AI AND OTHERS v. LG II AND ANOTHER

HCCT 69/2022

[2023] HKCFI 1183

[amended and redacted copy]

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 69 OF 2022

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BETWEEN

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D E C I S I O N

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Background

1.  This is an application made by the Plaintiffs to set aside an arbitral award dated 9 June 2022, and the correction to the award dated 5 July 2022 (referred to collectively as “Award”), made in an arbitration between the Plaintiffs as Claimants and the Defendants as Respondents (“Arbitration”).

2.  The grounds as stated in the Originating Summons are that:

(1) on the issue of foreign illegality decided by the Tribunal, the Tribunal had provided no reasoning or wholly inadequate reasoning for its finding that the Agreements which were the subject matter of the Arbitration were not illegal; and had misunderstood the conclusions of investigatory reports of the Korean Financial Supervisory Service in evidence and misunderstood Hong Kong case law on the meaning of foreign illegality;

(2) on the issue of domestic illegality, the Tribunal had found that section 298 of the Securities and Futures Ordinance did not apply to the relevant transactions and Agreements because the actions constituting fraudulent inducement must occur in Hong Kong, but such interpretation was not one which was contended for by the Defendants and was not an interpretation on which the Plaintiffs had been given the opportunity to present their case; and that the Tribunal’s finding was in any event wrong;

(3) on the issue of whether the Defendants had made false statements of fact to induce the Agreements, the Tribunal found that it was not satisfied that the Plaintiffs would not have proceeded with the relevant transactions, but had provided no reasoning or inadequate reasoning for its conclusion, and further, did not address the Plaintiffs’ submissions on the test of whether a reasonable actor would have gone through with the transactions, and applied a different and incorrect approach to the issue;

(4) on the issue of whether the Defendants were in breach of the relevant clauses of the Agreements relied upon, the Tribunal failed to address part of the Plaintiffs’ claim of breach, in the mistaken belief that the claim was not pursued;

(5) on the issue of the Defendants’ counterclaim, as to whether one or more events of default had occurred under the relevant Promissory Notes which were the subject matter of the Arbitration, the Tribunal found that it did not have jurisdiction over the Cayman Security Agreements, but that it did have jurisdiction to decide whether there was breach of the Cayman Security Agreements, and found that there was breach of the said agreements.

3.  The Plaintiffs’ case is that by reason of the foregoing matters, the Award should be set aside under Article 34 (2)(a)(iii) of the Model Law, for dealing with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or containing decisions on matters beyond the scope of the submission to arbitration, and under Article 34(2)(a)(ii), as the Plaintiffs had not been able to present their case. The Plaintiffs further contend that by reason of the matters outlined in paragraphs 2(1) and (3) above, the Award is in conflict with the public policy of Hong Kong.

The Arbitration

4.  The dispute involved contracts made for the purchase and sale of investment units in various trade finance funds. The Defendants/Respondents were exempted limited liability partnerships formed under the laws of the Cayman Islands. The shares of both the 1^st and 2^nd Defendants are owned by their parent company L XXXXXXXXXXXXXXXXXXXXX, a Korean hedge fund. The limited partner of both Defendants is S XXXXXXXXXXXXXXXXX, a Korean securities brokerage and investment banking company.

5.  The Defendants were desirous of selling their units in several Cayman trade finance funds which were losing value. XXXXXXXXXXXXXXXXX The Plaintiffs’ group XXXX formerly XXXXXXXXXXXXXX headquartered in Singapore, were looking for trade finance assets to put on their new online trading platform. The 1^st Plaintiff is an investment vehicle incorporated under the laws of the Cayman Islands. It is a wholly owned subsidiary of the 2^nd Plaintiff. The 2^nd and 3^rd Plaintiffs are both private companies incorporated under the laws of Singapore. The shares in the 2^nd and 3^rd Plaintiffs are owned by Mr K XXXXXXXX who is their sole director.

6.  Between April and June 2019, the parties entered into 5 agreements to carry out the sale and purchase of the units in the relevant trade finance funds (the “Agreements” referred to in the Award). These comprised:

(1) a Purchase and Sale Agreement between the 1^st Plaintiff and Fund A XXXXXXXXXXXXXXXXXXXXXXXXXX dated 10 April 2019 (“1^st PSA”);

(2) a Purchase and Sale Agreement between the 1^st Plaintiff and Fund B XXXXXXXXXXXXXXXXXXXXXXXXXXX dated 10 April 2019 (“2^nd PSA”);

(3) a Promissory Note between the 1^st Plaintiff and Fund A dated 21 June 2019 (“1^st Note”);

(4) a Promissory Note between the 1^st Plaintiff and Fund B dated 21 June 2019 (“2^nd Note”); and

(5) a Corporate Guarantee between the 2^nd Plaintiff, the 3^rd Plaintiff and Fund B dated 21 June 2019 (“Guarantee”).

7.  In essence, the Defendants sold the investment units in the trade finance funds in exchange for 2 promissory notes with a combined face value of US $500 million (“Notes”). It is not disputed that the units in the funds which were to be transferred under the transactions included certain “good assets” and certain “bad assets”. The latter were the “IIG Funds” transferred under the 2^nd PSA, and this was in exchange for deferred payment under the 2^nd Note.

8.  Pursuant to the Agreements, and pending payment of the entire sums under the Notes, it was agreed that the Defendants would retain security interests in the assets transferred. The terms of these security interests were set out in 5 security agreements (“Security Agreements”), which granted to Fund A security interests over the fund units sold and the shares in the 1^st Plaintiff and in XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX a company 100% owned by the 1^st Plaintiff (“AIL”). The Security Agreements provided that, as conditions to closing, the Plaintiffs were to deliver various documents (“Deliverables”), to provide the Defendants with security over the assets which were transferred.

9.  Some of the fund units subject to the deal were transferred to the Plaintiffs following closing of the deal in June 2019, but other units which principally represented the “bad assets” were not. It also transpired that some of the Deliverables were not provided to the Defendants, despite the Defendants’ various demands made in the autumn of 2019.

10.  It was not disputed that the Plaintiffs had known that part of the transferred assets, namely the IIG Funds, were distressed assets, but they claim that they only discovered in October 2019 that the IIG Funds were a possible Ponzi scheme or had “Ponzi-like” behavior. In August 2019, the Korean regulator, Financial Supervisory Services (“FSS”), had initiated investigations into L and the funds it owned, as to whether L had misled Korean retail investors by misrepresenting what the fund had invested. FSS issued an interim report of its investigations on 14 February 2020.

11.  Further, the Plaintiffs were unable to redeem the units in accordance with the agreed redemption schedule.

12.  As a result, in April 2020, the Defendants declared that events of default had occurred which had the effect of accelerating payment under the Notes. In the interim, the “bad assets” had lost substantially all of their value.

13.  The Plaintiffs then commenced the Arbitration on 10 April 2020, seeking the following relief:

“a. A declaration that the Agreements are void or rescinded for misrepresentations.

b. A declaration that the Agreements are void or rescinded for illegality.

c. Alternatively, a declaration that the Agreements are void or rescinded for common mistake.

d. Alternatively, a declaration that the Agreements are discharged or rescinded on the basis of the Respondents’ frustration of purpose of the Agreement.

e. An award of compensatory damages caused by the Respondents’ misrepresentations, breaches of the Agreements and defaults under the Agreements, plus applicable pre-award, post-award and post-judgment interest, which damages can be offset against any proceeds of Redeemed Assets that the Tribunal order the Claimants to return.

f. Or, should the Tribunal deem the Agreements valid and binding:

i. An award of damages in lieu of rescission for the Respondents’ misrepresentations.

ii. An award of damages for Respondents’ breaches of warranty.

iii. The award of damages resulting from the Respondent’s breaches under the Agreements and tortious interference;

iv. A declaration that (i) the Claimants triggered no Event of Default under the Agreements, and (ii) the Claimants otherwise committed no breach under any of the Agreements.

v. Denial of all relief sought by the Respondents.

vi. Payment of an indemnity for all costs incurred in furtherance of the transactions between the Parties.

vii. Payment of all fees and costs incurred by the Claimants in this Arbitration and the Claimants’ legal and associated costs and expenses.

viii. Such other relief as the Tribunal deems appropriate and proper.”

14.  The fundamental complaint made by the Plaintiffs in the Arbitration is that the Agreements were part of an unlawful scheme to cover up the Defendants’ poor investments and the losses in the IIG Funds, and to conceal such losses from the Korean public and investors, and further, that the Defendants had enticed the Plaintiffs into the Agreements by misrepresenting the true extent of potential losses from the bad assets and concealing the substantial regulatory investigations and problems. They argued that the Agreements were illegal and subject to rescission, and that the Defendants had engaged in misrepresentation, contractual breaches and tortious acts.

15.  The Defendants deny that the Agreements were illegal, or that they had been involved in any scheme to deceive the Plaintiffs or the Korean investors. They maintained that the Plaintiffs had knowledge of the risks in the unit funds and of the regulatory investigations at the time when they entered into the Agreements. The Defendants’ stance was that it were the Plaintiffs which had been in breach of their obligations under the Notes, and as Respondents in the Arbitration, they made a counterclaim to seek (inter alia) orders dismissing the Plaintiffs’ claims; declarations that the Defendants were not in breach of the 1^st PSA, the 2^nd PSA, or the Notes; a declaration that the Tribunal does not have jurisdiction to grant relief pursuant to the Security Agreements; declarations that one or more Events of Default had occurred under the Notes, that the Plaintiffs were in breach of their obligations under the respective Notes and the Guarantee, and that there were validly accelerated payments under the Notes which were due and payable to the Defendants; payment of the sums due, as well as damages.

16.  In the Award, the Tribunal found that the Agreements were not void or unenforceable by reason of illegality or common mistake. The Tribunal found that there was no basis for rescission of the Agreements (whether on the ground of misrepresentation or breach of contract), and that Events of Default had occurred under the Notes by January 2020. The Tribunal rejected the Plaintiffs’ claim that any breaches on their part had been waived by the Defendants’ consent to the Plaintiffs’ redemptions of the units. By reason of the Tribunal’s findings on the issues of illegality, rescission and on events of default, the Tribunal made awards (inter alia) for the Defendants’ payment of sums due to the Plaintiffs under the Notes, in the total amount of US $497,764,920, and of the costs of the Arbitration.

17.  I shall deal with the Plaintiffs’ challenge of the Award in the order of the grounds stated in the Originating Summons.

Issue of foreign illegality

18.  The Plaintiffs’ challenge of the Tribunal’s findings and conclusions on the issue of foreign illegality is that the Tribunal provided no or inadequate reasoning for its findings, and that it had failed adequately to deal with and had misunderstood the conclusions of the FSS reports and Hong Kong case law on the meaning of foreign illegality, and consequently had permitted a fraudulent enterprise to stand.

19.  The parties do not substantially dispute the relevant legal principles.

20.  An applicant has a high threshold to meet, when an award is challenged on the basis that the tribunal had failed to give reasons for its decisions and findings. As Thomas Au J (as His Lordship then was, as the Arbitration Judge) explained in R v F [2012] 5 HKLRD 278 (at paragraph 36 of the judgment):

“An arbitral award must be read and understood in its proper context, in particular against the context as to how the relevant issues have been argued before the arbitration tribunal. This is particularly so as arbitration is a private and confidential dispute resolution process based on party autonomy. An award made thereunder is intended to be read by the parties (who would be familiar with the background and how the issues have been argued) and, unlike a judgment of the Court, not to be made public.

Further, it has often been said that a judgment of a court is not intended and should not be read as if it were a transcript of the proceedings before it. This must also apply with equal (if not greater) force in relation to arbitral awards. Of course, the reasoning process expressed in an award must be one that the readers of the award (who are mostly if not always the parties themselves only) can understand how and why the conclusion is reached on a particular issue. However, the way reasons are expected to be given in an arbitral award for a particular issue should be proportional to the complexities of how the issue is contended (or not contended) before the arbitral tribunal. Depending on how the issues are contended, the reasons do not necessarily need to be elaborate or lengthy, provided they could be understood in its proper context. It must be borne in mind that an arbitration award is the result of a private consensual process, which is intended and expected to be cost effective, and shorn of complexities and technicalities.”

21.  So long as the reasoning of the tribunal is expressed in an award to enable the parties to the award to understand how and why a conclusion is reached on a particular issue as argued, the reasons for the award do not have to be elaborate. There is no need to give reasons to deal with each and every argument presented. It is sufficient if the award explains the basis on which a material finding was made (Welltus Ltd v Fornton Knitting Co Ltd [2013] 5 HKC 106, at 113A-115A, applied in S Co v B Co [2014] 6 HKC 421).

22.  As for a claim that the tribunal had failed to deal with an issue, as the basis for contending that the arbitral procedure was in contravention of principles of natural justice and basic standards of fairness, and/or that it would be contrary to public policy to uphold such an award, the relevant legal principles have been stated in this Court’s decision in LY v HW [2022] HKCFI 2267, which referred to Z v R [2021] HKCFI 2312 and the cases cited therein. The approach of the courts can be summarized as follows:

(1) The Court has to be satisfied that an “issue” which has been put to the tribunal was not dealt with expressly, or in composition with other issues, and that such failure has caused substantial injustice.

(2) It should be reasonably apparent to a reasonable party in the shoes of the applicant for setting aside that all issues the determination of which are crucial to the tribunal’s decisions are dealt with.

(3) The tribunal does not have to set out each step by which it reaches its conclusion, and a failure to deal with an argument or a submission made is not equivalent to a failure to deal with an issue.

(4) The fact that the tribunal has not given adequate reasons for its award, or sufficiently clarified that an issue fell away because of the findings which had been made, is not tantamount to the arbitrator having failed to deal with an issue.

(5) If the tribunal has dealt with the issue in any way, it does not matter whether it has dealt with it well, badly or indifferently (Secretary of State for the Home Department v Raytheon Systems Ltd [2014] EWHC 4375 (TCC)).

(6) A tribunal is not required to deal with each issue seriatim: it can sometimes deal with a number of issues in a composite disposal of them (Petrochemical Industries Co v Dow Chemical [2012] EWHC 2739 (Comm)).

(7) A tribunal does not fail to deal with an issue if it does not answer every question that qualifies as an issue. It can deal with an issue where that issue does not arise in view of the tribunal’s decision on the facts or its legal conclusions. A tribunal may deal with an issue by so deciding a logically anterior point such that the other issue does not arise (Petrochemical Industries v Dow Chemical [2012] EWHC 2739 (Comm) at paragraph 27). If the tribunal decides all those issues put to it that were essential to be dealt with for the tribunal to come fairly to its decision on the dispute, it will have dealt with all the issues (Buyuk Camlica Shipping Trading & Industry Co Inc v Progress Bulk Carriers Ltd [2010] E WHC 442 (Comm), paragraph 30).

(8) There is a distinction between “issues” on the one hand and, on the other hand, “arguments” advanced or “points” made by the parties. The tribunal does not have to deal with every argument which the parties have canvassed under each essential issue. So long as a decision on one argument suffices to resolve an essential issue, the tribunal does not have to consider all of the arguments canvassed under that issue.

(9) Parties’ submissions do not dictate how the tribunal is to structure the disposal of the dispute referred to it, although awards often respond to the parties’ submissions and should not be interpreted in a vacuum (Petrochemical Industries v Dow Chemical).

23.  In particular, this Court emphasized in LY v HW that in considering the important question of whether a tribunal has dealt with an issue, the approach is to read the award in a “reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found with it” (Zemalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 at p 14F). The policy of minimal curial intervention was also highlighted at paragraph 32 of the Decision in LY v HW, by reference to the useful passages in the judgment of the Singapore Court of Appeal in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR (R) 86. The approach of the Court should be to read the award generously, so as to remedy only meaningful and readily apparent breaches of the rules of natural justice which can cause actual prejudice, rather than to comb an award in order to assign blame or to find fault in the process. In AKN and another v ALC and others [2015] 3 SLR 488, the Singapore Court of Appeal explained that it will usually be a matter of inference, rather than of explicit indication, that an arbitrator missed one or more important pleaded issues. The Court pointed out that if such an inference is to be drawn, it must be shown to be “clear and virtually inescapable”.

24.  The Plaintiffs pointed out that it had always been their case in the Arbitration that the Agreements were tainted by illegality on 2 grounds: (1) the performance of the Agreements was illegal; and (2) the Agreements were made for an illegal purpose. According to the Plaintiffs, and as submitted to the Tribunal, the Defendants had entered into the Agreements for an illegal purpose, being part and parcel of a three-part scheme to conceal the losses made on the IIG Funds and to defraud the Korean public. The Plaintiffs’ case “was centered upon the Second Restructure under the transactions of the Agreements, which they claim to be illegal, according to investigations made by FSS and criminal prosecutions in Korea” (paragraph 47 of the Plaintiffs’ skeleton submissions).

25.  The complaint made by the Plaintiffs is that the Tribunal had failed to properly address the issue of foreign illegality. According to the Plaintiffs, the Tribunal only considered the face value of the FSS Interim Report, concluded that the illegality only stemmed from lack of disclosure to Korean investors, and disregarded the point of concealment of losses which had been repeatedly emphasized by the Plaintiffs (as evidenced by their Opening Statement and their Post-Hearing Brief).

26.  The Plaintiffs complain that the Tribunal erroneously found that a failure to notify the Korean public as to the Agreements could not be considered to be performance of the Agreements, which make no provision for disclosure. According to the Plaintiffs, the Tribunal had failed to consider the argument that the Agreements formed part of a fraudulent scheme to conceal the IIG losses, and did not consider the Plaintiffs’ arguments that it would be wrong to find illegality only if the transaction as between the parties was illegal. The Plaintiffs contended that the Agreements involved conduct which was illegal under the law of the place where it was required to be performed, and should not be given effect.

27.  The Plaintiffs contend that the Tribunal had failed to consider the issue of the illegal purpose of the Agreements, as the Tribunal had framed the issue as one of mere “lack of disclosure to Korean investors”, and never addressed the Plaintiffs’ argument as to the purpose of the Agreements.

28.  Having considered the submissions of the parties and reviewed the Award, I am not satisfied that the Tribunal had failed to deal with the issue of foreign illegality, as the Plaintiffs allege.

29.  The Tribunal obviously had in mind the submissions made on behalf of the Plaintiffs, that the Agreements formed part of an illegal scheme to conceal the IIG losses and to defraud the Korean public, and are void or unenforceable by virtue of Ryder Industries Ltd v Chan Shui Wo [2015] 18 HKCFAR 544. This was expressly referred to in paragraph 110 of the Award, and again at paragraph 115 of the Award. The Tribunal also referred to the 3 components of the illegal scheme, as alleged by the Plaintiffs, including the so-called Second Restructure.

30.  As apparent from the Plaintiffs’ Opening Statement (at paragraph 8), the Plaintiffs relied on the findings made by FSS in their Interim Report, and by the Korean Court in respect of the criminal charges brought against S and others, as evidence of the illegal scheme under Korean law and the alleged purpose of the Agreements.

31.  At paragraphs 116 to 118 of the Award, after referring to the 2 limbs of illegal purpose and illegal performance of the Plaintiffs’ case, the Tribunal observed:

“Turning first to the question of performance, the Tribunal finds that a failure to notify the Korean public as to the Agreements cannot be considered to be performance of those Agreements. The Agreements make no provision for disclosure one way or another. This is unsurprising, as they involve subject matter concerning the Parties and not the Korean public at large.

As to the purpose of the Agreements being illegal, the (Plaintiffs) have referred to numerous extracts of documents to support their contention that the Agreements had an illegal purpose, namely, the defrauding of the Korean public. The (Plaintiffs) describe the evidentiary record as ‘replete with evidence that (Defendants) entered into the Agreements in order to illegally conceal losses from the Korean public’.

None of the documents relied upon by (Plaintiffs), however, was directed at the question of the legality of the Second Restructure; they do no more than make passing reference to it.”

(Emphasis added)

32.  The Tribunal then referred to “sole reference” in the FSS Interim Report, to the change in structure of the transaction being “to conceal the insolvency of IG Fund” and to respond to the inability to redeem other funds. It pointed out at paragraph 120 of the Award that in the FSS Interim Report, it was the concealing of the insolvency of the IIG Fund from the Korean public which was considered objectionable, and that the complaint identified in the FSS Interim Report related to a lack of disclosure, rather than any finding that the Second Restructure itself was objectionable.

33.  The Tribunal considered the documents relating to the FSS investigation, pointing out at paragraph 121 that there was no statement as to the legality or illegality of the purpose of the Second Restructure, and that the focus of the FSS was on the concealment of the insolvency of the trade finance funds, and the lack of disclosure to Korean investors, “as opposed to any illegality in the non-disclosed transactions themselves”. The Tribunal concluded at paragraph 123 as follows:

“In all of the materials referenced by the (Plaintiffs), there is, therefore, no statement that the Agreements were illegal. The materials consistently indicate, rather, that it was the non-disclosure of the asset change effected by the Agreements that was illegal.”

It is clear from the above that the Tribunal was focusing on and addressing the alleged illegality of the Second Restructure, which was the illegality of the scheme contended by the Plaintiff.

34.  The Tribunal did consider the submission made by the Plaintiffs that “a transaction, even if lawful as between the parties to the transaction, can be denied enforcement on illegality grounds if the agreement results in harm being inflicted on the public” (the proposition in Scott v Brown, Doering, McNab & Scott [1892] 2 QB 724). At paragraph 125 of the Award, the Tribunal distinguished Scott, where the act of entering into the agreement was itself the indictable conspiracy, making the agreement illegal, contrasting with the present case when the Agreements were not themselves illegal, and that it was the further step of not disclosing the Agreements to the public which created the illegality.

35.  After referring to Tinsley v Milligan [1994] 1 AC 340 as applying to Hong Kong, and pointing out that the Defendants did not have to plead the lack of disclosure of the Agreements to the Korean public to found their claim, the Tribunal pointed out at paragraph 127:

“In the Tribunal’s view, none of the materials relied upon by the (Plaintiffs) establishes the Agreements’ illegality under Korean law, and the (Plaintiffs’) reliance on a putative illegal scheme of which the Agreements formed part is not sufficient to establish that the agreements themselves are illegal.”

36.  The Tribunal dealt with performance of the Agreements at paragraphs 128 and 129 of the Award, concluding that there was no relevant performance in Korea, and no illegal performance in Korea in any event.

37.  It is therefore clear from the Award that the reasoning of the Tribunal, in dismissing the issue of foreign illegality, including the issue of the purpose of the Agreements being illegal, was that there was no evidence adduced in the Arbitration which can establish that the Agreements themselves or the Second Restructure were illegal, and how the scheme of which the Agreements allegedly formed part was illegal. As there was nothing to show that the transfer of the assets comprising the Second Restructure was illegal under Korean law, the Tribunal could not conclude from that, that the entering into the Agreements (which were not illegal in terms of performance) could in any way be for any purpose which can be shown to be illegal.

38.  The Tribunal’s reasons for finding that there was no foreign illegality were, in my view and on a reading of the Award by a reasonable party in the shoes of the Plaintiffs and Defendants, clear and discernible from the Award. Whether the Tribunal was wrong in law in its interpretation of Ryder, Tinsley and Ralli Bros v Compania Naviera Sota v Aznar [1920] 2 KB 287, or their application to the facts, are not relevant factors for consideration.

39.  On the evidence, the Tribunal had clearly applied its mind to the critical issue of foreign illegality, and the arguments made by the Plaintiffs. No party has the right to expect the tribunal to accept its arguments, and even if the tribunal’s decision to reject an argument was wrong, or it was as a result of its failure to comprehend the argument and to appreciate its merits, it is entirely different to its failure to consider the argument. An error of law made is not a breach of natural justice.

40.  On the issue of foreign illegality, this is clearly a case of the Tribunal having considered the issue and the submissions and arguments made by the Plaintiffs, but rejecting them as not having been established on the evidence. The reasons for the Tribunal’s decision are adequate and discernible to the parties. It cannot be seen from the Award that the Tribunal had failed to apply their mind to any essential issue arising from the Plaintiffs’ arguments. There is no basis to set aside the Award under Article 34(2)(a)(iii).

41.  Nor is there any basis to set aside the Award on the ground that it is in conflict with public policy, under Article 34(2)(b)(ii). There is nothing shocking to the conscience of the Court to enforce the Award containing the Tribunal’s dismissal of the Plaintiffs’ claims on the merits, for the reasons given in the Award.

Issue of domestic illegality

42.  The Plaintiffs’ complaint is that the Tribunal’s finding, under section 298 of the Securities and Futures Ordinance (“SFO”) (“section 298”), that the act of fraudulent inducement must occur in Hong Kong, was not a contention made for the Defendants in the Arbitration, on which the Plaintiffs had been given an opportunity to present their case.

43.  The complaint made in paragraph 1.1.2 (2) of the Originating Summons, that the above finding of the Tribunal was wrong, is clearly not a ground to set aside the Award, and will not be considered. It is trite, that errors of law made by the arbitral tribunal are not excuses for setting aside an arbitral award as the Court does not sit on appeal from the tribunal’s decisions.

44.  Of relevance to the ground of whether the Plaintiffs had the reasonable opportunity to present their case on the Tribunal’s finding as to the requirements under section 298 and whether there had been unlawful disclosure or dissemination of information which is likely to induce the sale or purchase in Hong Kong of securities, the Plaintiffs argued that the Defendants had never disputed the Plaintiffs’ position in the Arbitration, that the requirements of section 298 were satisfied because the legal situs of the Notes is Hong Kong. On the Plaintiffs’ case, the Tribunal’s interpretation of section 298 was an unargued point of law, which formed a crucial basis of the Tribunal’s finding that section 298 was not applicable and that there was no domestic illegality.

45.  As can be seen from the Court’s analysis in Z v R [2021] HKCFI 2312 (from paragraphs 62 to 75 of the Decision), and from the more recent decision in CIL v W [2023] HKCFI 700, when it can be said that a party had been taken by surprise by the case it had to meet in an arbitration, as a result of a new stance taken or new issue raised by the tribunal, the Court may find that the party had been deprived of the reasonable and fair opportunity to be heard, and enforcement of the award may be refused. In contrast, a party may well have been given the opportunity, but by its own volition failed to recognize or take such opportunity to deal with a case. In the latter situation, it is not open to such party to complain. This was highlighted in Reliance Industries Ltd v Union of India [2018] EWHC 822:

“It is always important to keep in mind the distinction between a lack of opportunity to deal with the case and the failure to recognize or take such opportunity. It is commonplace in judicial decisions on points of construction that a judge may fashion his or her reasoning and analysis from the material upon which the argument has been addressed without it necessarily being in terms which reflect those fully expressed by the winning party. There is not perceived to be, and is not, anything which is unfair in taking such a course. It is enough if the point is “in play” or “in the arena” in the proceedings, even if it is not precisely articulated. To use the language of Tomlinson J as he then was, in ABB AG v Hochtief Airport [2006] 2 Lloyd’s Rep 1 at 72, a party will usually have had a sufficient opportunity if the “essential building blocks” of the Tribunal’s analysis and reasoning were in play in relation to an issue, even when the argument was not articulated in the way adopted by the tribunal. Ultimately the question which arises under s 33 (a), whether there has been a reasonable opportunity to present or meet a case, is one of fairness and will always be one of fact and degree which is sensitive to the specific circumstances of each individual case. That applies to points of construction as much as to other points in dispute.”

46.  The crux of the Plaintiffs’ case, as emphasized by Counsel, is that the Defendants had induced Korean investors to make investments in what the Korean public believed were trade finance funds situated in Korea, but which were in reality the Hong Kong-based Notes at issue in the Arbitration. The Plaintiffs referred to the Rejoinder Memorial of the Defendants, where they contended only that the relevant subscription, sale or purchase of securities under section 298, which is induced by false information, must take place in Hong Kong. The Plaintiffs pointed out that the Defendants never disputed that the legal situs of the Notes is Hong Kong, and accordingly, the Plaintiff’s position in the Arbitration was that the requirements of section 298 were satisfied.

47.  The Plaintiffs’ Sur-Rejoinder, served in response to the Rejoinder, stated:

“54. Respondents’ defence to s 298 of the SFO is particularly weak. The primary defence Respondents assert is to claim that s 298 was not violated because the XXXX P Funds are not Hong Kong funds. But the XXXX P Funds were the target Korean investors thought they were investing in, when in reality the actual target of their investment was the Notes governed by Hong Kong law and subject to arbitration in Hong Kong. As such Korean investors were duped into investing in Notes whose legal situs was Hong Kong. Notably, the Respondents do not deny that the legal situs of the Notes are Hong Kong. They cannot.

55. Accordingly, the Respondents, in reality, induced Korean investors to invest in Notes situated in Hong Kong, and consequently violated s 298 of the SFO.”

48.  The Plaintiffs complained that the Tribunal found that section 298(1)(a), (b) and (c) require the inducement or price manipulation to occur in Hong Kong, and that since there was no inducement or price manipulation which occurred in Hong Kong, section 298 did not apply. Such interpretation was not the one developed by the Defendants, was wrong in law, and was taken without any opportunity given to the Plaintiffs “to have their position on domestic illegality properly considered by the Tribunal”.

49.  It is clear from the pleadings and the submissions made before the Tribunal that the Plaintiffs had the full opportunity to, and did, present their case on the requirements of section 298, and whether the Defendants’ activities amounted to disclosure, circulation or dissemination of information, in contravention of section 298(1). Whilst the Defendants did not dispute that the situs of the Notes was Hong Kong, they never conceded that section 298 applied to the transactions and activities carried out for the purposes of, pursuant to or under the Agreements. Whether there was contravention of section 298 was clearly an issue in dispute in the Arbitration, it was the case the Plaintiffs knew they should meet and had been prepared to meet, and upon which submissions were made and evidence was adduced by the parties to the Tribunal.

50.  The Defendants pointed out that in the Arbitration, the Plaintiffs had relied on contravention of both section 298 and section 300 of SFO for domestic illegality, and the Tribunal had rejected the Plaintiffs’ reliance on both sections on the same grounds, that the relevant activities targeted by the sections had to take place in Hong Kong, whereas the conduct impugned by the Plaintiffs occurred, on their own case, in Korea in relation to the alleged concealment of the IIG losses.

51.  In their Rejoinder, the Defendants had set out their case on domestic illegality. In addressing section 300, which prohibits a person, in any transaction involving securities, from employing any device or scheme with intent to defraud or deceive, or to engage in any act, practice or course of business which is fraudulent or deceptive, the Defendants cited Lee Kwok Wah v Securities and Futures Commission [2018] 1 HKCFAR 537, and relied on the finding made by the Court that section 300 applied where “substantial activities constituting the crime occurred within Hong Kong”, and the preponderance of activities under a scheme took place in Hong Kong. The Defendants averred that any alleged fraud on the Korean public would have taken place in Korea, and not Hong Kong, and that the Plaintiffs had not identified any substantial activities which took place in Hong Kong which may constitute the alleged crime under section 300 of SFO, apart from the fact that the Notes were governed by Hong Kong law, which was not an activity. Whether there was an activity which took place in Hong Kong was, on the pleadings and at least in the context of section 300, raised and the Plaintiffs should have been put on notice of this.

52.  As the Plaintiffs sought to highlight, the Defendants’ claim in the Rejoinder, in relation to section 298, was that the relevant subscription, sale or purchase of securities under section 298 must take place in Hong Kong, and there was no subscription for shares in Hong Kong.

53.  The Tribunal’s rejection of the claim under section 300 was on the basis that there was no activity in Hong Kong. The Tribunal referred (at paragraphs 139 to 141 of the Award) to the decision in Lee Kwok Wah, in finding that there were no “substantial activities” as contrasted with a “substantial connection” with Hong Kong.

54.  Reading the pleadings including the Rejoinder and the Award in context, the Tribunal had adopted the submissions made by the Defendants in respect of section 300 in its construction and finding made on the meaning of section 298. It is reasonably clear from the Tribunal’s reasoning as set out in the Award that the rejection of the Plaintiffs’ case on domestic illegality was on the basis that there was in fact no evidence and no facts presented which justified any finding of activity in Hong Kong, the Tribunal explaining (at paragraph 140 of the Award) that a “connection” between the illegal activity and Hong Kong (as may be demonstrated by the Notes being governed by Hong Kong law and jurisdiction) is not sufficient without any “activity” here.

55.  The Tribunal is, in my view, entitled to interpret section 298 on the submissions made by the parties on domestic illegality and in the light of the available evidence presented to it. In the words of Tomlinson J in the ABB AG case, the “essential building blocks” of the Tribunal’s analysis and reasoning were in play in relation to the issue of section 298 and domestic illegality. The Plaintiffs had made submissions on the fact that the Notes were governed by Hong Kong law and subject to Hong Kong jurisdiction, to constitute a substantial connection with Hong Kong, and that the Notes were within the definition of “securities” under section 298, and there was evidence presented as to the activities conducted by the Defendants pursuant to the Agreements, including evidence of the Second Restructuring complained of. It was upon such arguments and evidence that the Tribunal found, contrary to the submissions made for the Plaintiffs, that there was no sufficient activity in Hong Kong to come within the prohibition contained in either section 298, or section 300. There was nothing unfair or objectionable in the Tribunal adopting such an interpretation on section 298 in deciding the issue of domestic illegality, by rejecting the case presented by the Plaintiffs, but only after hearing and considering their detailed submissions on the SFO.

56.  On the evidence, the Plaintiffs clearly had the opportunity to present their case on the issue of domestic illegality, the meaning and effect of section 298, and whether the relevant transactions/Agreements complained of contravened section 298 to be illegal. Their case was simply not accepted by the Tribunal, and they had no right to expect the Tribunal to do so.

Issue of false statements of fact/misrepresentation

57.  According to Counsel’s skeleton submissions for the hearing, the Plaintiffs’ complaint is that the Tribunal had failed to address their arguments on misrepresentation, and that there was no basis for the Tribunal to find that the Plaintiffs had not relied on any misrepresentation, just because they knew that the IIG Funds involved distressed assets. The Plaintiffs contend that in analyzing the issue of reliance, the Tribunal had adopted a legal test which was not advanced by the parties. The grounds relied upon to set aside the Award are accordingly that the Plaintiffs were unable to present their case, the Award dealt with a dispute not contemplated by or falling within the terms of the submission to arbitration, and that the Award is in conflict with public policy.

58.  The ground stated in paragraph 1.1.3(1) of the Originating Summons, that the Tribunal had provided no reasoning or wholly inadequate reasoning for their conclusion, was not included in Counsel’s skeleton submissions and was not pursued at the hearing, and hence will not be dealt with.

59.  In the Arbitration, the Plaintiffs’ alternative case was that the Agreements should be set aside by reason of the Defendants’ misrepresentation, in that they had failed to disclose to the Plaintiffs the SEC investigations which pointed towards the existence of a Ponzi scheme. They claimed that they would not have entered into the Agreements if such information had been disclosed. The pleading at paragraph 161 of the Reply was as follows:

“If the (Defendants) had accurately represented the true nature of the IIG assets, (Plaintiffs), like any rational business entity, would not have gone through with the Transaction. If (Defendants) had accurately represented what they knew about the SEC investigation in its entirety, and specifically that IIG was being investigated for violations of United States federal securities laws, (Plaintiffs), like any rational business entity, would not have entered into the Transaction. If (Defendants) had not omitted months-long communications with IIG in which XXXXX H evaded and lied to XXXXX K, (Plaintiffs), like any rational business entity, would not have entered into the Transaction …” (Emphasis added)

60.  The Plaintiffs pointed out that the Tribunal had found (at paragraph 222 of the Award) that the Defendants did misrepresent to the Plaintiffs as to the existence of certain documents and communications, such as the Plaintiffs’ due diligence request. They contend that in dismissing the misrepresentation claim, the Tribunal had simply relied on the fact that the Plaintiffs knew of “the distressed nature of the IIG assets” and of their loss in the sum of US $150 million, and had failed to properly consider the Plaintiffs’ case and arguments, when deciding that it was not satisfied that, had the Plaintiffs received the communications in question, they would have done anything differently.

61.  In relation to the above finding made by the Tribunal, Counsel for the Plaintiffs first contended that knowledge and willingness to accept losses in a fund is different to knowledge of investment in a form of Ponzi scheme or in a fund which was subject to SEC investigations. Counsel then contended that the Tribunal had, in its analysis of the reliance issue, adopted a subjective test which was not the submission of either party, when it concluded that it was not satisfied that “had (Plaintiffs) received the communications they would have done anything differently”.

62.  On the first question, of whether the Tribunal’s conclusion of no reliance can be supported by the Tribunal’s finding that the Plaintiffs had information as to the distressed nature of the IIG assets and the losses, this is an impermissible attempt to attack the Award on the basis of the Tribunal’s wrong analysis and reasoning, or on the basis that there was no or insufficient evidence to support the Tribunal’s finding on the absence of reliance. An error of law or fact made by the Tribunal does not show that the Plaintiffs did not have the opportunity to present their case on reliance, nor that the Award is against public policy or outside the scope of the submission to arbitration.

63.  The same goes for the attack that the Tribunal had adopted the wrong legal test. If true, that would only be an error of law made by the Tribunal.

64.  In any event, the Tribunal found at paragraph 193 that there was no evidence before it to suggest that the Defendants knew that IIG was engaging in Ponzi-like behavior prior to the liquidators’ taking control of IIG. The Tribunal also found (at paragraph 203 of the Award) that the Plaintiffs knew at the time of closing of the existence of the SEC investigation. The Tribunal further stated that apart from the Plaintiffs having knowledge that the IIG assets were distressed, and that an SEC investigation was being conducted into IIG, there was nothing in the evidence which put the Defendants on notice of IIG’s fraudulent behavior (paragraph 202), and no indication that Defendants knew that the IIG assets were in fact a sham (paragraph 201). In the light of such factual findings, it is unsurprising that the Tribunal dismissed the claims of misrepresentation as to the IIG funds being legitimate and not in the nature of a Ponzi scheme, and as to the existence or extent of the SEC investigation.

65.  On a proper reading of the Award, it cannot be said that the Tribunal had applied any wrong or subjective test of reliance, when it dismissed the claims of misrepresentation. Having heard the evidence, the Tribunal pointed out its conclusions thereon: firstly, that the parties negotiating the deal had known that the IIG Assets were “bad”, and further, that it was mutually expected by the parties that losses would occur from the face value of the assets which were the subject matter of the Agreements (see paragraph 183 of the Award). The Tribunal highlighted the fact that the entire arrangement negotiated and concluded by the parties was in fact structured around how the expected losses were to be dealt with. It stated at paragraph 184 of the Award that the Notes themselves record the Plaintiffs’ “risk appetite in relation to the deal”, and that through the Principal Reduction mechanism agreed, the Plaintiffs had been prepared to accept US $150 million in losses. The Tribunal further recorded (at paragraph 68 of the Award) that the Plaintiffs were experienced in the commodities trade finance business, the 2^nd Plaintiff specializing in commodities trade finance, and Mr K of the Plaintiffs having been in the trade finance business since 2012. In deciding the question of whether any false representations of fact made to the Plaintiffs had induced the Plaintiffs into the transaction (the agreed issue in dispute), the Tribunal must (and obviously did) take into consideration the characteristics of the Plaintiffs, their knowledge and experience, for determining whether there was “reliance” on any misrepresentation of fact found.

66.  In the context of the pleadings, the issues in dispute, the submissions and the factual findings made, I fail to see how the Plaintiffs can complain that the Tribunal had deprived them of the reasonable opportunity to address the Tribunal on reliance, the test on reliance, or on the matters to be taken into consideration in deciding reliance and inducement in this case.

67.  In respect of the issue of misrepresentation, there is no conceivable basis to set aside the Award on any of the grounds under Article 34(2)(a)(ii), (iii) or Article 34(2)(b)(ii).

The issue of breach of the contractual clauses of the relevant PSAs

68.  As stated in the Originating Summons, it is alleged that the Tribunal had failed to address a part of the Plaintiffs’ claim, specifically, that the Defendants had breached clause 5(a) of the relevant PSA (“clause 5(a)”), on the erroneous basis that such claim was not maintained by the time of the Post-Hearing Brief served by the Plaintiffs. The Plaintiffs contend that they had throughout claimed, in their Memorial of Claim, their Reply and their Opening Statement, that there was a breach of clause 5(a), and that such claim had never been abandoned despite the non-citation of clause 5(a) in their Post-Hearing Brief. It is accordingly asserted for the Plaintiffs that “because of the Tribunal’s manifest error in denying the Plaintiffs due process in relation to foreign and domestic illegality, the outcome of the Arbitration might well have been different if the Tribunal had properly considered these illegality claims and ruled on clause 5(a)”.

69.  It is undeniable that the Plaintiffs had not addressed the issue of any breach of clause 5(a) in their Post-Hearing Brief. The only submissions made there were that the Defendants had breached the warranties in clause 5(c), 5(e)/(f), and clause 7(c)(ii) of the PSA. This was noted by the Tribunal, which stated at paragraph 229 of the Award that the clauses relied upon by the Plaintiffs in their Post-Hearing Brief differed from those set out in the List of Issues, and that the Tribunal would address those clauses and arguments set out in the Post-Hearing Brief.

70.  Clause 5(c), which was referred to in the Post-Hearing Brief, contained a warranty that the performance or consummation of the transactions contemplated by the relevant PSA or by the seller would not conflict with or result in the breach of any law, rule or regulation of any government or governmental or regulatory agency. Clause 5(e) contained the warranty that the Defendants/seller were not aware of any event or occurrence which had or would reasonably be expected to have a material adverse impact on the value of the Interests as defined in the Agreements. Clause 7(c)(ii) in turn provided that L shall give prompt notice to the Plaintiffs of any notice or communication relating to any contemplated or pending action, claim, governmental inquiry or investigation involving or relating to the Fund or Interest as defined, and any matter which would cause any material change with respect to any representations made by the Defendants in the relevant PSA.

71.  The Tribunal found that there was no breach of any of the above clauses.

72.  In contrast, clause 5(a) of the PSA contained a more specific warranty, that as of the date of the PSA and as of the closing date, the Defendants/seller “was an entity duly organized and validly existing in good standing under the laws of its jurisdiction of organization”, with the power and authority to enter into the PSA, and upon receipt of all required approvals, to perform all the obligations under the PSA. The warranty extended to the PSA and the transactions contemplated thereby having been duly authorized, executed and delivered, and that the PSA in question constitutes a valid and binding obligation of the seller, enforceable against it in accordance with its respective terms.

73.  The claim of breach of express warranties, as pleaded in the Memorial of Claim (at paragraph 149), referred to the representation that the PSA constituted valid and binding obligations of the seller which were, enforceable against it, but that the assets in question had been co-mingled illegally. The Memorial of Claim also referred to the warranty that the performance or consummation of the transactions contemplated by the PSA would not conflict with or result in the breach of any law, rule or regulation, and to the fact that L had in fact been sanctioned by the regulators on the basis that it had changed the contract to a structure in which foreign trade finance funds were disposed of in the Cayman Islands, and receiving the Notes in return. The Plaintiffs also pleaded the warranty that the seller was not aware of any event or occurrence which might have a material adverse impact on the value of the Interests, and to the fact that the Korean regulators had found abnormalities in June 2019, and further, that the sellers had known that there were pending FSS investigations.

74.  In the Reply, the Plaintiffs pleaded the warranty under clause 5(a) as to the seller being duly organized and validly existing in good standing, and the fact that serious questions had emerged about the legality of the transaction under Korean law, including the transactions to set up Fund A and Fund B in the Cayman Islands. It was claimed that “the legitimacy of setting the deal in the Cayman Islands” had been called into question.

75.  By the time of the service of the Opening Statement in the Arbitration, the Plaintiffs contended (at paragraph 21) that the misrepresentations made by the Defendants “directly breached” the express representations and warranty provisions contained in the PSA, identifying clause 5(a), 5(c), 5(e), 5(g)/(h), and clause 7(c)(ii). The breach of clause 5(a) was stated to be the serious questions about the legality of the transaction under Korean law, and specifically, “whether the transaction to set up Fund A and Fund B was appropriate”.

76.  From the above, it can be seen that the Plaintiffs’ claim as to what constituted the alleged breach of clause 5(a) had been generally roving, and had not been precisely formulated before commencement of the Arbitration. By the time of Opening, the complaint was as to whether the Defendants/seller were duly organized and validly existing in good standing, and as to whether the transaction to set up Fund A and Fund B was “appropriate” as to the legality of the transaction under Korean law.

77.  By the time of the Post-Hearing Brief, the Plaintiffs’ claim and submissions on the breach of the warranties in the PSA were clearly confined to the breaches of clause 5(c), (e), (f) and clause 7. The Tribunal was entitled to conclude that the claim of breach of clause 5(a) was not maintained. There was no reference in the Post-Hearing Brief as to how the warranty as to the due organization, existence and good standing of the Defendants/seller had been breached.

78.  In view of the issues raised and submissions made by the Plaintiffs on the meaning and effect of clause 5 in general, it is disingenuous for the Plaintiffs to suggest that they had been deprived of any opportunity to present their case on whether the Defendants were in breach thereof. The Plaintiffs chose to make the submissions on clause 5(a) in the manner in which they were made, in the Opening Statement and in the Post-Hearing Brief, and they cannot now complain that they did not have the opportunity to make further, or better expressed submissions on the breach of clause 5(a).

79.  Even if it is to be accepted that the claim of breach of clause 5(a) had not been abandoned, and that what was contended for the Plaintiffs was that there was breach of clause 5(a) by virtue of the illegality of the Agreements or any of the transactions contemplated thereunder, the Tribunal had already found that there was no evidence to establish the illegality of the Agreements, in terms of their performance and purpose, such that there can be no breach of the warranty of enforceability and validity of the Agreements.

80.  In short, any alleged failure of the Tribunal to decide the issue of breach of clause 5(a) did not cause any substantial injustice to the Plaintiffs, as the Award would not have been different in light of the Tribunal’s decision on the issues of foreign and domestic illegality.

81.  By reason of the findings made above, there is no basis to set aside the Award under Article 34(2)(a)(ii), or Article 34(2)(a)(iii).

Issue of the occurrence of events of default under the Notes

82.  The Plaintiffs’ complaint is that whilst the Tribunal found in the Award that it did not have jurisdiction over any of the Security Agreements, and could not consider any of the Plaintiffs’ claims made under those agreements, the Tribunal nevertheless exceeded the scope of the submission by finding that it had jurisdiction to decide whether AIL XXXXXXXXXXXXXXX, which was not a party to the Arbitration, had breached the Security Agreements and that an event of default had occurred under the Notes. On that basis, it was contended that the Award should be set aside under Article 34(2)(a)(ii), as the Plaintiffs had not been able to present their case on whether the terms of the Security Agreements had been breached, or under Article 34(2)(a)(iii) in that the Award dealt with a dispute not contemplated by the submission, or contained decisions on matters beyond the scope of the submission to arbitration.

83.  Under the Notes, the parties thereto (namely the 1^st Plaintiff, the 1^st Defendant and the 2^nd Defendant) agreed that any dispute or claim “arising out of or relating to (the Note), including the existence, validity, interpretation, performance, breach or termination thereof” shall be referred to and finally resolved by arbitration.

84.  The Defendants’ Counterclaim in the Arbitration was predicated on the purported exercise of a right to accelerate payment under and in accordance with the Notes, the prerequisite for which acceleration was the happening of an Event of Default as defined in the Notes. Clause 14(c) of the Notes states that an Event of Default shall occur when an “Obligor” shall default in the performance of any of its obligations under the Notes or under the other “Note Documents” as defined, and such default (if remediable) shall continue unremedied for a period of 60 days after the earlier of either notice thereof to the Payor (as defined) or an Obligor becoming aware of the default.

85.  “Note Documents” were defined in the Notes as including the Security Agreements. With the exception of the AIL Security Agreement which was executed by the 1^st Plaintiff, the Security Agreements were executed on behalf of the XXXXXX AI Group by AIL, which was not a party to the Arbitration.

86.  In the Arbitration, the Defendants relied on the security providers’ failure to provide various documents (namely certain Security Charge Notices and Fund Registers) as constituting default under the relevant Security Agreements, giving rise to the occurrence of Events of Default under the Notes prior to 21 January 2020, and allowing the Defendants to accelerate payment under the Notes.

87.  It is not disputed that each of the Security Agreements contains an exclusive jurisdiction clause whereby the parties thereto submitted to the exclusive jurisdiction of the Courts of the Cayman Islands.

88.  The Tribunal found in the Award (at paragraph 106) that it had no jurisdiction to determine whether the Security Agreements were void or unenforceable for any illegality, as they were subject to the exclusive jurisdiction of the Cayman courts and involve parties which were not parties to the Arbitration. However, the Tribunal found at paragraph 257 of the Award that it did have jurisdiction to determine the issue of whether or not an Event of Default as defined in the Notes had occurred, for breach of obligations under the Security Agreements. The Plaintiffs contend that this was contradictory to the ruling made by the Tribunal at paragraph 106 of the Award, and that the Tribunal in fact had no jurisdiction to determine that an Event of Default had occurred under the Notes on the basis of the default complained of by the Defendants.

89.  As Counsel for the Defendants rightly highlighted, both the Plaintiffs and the Defendants had submitted to the Tribunal for its determination the question defined as Issue 3 of the Arbitration: namely, “If the answers to Issues 1 (“Are the Agreements void or unenforceable?”) and 2 (“Alternatively, are the Claimants entitled to seek rescission of all or any of the Agreements?”) are no, by January 2020 had one or more Events of Default occurred under the (Notes)?” (emphasis added)

90.  Whether an Event of Default had occurred by January 2020, to fall within the meaning of clause 14(c) of the Notes, is clearly a question of the construction of the Notes (one of the 5 Agreements signed, and the subject matter of the Arbitration). The construction of a contract involves a finding on law and on facts. The decision of the Tribunal as to whether an Event of Default had occurred is a decision based on its interpretation of the provisions of the Notes and the definitions of the terms used in the Notes. It is a determination on a dispute which falls within the scope of the disputes to be arbitrated pursuant to the parties’ arbitration agreement contained in clause 20(b) of the Notes. It is a decision on a dispute arising out of or relating to the Notes, and the interpretation, performance, and breach of the Notes.

91.  As the Tribunal pointed out, it was not making any decision on the validity of any of the Security Agreements, as that falls within the jurisdiction clause contained in those agreements. Nor did the Tribunal grant any relief under or to enforce the Security Agreements. It was, however, obliged to decide, pursuant to the Plaintiffs’ and the Defendants’ submission of their dispute relating to the Agreements (including the Notes), whether there was an event which had triggered the acceleration of payment under the Notes, so as to confer rights on the Defendants under the Notes. Such a decision was binding on the parties to the Notes, and there was no attempt by the Tribunal to decide any question as between the parties to the Security Agreements as to whether those agreements were valid, and whether those parties were in breach of the Security Agreements. This was a correct distinction drawn by the Tribunal, and I do not agree with the Plaintiffs, that the distinction was artificial.

92.  I am satisfied that the Tribunal was correct in its decision on its jurisdiction over the Plaintiffs and Defendants in so far as the question of whether an Event of Default had occurred under the Notes is concerned.

93.  It is clear that the Plaintiffs had the full opportunity to address the Tribunal on Issue 3, as to whether an Event of Default had occurred under the Notes, and they had used such opportunity to present their case. There is no basis to set aside the Award under Article 34(2)(a)(ii) or Article 34(2)(a) (iii).

Disposition

94.  For all the above reasons, the Plaintiffs’ application by their Originating Summons is dismissed. I see no special reason to depart from an order that the Plaintiffs should pay the costs of and occasioned by the application on indemnity basis, with Certificate for Counsel. An order nisi is made to such effect, which shall become absolute unless application for variation is made within 14 days.