CMBICDHAW INVESTMENTS LTD v. CDH FUND V LTD PARTNERSHIP AND OTHERS

CACV 172/2023

[2024] HKCA 882

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 172 OF 2023

(ON APPEAL FROM HCCT NO 34 OF 2022)

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D E C I S I O N

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Hon Coleman J (giving the Judgment of the Court):

A.  Introduction

1.  By our Judgment dated 10 July 2024, [2024] HKCA 516, we dismissed the Defendants’ appeal from the decision of Mimmie Chan J setting aside various paragraphs of the Award (as defined in the Judgment).  We adopt the definitions used in the Judgment.

2.  By Notice of Motion dated 7 August 2024, the Defendants Fund and Cattle seek leave to appeal to the Court of Final Appeal (“CFA”), based on the following suggested questions of great general or public importance (“GPI”):

(1)  Is there a dispute arising out of or relating to an agreement, where one party to the agreement (“1^st Party”) alleges, and the other party (“2^nd Party”) denies, that the agreement was induced by misrepresentation allegedly made by the representatives of the 2^nd Party who negotiated the agreement on behalf of the 2^nd Party with the 1^st Party, but where the 1^st Party makes no claim and seeks no relief against the 2^nd Party in respect of the agreement?  (“Q1”)

(2)  Assuming that the arbitral tribunal has jurisdiction, is the award of a negative declaration made in the circumstances outlined in Q1 above contrary to public policy due to abuse of process?  (“Q2”)

3.  Following the exchange of written submissions, this is our Decision.  In short, and for the reasons that follow, we decline to grant leave.

B.  The Defendants’ Application

4.  The Defendants submit that the questions Q1 and Q2 are GPI questions and are reasonably arguable.

5.  The Defendants say that the scenario posited in Q1 arose in the present case, and suggest that the Judgment effectively endorsed the actions of the 1^st Party in circumventing the arbitration agreement which may well result in harm to the 2^nd Party, which would inevitably encourage others to follow suit and seriously undermine the objectives of the Arbitration Ordinance Cap 609 and effectiveness of Hong Kong as an international arbitration centre.

6.  In summary, as to Q1, the Defendants say that it is at least reasonably arguable that there is a dispute arising out of or relating to an agreement because:

(1)  The term “dispute” should be construed inclusively and not overly legalistically in the arbitration context, and there is no need for there to be any legal claim or legal cause of action to give rise to a “dispute”.

(2)  When construing the term “dispute” in an arbitration clause, regard should be had to the prima facie assumption that parties to a contract likely intend a dispute arising out of the relationship into which they have entered to be decided by the same tribunal.

(3)  In the circumstances posited in Q1, it is at least reasonably arguable that there is a dispute between the 1^st Party and 2^nd Party, because the 1^st Party asserts or adopts a position which the 2^nd Party denies or rejects.

(4)  The fact that the 1^st Party did not make any legal claim or assert any liability against the 2^nd Party does not negate the existence of a “dispute”.  The unarticulated assumption behind the reasoning in the Judgment is that, for there to be a dispute, the 1^st Party had to make a legal claim against the 2^nd Party or positively assert that the 2^nd Party was legally liable to the 1^st Party.

(5)  Though the Court cited the correct principles in §53 of the Judgment, it in substance adopted an unduly technical and legalistic approach to construing the term “dispute”.

(6)  The construction given in the Judgment gives a ‘green light’ to the 1st Party to circumvent the arbitration agreement by commencing court litigation against individual representatives of the 2^nd Party only.

(7)  The dispute between the 1^st Party and the 2^nd Party plainly “arises out of” and/or “relates to” the agreement, because it concerns whether the 1^st Party was induced to enter into that very agreement by misrepresentation.

7.  The Defendants say that Q1 is a GPI question suitable for determination by the CFA because the proper construction of what constitutes “dispute arising out of or relating to” the contract would be of general significance to arbitration disputes, and decisions on the meaning of the particular form of words used may be persuasive depending on similarity in contracts / circumstances between earlier decisions and the instant case.

8.  In summary, as to Q2, the Defendants say that what is required to constitute “contrary to public policy” is eminently one of GPI, and that the award of a negative declaration in the circumstances of Q1 is at least reasonably arguably not contrary to public policy, because:

(1)  The public policy ground is applied sparingly, and the threshold is very high.  But there is clear public policy in favour of upholding an agreement between parties to submit their disputes to arbitration and to enforce an arbitral award which is binding on the parties.

(2)  The making of a negative declaration in the circumstances outlined in Q1 does not come anywhere near the threshold of being “so shocking to the Court’s conscience as to render enforcement repugnant”.  There is nothing shocking or repugnant about the negative declaration at all.

(3)  There is good reason why the 2^nd Party, in the circumstances posited in Q1, would legitimately need to commence proceedings in order to obtain a negative declaration against the 1st Party.

(4)  Moreover, given that an important purpose of entering into an arbitration agreement in the first place is to keep disputes confidential, it can readily be envisaged that the 1^st Party may (knowing the importance of confidentiality for the 2^nd Party) seek to use the threat or commencement of public litigation – against individuals who are not themselves party to the arbitration agreement but are representatives of the 2^nd Party which is party to the arbitration agreement – to pressure the 2^nd Party to settle.

(5)  Seeking to obtain a negative declaration to counteract undue pressure from malicious and baseless claims against the defendants in the HCA was precisely what happened in this case.

(6)  So it ought to be legitimate for the 2^nd Party to apply for a negative declaration.

(7)  On the facts, Fund and Cattle commenced the Arbitration alongside traditional parties as claimants, but that should not make any difference to the analysis.  If those additional parties ought not to have pursued an arbitration, there is no reason why it should have a bearing on the position of Fund and Cattle, which are separate legal entities.

9.  The Defendants say that Q2 is a GPI question suitable for determination by the CFA because it raises the question as to what are the circumstances under which abuse of process (if established) would render the enforcement of an award to be contrary to public policy, and the concept of abuse/misuse of the arbitral process has received scant consideration in the authorities in Hong Kong.

10.  The Defendants also say that the issues posed by Q1 and Q2 have never been squarely considered by the courts in this and other jurisdictions.  Hence, it is necessary and appropriate for the CFA to give authoritative guidance on these arbitration-related issues, conducive to the development of arbitration in Hong Kong, being a jurisdiction that promotes international arbitration and limits the extent of court intervention in the arbitral process.

11.  The Defendants also place reliance on the “or otherwise” limb, but accept that it is the practice of this Court to leave “or otherwise” grounds to the Appeal Committee of the CFA.

C.  The Plaintiff’s Response

12.  The Plaintiff submits that:

(1)  The statutory jurisdiction under the first limb of section 22(1)(b) is not engaged if the proposed appeal involves issues which are:

(a)  academic between the parties, or

(b)  arise because party desires well-established principles to be revisited, or

(c)  are specific to the facts of the case, or

(d)  are not reasonably likely to result in the appeal decision being overturned, for example on applications involving questions of fact or mixed law and fact the subject of concurrent findings below.

(2)  Neither Q1 nor Q2 involve issues of great general importance, or of great public importance, or of any importance beyond the parties concerned.

(3)  Q1 and Q2 are in any event academic, and obviously fact specific, turning on well-settled governing principles which were unchallenged.

(4)  Q1 is entirely fact specific, governed by those well-established and unchallenged principles.

(5)  Q2 is premised upon Q1, and so they fall together.

(6)  The HCA involved tort damages claims alleging fraud brought against persons, none of whom is a party to the Arbitration Agreement.

(7)  The HCA has never been premised on any misrepresentation made by representatives of the Defendants Fund and Cattle.

(8)  As has now been concurrently found, the HCA involved no claim or issue against those defendants, and the Arbitration Agreement did not confer arbitral jurisdiction upon the Arbitrator to grant the negative declaration sought or to make the challenged purported findings of fact (as were set aside by the Judgment).

(9)  The Judgment compellingly rejected the same arguments as are now repeated on the Defendants’ application for leave to appeal to the CFA.

D.  Our View

13.  We accept the submission that neither Q1 nor Q2 involve issues of great general importance, or of great public importance, or indeed of any importance beyond the parties concerned.

14.  As to the Defendants’ central argument – that the Judgment effectively endorsed the actions of the 1^st Party in circumventing the arbitration agreement which may well result in harm to the 2^nd Party – that is a circular or ‘bootstraps’ argument.  First, it ignores the finding made by the Arbitrator (which is not challenged by the Defendants) that the commencement of the HCA was not a breach of the Arbitration Agreement. Secondly, the Arbitration Agreement would only be circumvented if there was in fact a dispute conferring jurisdiction, but the prior question is as to whether there was in fact such a dispute.  If not, no circumvention could arise.  Thirdly, it erroneously conflates and confuses the points about whether there is jurisdiction and, if so, whether relief should be granted – in the same way as the Arbitrator fell into error, as has been pointed out both by Mimmie Chan J and in our Judgment.

15.  As to the further arguments advanced by the Defendants:

(1)  It is entirely settled that the term “dispute” should be construed inclusively and not overly legalistically in the arbitration context, and there is no need for there to be any legal claim or legal cause of action to give rise to a “dispute”.  This was not contentious on the appeal.

(2)  It was also not contentious, because it is settled, that in construing the term “dispute” in an arbitration clause, regard can be had to the prima facie assumption that parties to a contract likely intend a dispute arising out of the relationship into which they have entered to be decided by the same tribunal.

(3)  It is simplistic to say, in a vacuum, that there is a dispute between the 1^st Party and 2^nd Party, merely because the 1^st Party asserts or adopts a position which the 2^nd Party denies or rejects.

(4)  The suggested assumption – that, for there to be a dispute, the 1^st Party had to make a legal claim against the 2^nd Party or positively assert that the 2^nd Party was legally liable to the 1^st Party – was “unarticulated” precisely because that assumption was not actually made. In fact, the Judgment specifically identifies the settled principles – which the Defendants accept were correctly stated.

(5)  The suggestion that the construction given in the Judgment gives a ‘green light’ to the 1^st Party, to circumvent the arbitration agreement by commencing court litigation against individual representatives of the 2^nd Party only, ignores the facts that: (a) the individual representatives (if that is what they were, which is not accepted by the Plaintiff) were not parties to an arbitration agreement, as the Arbitrator correctly identified; and (b) repeats the circular argument at the centre of the Defendants’ submissions.

(6)  The repeated incantation that the dispute between the 1^st Party and the 2^nd Party “arises out of” and/or “relates to” the agreement, because it concerns whether the 1^st Party was induced to enter into that very agreement by misrepresentation, ignores the various other facts identified in our Judgment.

16.  We would also again note on the particular facts of this case that:

(1)  The fact that the Arbitrator found that the HCA was not a breach by CMB of the Arbitration Agreement was a recognition, albeit only implicit, that CMB had made no claim at all arising under or relating to the Agreement as against Fund or Cattle (because, if it had, making such claim in the HCA would have been a breach of the Arbitration Agreement).

(2)  The Arbitrator erred by conflating whether he had jurisdiction with whether Fund and Cattle had “a legitimate interest” in seeking the negative declaration.

(3)  The Declaration granted by the Arbitrator was in terms different from that sought by the Defendants, where the changes made pointed to the absence of jurisdiction.

(4)  The Arbitrator changed the terms of the declaration from the allegations made in the HCA to “allegations arising out of the [Agreement]” and stated “that all such allegations in so far as they made against [Fund and Cattle] are false”,

(5)  The Arbitrator had actually recognized no such allegations had been made because he said he need not decide anything on the evidence.

(6)  It might therefore be said that the Arbitrator was deciding matters which he had himself seen to be academic or not actually falling for decision.

(7)  In any event, if such allegations had been made, then (1) they were the allegations which fell to be determined by the Court in the HCA, and (2) the Arbitrator certainly could not have decided them to be false without assessing the evidence.

17.  With respect, as we pointed out in the Judgment, our Judgment was the application of well-settled and non-controversial principles to the specific facts.  To say that similar facts might arise again does not change the analysis, as each case will be decided on its own facts.  Contrary to the Defendants’ suggestion, no ‘green light’ was given as regards other cases, which will be decided on their own facts.  The principles as to the proper construction of what constitutes a “dispute arising out of or relating to” an agreement are settled.  No GPI point arises.

18.  The last points in the sub-paragraphs above are also relevant to Q2.  We recognized the high threshold to be surmounted, a principle that was not controversial.  The public policy breach we found was not limited to just the granting of the negative declaration, but also covered the fact that the individual Claimants in the Arbitration had abandoned the Stay Application, and instead submitted to the jurisdiction of the Court to determine the issues in the HCA, but nevertheless all of the Claimants maintained their claims in the Arbitration and pursued them to a trial in the Arbitration.  Those claims included seeking final relief anti-suit injunction orders (plainly inconsistent with submitting to the jurisdiction of the Court), as well as the determination of the substantive factual and legal issues in the HCA (which fell for determination by the Court).  As we pointed out, that could have no legitimate purpose.  But anyway, our approach was an application of settled principles to the facts.

19.  Further, if the claims made in the HCA are, as the Defendants suggest, malicious and baseless claims, then that will be shown or established in the HCA.  If those claims are said to be an abuse, then the Court can be asked to say so – perhaps at an early stage.  In fact, it is the Court which should say so publicly, and there is no need to engineer a ‘dispute’ to ask an arbitrator to say so privately.

20.  Further, it is simply a fact of open justice that claims made in Court proceedings are dealt with on an open and transparent basis.  Potentially adverse publicity is something that almost all litigants must live with, and the fact of a possible open and public vindication can hardly be described as a reason to allow an engineered ‘dispute’ to be ‘resolved’ in a private forum which could not inform any public debate.

21.  In accordance with the usual practice, we also leave any consideration of the “or otherwise” ground to be addressed, if raised again, by the CFA.

E.  Result

22.  In the circumstances, we dismiss the application for leave to appeal to the CFA.

23.  We see no reason why costs should not follow the event, and accordingly order the Defendants to pay the Plaintiff’s costs of this application, to be summarily assessed.  The Plaintiff has filed a statement of costs for summary assessment, and we direct the Defendants to file any list of objections within 14 days.  Thereafter we will make the summary assessment.