties to a set of contracts are not the same, there may be evidence that a company signing a given contract with a dispute resolution clause, was acting on behalf of itself and as the agent of affiliated companies. In civil law jurisdictions, it may be possible to link multiple contracts to affiliated companies by characterising the companies as a single economic entity. But the doctrine of a single economic entity has yet to gain traction in the common law world.

49.  Here the Loan Agreement, the Share Charge Agreements, the Pledge, and the Promissory Note were concluded at about the same time. The Promissory Note was completed slightly later but dealt with connected subject matter. The parties to the Loan Agreement and the Promissory Note are the same. The parties to the individual Share Charge Agreements and the Pledge are subsets of the parties to the Loan Agreement and the Promissory Note. Considered in the round, all agreements could plausibly be regarded as a package deal, having the intention of obtaining finance for the Borrower, while securing the Lender.

50.  Whether a case involves the basic, intermediate, or generalised paradigm, the authorities are unanimous that determining the scopes of conflicting dispute resolution clauses is essentially an exercise in objectively construing the clauses to ascertain the parties’ likely intentions. Absent contrary indications, one may employ certain common-sense presumptions or assumptions as an aid to construction. But one must be careful not to use the presumptions or assumptions in a manner that runs roughshod over the parties’ intentions as manifested in the dispute resolution clauses agreed among them.

B.2  The Fiona Trust principle and the basic paradigm

51.  A convenient point of departure on the approach to conflicting forum clauses is Lord Hoffmann’s dictum in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, at [13]:

“ [T]he construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.”

52.  In Fiona Trust, time charters contained a clause entitling a party to refer a dispute to arbitration, despite another clause in the same charters providing for disputes to be decided by the English courts. Owners argued that the charters had been procured by bribery, so that the charters were null and void, including their arbitration clauses. The House of Lords held that, in construing the ambit of an arbitration agreement, commercial persons must be taken to have bargained for all disputes from their contract to be decided in a single forum. That would include disputes on whether their contract was vitiated by illegality. Therefore, arbitration having been invoked and there being no evidence of a contrary intention, the parties to the charters must be treated as having meant for all their disputes to be decided by arbitration. The parties could not have intended for the question of validity to be brought to the court first, and for all other questions to be referred to arbitration only later, depending on the court’s finding on validity.

53.  The difficulty with applying the Fiona Trust principle to the present case is that Fiona Trust was a basic paradigm situation. Fiona Trust involved singleton contracts with apparently conflicting internal dispute resolution clauses. Our situation involves multiple contracts with different dispute resolution clauses. If different (but related) contracts have clauses providing for different forums to decide disputes arising out of them, it seems artificial mechanically to maintain that the parties to the different contracts intended to have all their differences arising out of the contracts to be decided in a single forum. As a matter of construing the parties’ intentions, the different dispute resolution clauses are a pointer to the parties having contemplated resort to more than one forum for the determination of their disputes.

B.3  The extended Fiona Trust principle and the intermediate paradigm

54.  In Terre Neuve SARL & Others v Yewdale Limited & others [2020] EWHC 772 (Comm), at [30] & [31], Bryan J posited what he called the “extended Fiona Trust principle” as a possible way of approaching the intermediate paradigm situation. On this approach, “a jurisdiction agreement contained in one contract may, on its proper construction, extend to a claim that is made under another contract”. Bryan J observed that the extended Fiona Trust principle was most likely to be useful where the parties to the multiple related contracts were the same and the contracts “have been concluded at the same time as part of a single package or transaction or (if concluded at different times) dealt with the same subject-matter”. In such situation, there would be scope for a common-sense presumption that, absent evidence to the contrary, the parties must have intended for all disputes arising out of their commercial package to be resolved by reference to the dispute resolution clause in the one contract.

55.  The extended Fiona Trust principle would not be applicable in the present situation, where there are different dispute resolution clauses in the agreements comprising the package. For instance, of the dispute resolution clauses in the Loan Agreement, the Share Charge Agreements, the Pledge, and the Promissory Note, one might wonder which clause subsumes or takes precedence over which. Should disputes arising under the Promissory Note be decided pursuant to the dispute resolution clause in the Loan Agreement or vice versa? Should disputes among some of the parties be decided under the arbitration agreement in the Loan Agreement, one or other of the Share Charge Agreements, or the Promissory Note? Is the party initiating proceedings free to choose which dispute resolution clause in which contract to employ? The presumption underlying the extended Fiona Trust principle (namely, that commercial persons prefer to have their differences resolved in a single forum) is thus of no help in construing whether disputes relating to payment under the Promissory Note are covered by the arbitration clause in the Loan Agreement.

56.  There is a complicating factor in our case because disputes arising out of the Loan Agreement can overlap with disputes over the Promissory Note. For example, consider the position where it is suggested that there is no obligation to pay under the Promissory Note, because the Loan Agreement was never properly performed. The issue whether the Loan Agreement was properly performed would be a matter arising in connection with the Loan Agreement, while the effect of an improper performance of the Loan Agreement on the payment obligation under the Promissory Note could be regarded as an issue arising in connection with the Promissory Note. But the reality is that the two issues are intertwined, and so arguably capable of falling in whole or part within the compass of more than one dispute resolution clause. Should the parties then be treated, by reason of the multiple dispute resolution clauses agreed by them, as having intended intertwined questions to be resolved (1) in a single forum and (if so) which or (2) in a fragmented manner, that is, in more than one forum with a corresponding risk of conflicting outcomes?

B.4  The centre of gravity and the generalised paradigm

57.  The English Court of Appeal’s guidance in AmTrust Europe Ltd v Trust Risk Group SpA [2015] EWCA 437 offers a pragmatic way of approaching the generalised paradigm into which the present case falls.

58.  AmTrust involved a Terms of Business Agreement (ToBA) between an English insurer (AmTrust) and an Italian broker (Trust Risk). The ToBA provided for English jurisdiction and English law to apply in the event of dispute. The parties later entered into a Framework Agreement governed by Italian law and providing for disputes to be resolved by arbitration in Milan. Differences having arisen between the parties, the English court had to decide whether the dispute resolution clause in the TOBA took precedence over that in the Framework Agreement.

59.  Construing the scopes of the jurisdiction clauses in the TOBA and Framework Agreements, Beatson LJ (with whom Christopher Clarke and Elias LLJ agreed) stated:

“ 46. Where the overall contractual arrangements contain two or more differently expressed choices of jurisdiction and/or law in respect of different agreements, however, the position differs in that one does not approach the construction of those arrangements with a presumption....

47. In Deutsche Bank AG v Sebastian Holdings Inc [2011] 2 All ER (Comm) 245, a case involving a complex series of eight agreements, Thomas LJ ... summed up the position as follows:

(1) “[I]n construing a jurisdiction clause, a broad and purposive construction must be followed” ....

(2) “[A]n agreement which [is] part of a series of agreements [should be construed] by taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme” ....

(3) “It is generally to be assumed … that just as parties to a single agreement do not intend as rational businessmen that disputes under the same agreement be determined by different tribunals, parties to an arrangement between them set out in multiple related agreements do not generally intend a dispute to be litigated in two different tribunals” ... but

(4) “[W]here there are multiple related agreements, the task of the court in determining whether the dispute falls within the jurisdiction clauses of one or more related agreements depends upon the intention of the parties as revealed by the agreements as against these general principles ...

48. The current (sixteenth) edition of Dicey, Morris and Collins states (at para 12–110) that:

‘ Where a complex financial or other commercial transaction is put in place by means of a number of interlinked contracts, and each has its own provision for the resolution of disputes, the point of departure will be that it is improbable that a jurisdiction clause in one contract, even expressed in ample terms, was intended to capture disputes more naturally seen as arising under a related contract … Even if the effect is that there will be a risk of fragmentation of the overall process for the resolution of disputes, this is not by itself sufficient to override the construction, and consequent giving of effect to, the complex agreements for the resolution of disputes which the parties have made.’

In short, what is required is a careful and commercially minded construction of the agreements providing for the resolution of disputes. This may include enquiring under which of a number of inter-related contractual agreements a dispute actually arises, and seeking to do so by locating its centre of gravity and thus which jurisdiction clause is ‘closer to the claim’. In determining the intention of the parties and construing the agreement, some weight may also be given to the fact that the terms are standard forms plainly drafted by one of the parties.

49. There may be a difference between a complex series of agreements about a single transaction or enabling particular types of transactions, and the situation in which there is a single contract creating a relationship which is followed by a later contract embodying a subsequent agreement about the relationship.... Where the contracts are not ‘part of one package’, it may be easier to conclude that the parties chose to have different jurisdictions to deal with different aspects of the relationship.”

60.  After a detailed analysis of the ToBA and the Framework Agreement (including their jurisdiction and choice of law clauses), Beatson LJ held (at [71]):

“ To conclude, the ToBA was a standard London market brokerage agreement dealing with the non-exclusive placement of business by [Trust Risk] with [AmTrust], and for which [AmTrust] was to pay commission to [Trust Risk]. The Framework Agreement was one in which [AmTrust] gave [Trust Risk] exclusivity in the Italian market, for which [Trust Risk] paid [AmTrust]. It thus dealt with a different aspect of the parties’ relationship. In the context of an agreement providing for exclusivity, it is not surprising that the parties included other members of the AmTrust group. This is because otherwise [AmTrust] and the AmTrust group might have been able to circumvent the exclusivity for which [Trust Risk] was paying. In these circumstances, I am satisfied that [AmTrust] has much the better of the argument that the jurisdiction and choice of law provision in cl 21 of the ToBA applies to the dispute between the parties about the retention by [Trust Risk] of premiums received... ”

61.  AmTrust has been cited and applied in the Hong Kong cases of X v Y [2021] 2 HKC 68 (at [46]-[49]) (Mimmie Chan J) and H v G [2022] HKCFI 1327 (at [33]-[39]) (Mimmie Chan J).

C.  Application of the centre of gravity approach to the present case

62.  What I derive from AmTrust is that there can be no initial presumption that the parties intended all their disputes to be resolved in a single forum, if there are several contracts with different dispute resolution clauses. There can be no such presumption in this case, even though the contracts here constitute a package having the objective of providing financing for the Borrower’s acquisition of shares, while ensuring security for the Lender. Instead of applying a presumption, one must construe each contract in the package to map out what disputes must have been intended to be covered by the dispute resolution clause of a given contract.

63.  The mapping may not be a straightforward or neat exercise. The contractual arrangements here being inter-related, disputes among the parties may involve intertwined issues which might reasonably be regarded as falling within the ambit of two or more dispute resolution clauses. If so, in deciding whether a particular forum has jurisdiction to deal with an intertwined issue or dispute between the parties, one must locate the “centre of gravity” of that issue or dispute as best one can, assessing which resolution clause is “closer” to the issue or dispute.

64.  I accept that expressions such as “centre of gravity” and “closer to an issue or dispute” can be nebulous concepts. Inevitably, the determination of an issue’s “centre of gravity” or “closeness” to a dispute resolution clause cannot be rocket science. For this reason, in making an assessment, one should adopt a liberal and generous (as opposed to a pedantic) attitude.

65.  One might also bear in mind Mimmie Chan J’s guidance in X v Y [2021] 2 HKC 68 (at [50]) that:

“ only decisions which are clearly unrelated to, or not reasonably required for the determination of the subject dispute or issues submitted to arbitration can rightly be labelled as “decisions on matters beyond the scope of the submission to arbitration” (U v A [2017] HKCU 599, HCCT 34/2016, 23 February 2017).”

Given that guidance, overlap (that is, the possibility that a disputed issue may reasonably be regarded as falling within the ambit of two or more dispute resolution clauses) may be unavoidable. Thus, a possible test for determining whether an intertwined or overlapping issue falls within or outside of a tribunal’s jurisdiction, might be to look at the ultimate relief sought in connection with that issue. If granting the ultimate relief being sought falls within the scope of the arbitration agreement under which a tribunal was appointed, the issue could be regarded as coming within the tribunal’s jurisdiction or “centre of gravity”. The issue would be a question which reasonably needs to be answered by the tribunal as a stepping stone to deciding whether the relief sought should be granted. This would be the position, even though the issue may also be relevant to the resolution of some other dispute within the “centre of gravity” of a jurisdictional clause in another contract.

66.  Applying the above, I conclude that the Tribunal has competence to adjudicate claims (1) by the Lender that the Guarantors are or remain liable under clause 6 of the Loan Agreement and (2) allegations by the Guarantors that they have been released from their obligations as guarantors by novation of the Warrant. Such questions depend on the proper construction of the Loan Agreement, especially clause 6, and an examination of the corresponding facts. The questions would be within the “centre of gravity” of the Loan Agreement and close to its dispute resolution clause.

67.  In contrast, the question whether the Guarantors are or remain liable to pay under the Promissory Note is distinct. The question would seem to fall within the “centre of gravity” of the dispute resolution provision in the Promissory Note. The question would thus fall outside the scope of the Tribunal’s jurisdiction.

68.  In submission, Mr Chan stressed that that the expression “Transaction Documents” is defined in the Loan Agreement to include the Promissory Note. He pointed out that clause 6 of the Loan Agreement provides for Guarantor 1 (in the original version) or the Guarantors (in the re-signed version) being:

“ released from the obligations under the Transaction Documents upon either (i) the novation of the Warrant ... or (ii) all the underlying shares of any and all the Warrant have been issued and registered in the name of the Borrower ... ”

It must follow from this (Mr Chan argued) that the question whether any purported novation of the Warrant or issue and registration of the Warrant’s underlying shares have released the Guarantors from their obligations under the Promissory Note, is a live issue arising under the Loan Agreement and within the scope of the Tribunal’s jurisdiction. I agree with Mr Chan. Mr KK Lau (appearing on behalf of the Respondents) fairly accepted that, if a disputed issue arises from the terms of the Loan Agreement (including clause 6), then it would be within the Tribunal’s competence.

69.  At the end of his submissions, Mr. Chan suggested that, purely as a matter of common sense, all disputes relating to the Promissory Note should be dealt with in a single forum. In an ideal world, Mr. Chan may be right. However, the notion of a one-stop shop for the resolution of parties’ related disputes can only be pressed so far. It should not be a procrustean bed into which all multiple contract situations are made to fit, ignoring indications of a contrary intention among the parties.

70.  The parties could conceivably have bargained for a regime whereby disputes arising out of different contracts are to be dealt with in separate forums. They could have accepted a risk of contradictory outcomes and fragmentation. In the present case, despite the Fiona Trust principle or presumptions like it being inapposite, there would still be ways of minimising the risk of conflicting outcomes. Such ways might, for instance, include the following:

(1)  In an arbitration under the Promissory Note, a party might invoke issue estoppel arising from the Tribunal’s findings of fact on the Guarantors’ liability under clause 6 of the Loan Agreement.

(2)  The parties might invite HKIAC to decide that a panel of three arbitrators should be appointed to any arbitration under the dispute resolution clause in the Promissory Note, and might request that the three arbitrators comprising the Tribunal be appointed to that panel.

(3)  A party may apply to HKIAC under Article 28 of the Rules for the arbitration under the Loan Agreement to be consolidated with an arbitration under the Promissory Note.

(4)  A party may apply for a stay of proceedings in an arbitration under the Promissory Note, pending the outcome of the Loan Agreement arbitration.

71.  In brief, the question whether the Guarantors remain liable to pay under the Promissory Note falls within the “centre of gravity” of the dispute resolution clause in the Promissory Note. It is therefore outside the Tribunal’s jurisdiction. I will make an order (1) quashing the Tribunal’s Decision on jurisdiction and (2) declaring that the Tribunal lacks jurisdiction to decide claims for payment under the Promissory Note.

72.  The Respondents’ Originating Summons seeks a further order that “all references to the Promissory Note and matters relating thereto in the Statement of Claim shall be struck out”. In my view, the proposed order goes too far. There is a difference between (1) the Tribunal determining whether the Guarantors remain liable to pay under the Promissory Note and (2) the Tribunal determining whether the Respondents or one or more of them have been released from their obligations under Transaction Documents (including the Promissory Note) pursuant to the terms of the Loan Agreement. As discussed in [68] above, the Tribunal ought not to be precluded from considering the latter.

73.  It is correct that there are references to the Promissory Note in SOC paragraphs 53 and 55. The references could be read as indicated in [17] above. But the references may also be construed or understood in other ways. For example, the Lender may have pleaded those paragraphs because the Lender wished to refer to provisions of the Promissory Note as an aid to the construction of clause 6 of the Loan Agreement and the intended effect of the proviso to clause 6 on the Respondents’ obligations under the Transaction Documents. Since the SOC currently only seeks reliefs in connection with the Loan and Amendment Agreements, I do not think that there is a need for references to the Promissory Note in the SOC to be struck out wholesale. The references to the Promissory Note in the SOC should instead be read in the context of the jurisdictional constraint articulated in this Judgment. The further order is therefore refused.

IV.  CONCLUSION

74.  There will be an Order that the Tribunal’s decision on jurisdiction be set aside.

75.  There will be a Declaration that the Tribunal has no jurisdiction to decide claims for payment under the Promissory Note.

76.  The Respondents having largely prevailed, there will be an Order nisi that the Lender bear the costs of the Respondents’ Originating Summons, to be taxed (if not agreed) on a party-and-party basis. This being the event, I do not add the qualification “in any event” to the provisional costs order.