A v. B

HCCT 35/2021

[2022] HKCFI 607

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 35 OF 2021

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D E C I S I O N

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Background

1.  The Respondent (“B”) applied by its summons of 29 April 2021 to set aside the order granted by the Court to the Applicant (“A”) to enforce an arbitral award dated 20 December 2019 (“Award”), and alternatively, to adjourn the enforcement proceedings until the final determination of B’s application to the supervisory court in the Netherlands to set aside both the Award and the tribunal’s award on jurisdiction dated 7 November 2017 (“Jurisdiction Award”) (“Dutch Setting Aside Proceedings”). On 3 June 2021, A applied by its summons for security to be provided by B for the full amount of the Award, or for such sum as the Court thinks fit, if adjournment is to be granted.

2.  The main dispute in the arbitration leading to the Award relates to a licence agreement between A as licensor and JV (“2014 Licence”), which contains an arbitration clause for disputes thereunder to be submitted to the Netherlands Arbitration Institute. The 2014 Licence was executed by A and JV, and also had the signatures of ANV and B under “Acknowledged and Agreed” at the end of the 2014 Licence. The main issue in dispute in the arbitration was whether B was a party to the 2014 Licence and the arbitration agreement.

3.  In the Dutch Setting Aside Proceedings, B claims that it was not a party to any arbitration agreement and that the tribunal had no jurisdiction. It further challenges the tribunal’s findings that B had negative duties under the 2014 Licence, when these duties were never pleaded in the arbitration.

4.  A is a company within a group of Dutch technology companies (“A Group”).  It is a subsidiary of ANV, which is the holding company of the A Group. Until 2011, JV was a wholly-owned subsidiary of ANV, and a member of the A Group. In 2011, JV became a joint venture, owned by B as to 60% as the majority shareholder, with the minority stake of 40% being held by ANV. The business of A includes the development of a platform which provides location-based services for social media applications (“OEx Platform”).  The said OEx Platform was owned by A and licensed to JV under the 2014 Licence for use on the Mainland.

5.  B is a company incorporated in Hong Kong, and a member of a group of Mainland technology companies known as the B Group. B Corp is the holding company of the B Group, and was listed on NASDAQ in the United States.  B is a subsidiary of B Corp. BSub is a sister company of B and a subsidiary of B Corp. One of BSub’s core products is the social media site known as “B Platform”.

6.  B’s business includes acting as a holding company for the variable interest entities (“VIEs”) of the B Group. B Corp was within a restricted industry on the Mainland because it operated a digital media network consisting of 2 Internet portals, and the VIE structure was for the purpose of raising capital outside the Mainland, including through foreign listing.

7.  As a result of the joint venture between B and ANV in 2011, when the parties entered into an investment agreement for B’s acquisition of 60% of the shares in JV (“2011 Investment Agreement”), a licence agreement was entered into between A and JV for JV’s use of the OEx Platform and other related products on the Mainland, from June 2011 to May 2014 (“2011 Licence”).  Under that 2011 Licence, JV had the exclusive and royalty-free right to distribute the licensed software on the Mainland to members of the B Group. BSub and JV were able to carry out further development work to adapt the OEx Platform and the licensed software, to create the B platform which became extremely successful.

8.  When the 2011 Licence expired in May 2014, A required a new licence agreement to be entered into which will provide for royalties to be paid to A. At around the same time, B and JV commenced discussions on the possibility of B making a convertible loan to JV in order to address JV’s cash situation (“2014 Loan”). Discussions ensued in July 2014 and drafts of a 2014 Licence were exchanged.

The negotiations on the 2014 Licence

9.  There were material differences between the 2011 Licence and the drafts of the 2014 Licence being discussed. Clause 4.1 of the 1^st draft circulated provided for JV to pay a minimum royalty to A; JV was to ensure that a fee would be paid to A for the licensed software it should make available to its partners, customers or users of the licensed software; and disputes were to be submitted to arbitration in the Netherlands under clause 12.2 (“Arbitration Clause”).

10.  It is not disputed, that a meeting or call was conducted on 31 July 2014 (“31/7 Meeting”) which was attended by representatives of JV, B and ANV as shareholders of JV. During the 31/7 Meeting, ANV informed B that it would not agree to the 2014 Loan unless the 2014 Licence was executed simultaneously with the agreement for the 2014 Loan (“Loan Agreement”). It is not in dispute that at the 31/7 Meeting, B agreed with ANV on the simultaneous signing of the 2014 Licence and the Loan Agreement. There are disputes as to other matters allegedly discussed and agreed.

11.  After the 31/7 Meeting, a 3^rd draft of the 2014 Licence was circulated by Mr F of the A Group (“F”). The parties have emphasized that in the 3^rd draft: F had added a clause (clause 13.8) which states that the 2014 Licence would be signed concurrently with the Loan Agreement; clause 13.9 had been amended to refer to the delivery of a countersigned copy of the 2014 Licence by each party to the other parties; and a new signature block had been included for signing by B and ANV.

12.  Clause 13.8 states:

“This Contract is being entered into concurrently with and is conditioned on the full execution of the Convertible Loan Agreement between (B), (JV) and (ANV) dated effective as of the same date as this Agreement.”

13.  Clause 13.9 states:

“This Agreement may be executed in two (2) or more counterparts (delivery of which may be by facsimile or electronic (‘pdf’ or ‘tfi’) transmission, each of which will be deemed an original instrument and all of which together shall constitute a single instrument, and shall become effective when one counterpart has been signed by each party and delivered to the other parties hereto.” (Emphasis added)

14.  Clause 13.9 was followed by the execution part of the document, which named A and JV and their authorized representatives signing, and then ANV and B were named, and their representatives signed under the description “Acknowledged and Agreed”.

15.  A, ANV and JV signed the 2014 Licence and the Loan Agreement on 11 August 2014, ANV signing the 2014 Licence under “Acknowledged and Agreed”. B signed the Loan Agreement on the same day. B also signed the 2014 Licence Agreement (under “Acknowledged and Agreed”) on 28 August 2014.

16.  A’s complaint is that no entity of the B Group entered into sublicenses with JV in respect of their use of the licensed software, that licence fees were due and payable to A, and that these constitute breaches under the 2014 Licence.

17.  JV ceased operations shortly after April 2015, claiming that it had run out of funds, and was unable to pay its expenses.

The Arbitration

18.  In January 2016, A and ANV as claimants commenced arbitration against JV and B as respondents before the Netherlands Arbitration Institute (“Arbitration”), pursuant to the Arbitration Clause in the 2014 Licence.  The claims made were that the respondents were in breach of the 2014 Licence by offering and incorporating the claimants’ intellectual property into products of the B Group and failing to make payment to JV which in turn was required to distribute a share of profits to ANV. An audit and damages were sought by the claimants as relief in the Arbitration.

19.  B and B Corp contested the jurisdiction of the tribunal on the basis that they were not signatories to the 2014 Licence, and further, that the claims made against them in the Arbitration do not fall within the scope of the Arbitration Agreement.

20.  On 7 November 2017, the tribunal handed down its Jurisdiction Award, finding that it had jurisdiction to hear the claims against B and JV.  After a hearing on the merits and further rounds of submissions, the tribunal handed down the Award on 20 December 2019, holding that B was in breach of negative duties under the 2014 Licence, and specifically, duties not to interfere with JV’s duties under the 2014 Licence, and not to facilitate unlawful use of the licensed software.  The tribunal found that B had breached its negative duties by frustrating JV’s duties to enter into sublicenses with BSub and by facilitating BSub’s unlicensed use of the licensed software. The tribunal further held that B was liable in tort, for facilitating a third‑party tort, by using its position to facilitate BSub’s use of the licensed software without a licence. Under the Award, B was held liable to pay damages to A at US$115,618,213, excluding interest and costs.

Post-Award

21.  On 20 March 2020, B commenced the Dutch Setting Aside Proceedings in the Amsterdam Court of Appeal. It claimed that B never became a party to the 2014 Licence, that disputes relating to B fell outside the scope of the Arbitration Clauses, and further, that the Award contained decisions on matters beyond the mandate of the tribunal and/or were in conflict with Dutch public policy.

22.  On 1 April 2021, A applied to the Hong Kong Court for leave to enforce the Award.  An order granting leave was made on 14 April 2021 (“Enforcement Order”), and on 29 April 2021 B applied to set aside the Enforcement Order. B claims by way of alternative relief that the enforcement proceedings in Hong Kong should be adjourned pending the outcome of the Dutch Setting Aside Proceedings, which were scheduled for hearing on 13 January 2022. The hearing of the Dutch proceedings was subsequently adjourned to 28 February 2022.

23.  On A’s part, it claims that there are no merits in the Dutch Setting Aside Proceedings. However, since the Dutch proceedings are currently pending, A did not oppose the adjournment application bearing in mind considerations of comity, and the need to avoid conflicting decisions of the courts. A maintains that security should be provided by B if the enforcement proceedings in Hong Kong are to be adjourned, claiming that A would be prejudiced by the delay occasioned by the adjournment.  It relies in particular on the fact that on 28 September 2020, the B Group announced its plans to delist from NASDAQ.  Its privatization was completed on 22 March 2021, and the listing of B Corp was terminated. On behalf of A, it was argued that with the delisting, there is a risk of B being restructured, and that B’s assets might be taken out of Hong Kong by the time the Dutch Setting Aside Proceedings are determined, which will cause prejudice to A. It was emphasized that upon the delisting of B Corp, B’s role as a VIE holding company has become less important, and there would be risks of B not retaining its assets and further, that in terms of any plans to relist B Corp, B’s involvement in the Arbitration and its liability under the Award may be considered an impediment, to warrant measures being taken by the B Group to restructure B and to transfer its existing businesses and assets to a new company.

Whether immediate enforcement of the Award should be allowed

24.  The claims made in the Arbitration, and the dispute as to the Award and the jurisdiction of the tribunal, are made under and stem from the 2014 Licence. B’s primary position is that the Enforcement Order should be set aside, and enforcement of the Award should be refused by the Court, on the clear ground that the tribunal had no jurisdiction over B.  If the Court is not to accede to the setting aside application, B’s alternative position is that since the Dutch Court is the supervisory court of the Arbitration, and the proper law of the 2014 Licence is the laws of the Netherlands (clause 12.1 of the Licence), it would be appropriate to adjourn the enforcement proceedings for the Dutch Court to decide the existence and validity of the arbitration agreement.

25.  Expert evidence on Dutch law has been filed by the parties on the issue of the jurisdiction ground of B’s challenge. The experts seem to be in agreement that on the question of the tribunal’s jurisdiction, the Dutch Court will conduct “an unrestrained review” of whether any award is based on a valid agreement to arbitrate. This does not appear to be substantially different to the independent de novo review by the Hong Kong Court in its examination of the jurisdiction of the tribunal when this is challenged before the Hong Kong Court for purposes of review and for recognition by way of enforcement (as applied in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763 and in S Co v B Co [2014] 6 HKC 421).

26.  B’s attack on the tribunal’s findings on jurisdiction was made on various fronts.

27.  First, Counsel for B highlighted the fact that a party’s submission to an arbitration agreement amounts to a waiver of one’s right of access to the court, and that such a waiver must, under Dutch law, be seen to be voluntary, clear and unequivocal, and the burden of proving the waiver of the right to litigation and access to the court is on the party which invokes the existence of the arbitration agreement.

28.  B argued that under Dutch law, any offer and acceptance constituting the alleged arbitration agreement constitute a juridical act, which requires the will of the acting person to establish a specific legal effect, which will have to be expressed through a statement of the acting person. On the question of who became a party to an agreement, the expert pointed out that regard has to be given to the respective declarations which the negotiating parties had made, and to what they under the circumstances could reasonably rely on, given the declarations and their respective conduct, taking into account the context in which the parties had operated, the capacity in which a party had acted in the negotiations to the extent that capacity was known to the other side, and the declarations, conduct and other events which followed the execution of the contract.

29.  In the case of contract formation, the common ground of the experts is that under Dutch law, signature does not necessarily amount to consent and it is necessary to consider the rationale for the signature. On the question of interpretation of contracts, it is also common ground that this depends on the meaning that the parties might reasonably give to the provisions of the contract, in the given circumstances and to what they might reasonably expect of each other. This is largely similar to the common law approach to contract construction, which requires that an objective interpretation be given to the words used by the parties in the context in which the agreement came to be made. All relevant facts and circumstances of the case would be taken into account by the Dutch Court when interpreting a contract, which circumstances may include the parties’ negotiations leading up to the finalization of the contract provisions. The document has to be construed as a whole, and the meaning of the wording of a provision should be interpreted in light of the other provisions of the contract.

30.  Based on these principles, Counsel for B highlighted a number of features to contend that the tribunal’s Award and its conclusion on the existence of an arbitration agreement between A, ANV and B, and on its jurisdiction, is manifestly invalid and should not be enforced. First, the preamble of the 2014 Licence refers to A and JV making and entering into the contract. Counsel argued that the 2014 Licence was clearly expressed and intended to be a bipartite agreement, consistent with the fact that most of the provisions in the 2014 Licence expressly refer to 2 parties only, with references to “both parties”, “either party” or “the other party”. The arbitration clause itself refers to “both parties”. In fact, the only reference to B and ANV in the body of the 2014 Licence was in clause 13.8, which related to the parties’ agreement that the 2014 Licence was to be entered into concurrently with and was conditioned on the execution of the Loan Agreement, and the reference there to B and ANV were to their being parties to the Loan Agreement only. Counsel highlighted the fact that clause 13.8 does not state that B or ANV were parties to the 2014 Licence.

31.  In turn, the Loan Agreement states, in its clause 9.5, that it was entered into concurrently with and was conditioned on the full execution of the 2014 Licence, identified as the Licence between A and JV, and not a licence involving any other additional party.

32.  Counsel of course also highlighted the fact that B signed under a separate signature block below “Acknowledged and Agreed”, and that B and ANV which had signed under this block were the shareholders of JV.  Under the articles of association of JV, B as shareholder was required to approve the business policies and major contracts entered into by JV. In support of the argument that B and ANV had merely signed as shareholders of JV to approve the 2014 Licence, Counsel referred to the correspondence exchanged between the parties before and after the 31/7 Meeting. These include F’s email of 29 July 2014, in which he stated that ANV as shareholder of JV approved the new software licence; his email after the 31/7 Meeting which referred to his inclusion of clause 13.8 in the draft 2014 Licence and of the signature block; the agreement reached by the shareholders of JV at the 31/7 Meeting that the Loan Agreement and the 2014 Licence were to be executed together (as reflected by the resolution of the shareholders), and the emphases made by Mr L of JV (“L”) on 5 August 2014 and 8 August 2014 of the need for shareholders’ approval. On 12 August 2014, after A had signed the 2014 Licence and the Loan Agreement, and before B’s execution, F had sent an email to L, stating that the shareholders where the highest authority of the company, and that only the shareholders could approve both the 2014 Licence and that Loan Agreement, and that ANV had approved the documents by signing them.

33.  Hence, it is B’s case that by signing under “Agreed and Acknowledged”, B only signed as shareholder of JV to confirm its agreement to and acknowledgment of JV’s execution of the 2014 Licence. Counsel pointed out that signature per se does not constitute consent under Dutch law, that it is necessary to ascertain why ANV and B had signed the way they did under the signature block, and that the meaning of the words “Acknowledged and Agreed” must be interpreted with regard to the content of the 2014 Licence itself, to establish what was acknowledged and agreed. Based on the negotiation history, evidenced by the emails exchanged, it was argued that B had not, by signing, agreed to assume any liability under or to become a party to the 2014 Licence.

The tribunal’s findings

34.  On the formation issue, and whether B became a contracting party to the 2014 Licence, the tribunal considered the plain meaning of the words “Acknowledged and Agreed”. At paragraph 231 of the Jurisdiction Award, the tribunal stated thus:

“The starting point for the Tribunal is the 2014 Licence… It is signed by B. The agreement is an instrument in writing containing an arbitration clause. On its face, the signature constitutes an acceptance by B. B signed under the phrase ‘Acknowledged and Agreed’ and neither that phrase nor any other provision contained a limitation on what is ‘agreed’. There is no evidence suggesting B was coerced into signing or that its acceptance, including with respect to the arbitration provision, was qualified or subject to conditions or exceptions. Accordingly, the acceptance was voluntary and unequivocal.”

35.  On behalf of A, Counsel argued that the tribunal’s plain meaning construction was obviously correct, since both B and A were professional parties, were supported by legal advisers who had been involved throughout the negotiations and drafting, and under Dutch law, more weight should be given to the “most obvious linguistic meaning” of the contract. “Acknowledged and Agreed” are words of a wide import, and without any qualification, they must be construed to mean that B intended and agreed to be a party to the 2014 Licence.

36.  In particular, A relies on clause 13.9 of the 2014 Licence, which refers to the 2014 Licence being executed in 2 or more counterparts, and becoming effective when one counterpart has been signed by each party and delivered to “the other parties”. Counsel for A argued that the use of “other parties”, instead of “other party”, confirms that there are in fact more than 2 parties to the 2014 Licence. Counsel emphasized the fact that clause 13.9 was added at the same time as the inclusion of the signature block “Acknowledged and Agreed”. It was argued that clause 13.8 of the 2014 Licence confers an obligation on the parties to ensure concurrent execution of the 2014 Licence and the Loan Agreement, and this is consistent with B intending to be a party to the 2014 Licence.

37.  It is correct, as B had consistently pointed out, that reading the 2014 Licence as a whole, the relevant provisions which set out the rights and obligations of the parties only refer to either A or JV specifically, or to “each party”, “either party”, or “both parties”, which are consistent with the 2014 Licence being a bilateral agreement. The only reference to more than one party is contained in clause 13.9, which refers to the execution of 2 or more counterparts of the 2014 Licence, and the counterparts constituting a single instrument, becoming effective when one counterpart has been delivered to “the other parties hereto”. Counsel for B pointed out that this clause only deals with execution and transmission, which cannot be conclusive on its own of the construction of the 2014 Licence being a 4-party agreement which includes ANV and B which signed under “Acknowledged and Agreed”.

38.  The tribunal itself pointed out at paragraph 238 of the Jurisdiction Award that the 2014 Licence was poorly drafted. It observed that the draft had included additional substantive obligations and a clause referencing additional parties but nearly all the language referring just to the original 2 parties were not revised.  However, the tribunal concluded, at paragraph 243 of the Jurisdiction Award, that the inconsistencies in drafting and the references to “both parties”, “either party” or “the other party” throughout the 2014 Licence were “artifacts of the 2011 Licence”.  The tribunal considered that the inconsistencies were not persuasive as to the parties’ intentions as to the identity of the parties, that the added language does not establish that there were only 2 parties, and that the revised clause 13.9 regarding counterpart execution immediately above the signatures demonstrates the parties’ intent “to make all signatories parties”.

39.  On behalf of B, Counsel argued that there was in fact no basis or evidence to support the tribunal’s conclusion that the clear language actually used in the 2014 Licence constituted drafting errors or “artifacts”. The 2011 Licence was, of course, a bi-partite agreement, and only signed by 2 parties.

40.  The tribunal’s conclusion on the formation and existence of an arbitration agreement between A and B, on the basis of B being intended as a party to the 2014 Licence, stands in some contrast to its conclusions on the commercial objectives of the 2014 Licence, what it considered to be the obligations assumed by the parties under the 2014 Licence, and as to whether B had consented to being a party to the 2014 Licence. At paragraph 232 of the Jurisdiction Award, the tribunal pointed out that it had considered the relevant circumstances of the case including the commercial goal of the 2014 Licence, the negotiation history and the circumstances regarding execution of the 2014 Licence.  It considered that the commercial goal was principally to renew the licence agreement so that use of the licensed software would be under licence and under terms which included minimum royalty fees, revenue sharing agreements and reporting requirements. The tribunal did not accept the argument of A/ANV that an agreed commercial goal was to bind the B Group to any or all past and future obligations (paragraph 234 of the Jurisdiction Award). The tribunal in fact considered that it had no jurisdiction over B Corp, and later in the Award, it concluded that ANV had no actionable claims and no right to relief under the 2014 Licence.

41.  At paragraph 236 of the Jurisdiction Award, the tribunal observed:

“… apart from witness statements, the extrinsic evidence on negotiations between the parties is, for the most part, limited, inconclusive and, if anything, notable for a lack of discussion with regard to why (B) was added as a party to the 2014 Licence Agreement. However, it is clear from the weight of the evidence, including the testimony of the parties, the meeting, and the fact that (B) signed the agreement, that the parties agreed (B) would sign the 2014 Licence Agreement.”

42.  The tribunal went on to note, at paragraphs 239 to 241 of the Jurisdiction Award, as follows:

“239. Second, based on the negotiation history, the Tribunal is not convinced that (B) consented to be a party to the 2014 Licence Agreement in communications prior to its execution. … There is no undisputed evidence of a discussion between the parties prior to the (31/7 Meeting) that (B) should be a party to the 2014 Licence Agreement. For that matter, it appears to the Tribunal that the discussion on that date was largely, if not completely, addressed to concurrent execution. Given the fact that the discussion at the shareholder call was translated for both sides, the Tribunal cannot conclude, as Claimants contend, that any representative of the B Group acknowledged that (B) or any other B entity had any prior liability, agreed to assume liability going forward or agreed to become a party to the 2014 Licensing Agreement.

…

241. Accordingly, the Tribunal takes the 2014 Licence Agreement for what it is: Claimants’ hastily drafted mark-up of a prior agreement, the final draft of which may not have been reviewed in any detail by Respondents. There is no indication (B) signed as a shareholder, that its consent was required or that it signed to give required consent. (B) is a party simply because it signed the agreement under the words ‘acknowledged and agreed’ and, in the context above, there is nothing in the agreement or otherwise to convincingly establish that it did not sign as a party.” (Emphasis added)

43.  The tribunal’s conclusion that B was a party was therefore simply on the basis that B had signed under “Acknowledged and Agreed”, without any reservation or limitation. This is made clear at paragraph 259 of the Jurisdiction Award, where the tribunal stated:

“Respondents’ arguments cast a measure of doubt on Claimants’ position; however, what Respondents cannot avoid is that (B) signed the agreement, expressly ‘agreeing’ to it, without any limitation. The conclusion that each party was reasonably entitled to reach concerning the intention of the other based on their statements and actions, most particularly the signing of the agreement, was that they were agreeing to the 2014 Licence Agreement and the arbitration agreement therein.”

44.  On behalf of B, Counsel argued that in reaching such a finding, the tribunal had ignored the clear language of the 2014 Licence and that of the Loan Agreement, and the context that clause 9.5 of the Loan Agreement contained the reciprocal clause providing for the concurrent execution of the 2014 Licence and the Loan Agreement, but referred expressly to the 2014 Licence as being made between A and JV, with no reference to B. Counsel emphasized that as a matter of Dutch law, B’s signature itself does not amount to consent, nor can it constitute the clear and unequivocal waiver of its right of access to the courts, to constitute any valid arbitration agreement.

Is the Award and the finding on jurisdiction manifestly valid/invalid?

45.  I bear in mind, as Counsel for A has highlighted, that in reviewing the correctness of the Jurisdiction Award on the existence of the arbitration agreement, the Court should guard against straying into a review of the merits of the tribunal’s findings of fact, and of credibility (X v Jemmy Chien [2020] 5 HKC 177). The tribunal had reached its decision and made findings on the basis of its consideration of the evidence adduced in the Arbitration.  However, it is apparent from the Jurisdiction Award that the tribunal had based its conclusions on the undisputed circumstances regarding the execution of the 2014 Licence (see, for example, paragraph 237 of the Jurisdiction Award), and on facts which were not disputed. Counsel for B was quick to point out that it was not seeking to overturn any factual finding made by the tribunal.

46.  Applying the test set out in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208, as applied in Dana Shipping and Trading SA v Sino Channel Asia Ltd [2017] 1 HKC 281, and upon reading the Jurisdiction Award and the reasoning of the tribunal, I cannot conclude that the Jurisdiction Award on the existence of an arbitration agreement between B and A/ANV is “manifestly valid” , either as to its interpretation of the meaning and effect of the signature block on the basis of the plain meaning of the words “Acknowledged and Agreed”, or as to the tribunal’s rejection of the references in the body of the 2014 Licence to “both parties”, or “either party” as mere artifacts.  There are realistic prospects of success in B’s setting aside application before the supervisory court, the merits of which application cannot be said to be fanciful.

47.  However, the 2014 Licence is governed by the law of the Netherlands, and the Dutch Courts are obviously the more competent  forum to determine the relevant questions under Dutch law, as to the construction of the 2014 Licence and the arbitration clause, and to determine whether the tribunal was correct in its decision that B had, by signing under “Acknowledged and Agreed”, sufficiently signified its consent to being a party to the arbitration agreement and to waive its right of access to the courts. On a preliminary review of the Jurisdiction Award, this Court cannot conclude that the decision on the jurisdiction of the tribunal was “manifestly invalid”, to justify the immediate setting aside of the Award.

48.  Bearing in mind the governing law of the 2014 Licence, and the fact that the Court of the Netherlands would be in the best position to decide on the construction of the 2014 Licence and the arbitration clause, it is in my judgment appropriate to adjourn the enforcement proceedings until the determination of the Dutch Setting Aside Proceedings.

Should there be security or conditions for the adjournment?

49.  The authorities are clear, that in considering whether to order security as a condition for an adjournment of the enforcement proceedings pending the determination by the supervisory court, the Court is to compare the position of the creditor under the award, if it was allowed to enforce the award immediately, and its position if enforcement was to be delayed as a result of the adjournment of the enforcement proceedings.  This was the approach of the Court in Soleh Boneh itself, in Dana Shipping, and as further explained in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2005] 1 Lloyd’s Rep 36, Dowans Holding SA v Tanzania Electric Supply Co Ltd [2011] Lloyd’s Rep 475, and NJSC Naftogaz as being consistent with the purpose and object of the New York Convention (see paragraphs 27 and 28 of the judgment in NJSC Naftogaz).

50.  The focus of the exercise is hence to consider the ease or difficulty of the enforcement of the award, and whether it will be rendered more difficult if enforcement is delayed, to ascertain whether there is prejudice to the creditor as a result of the adjournment.

51.  The hearing of the Dutch Setting Aside Proceedings was initially scheduled for 13 January 2022.  According to the parties’ estimate, a decision is likely to be available between 3 or 4 to 6 months. Since the hearing before this Court in December 2021, the hearing in the Netherlands has been adjourned to 28 February 2022.

52.  According to A, there might be further appeals to the Netherlands Supreme Court (for which leave is not required), and such appeal would take an additional 18 months to conclude. A contends that such delay in the enforcement of a substantial award (valued at US$130 million) would naturally and inevitably cause prejudice to the financial position of A, relying on IPCO v Nigerian National Petroleum Corporation [2005] 2 Lloyd’s Rep 326 to argue that it would be right in the present case for A to seek to minimize such prejudice by an order for substantial security from the Court.

53.  I accept the submissions made on behalf of B, to follow the approach adopted by the Court in NJSC Naftogaz of Ukraine v PJSC Gazprom [2019] 2 Lloyd’s Rep 20, and not take into consideration at this stage the impact of or any further delay caused by any further appeal after the hearing and determination by the Netherlands Court of Appeal. As Sir Michael Burton pointed out in NJSC Naftogaz, the question of any further stay pending an appeal, with or without conditions for security to be provided in light of the circumstances then prevailing, can be considered in the light and as a result of the Netherlands Court of Appeal’s decision when it is available. With that in mind, the delay in enforcement would be a period of 4 to 6 months after 28 February 2022.

54.  B argued that A itself had not been particularly prompt in seeking leave to enforce the Award in Hong Kong, bearing in mind that the Enforcement Order was only sought in April 2021, when the Award was issued on 20 December 2019. Delay is relevant to the question of whether there is perception of any risks of dissipation of assets and of prejudice.

55.  B had acted within the permissible time, in applying to the supervisory court on 20 March 2020 to set aside the Award.  In response to A’s application on 1 April 2021 for enforcement in Hong Kong, it was prompt in applying to set aside the Enforcement Order on 29 April 2021.  There were no delaying tactics in seeking adjournment of the enforcement proceedings in Hong Kong.

56.  A delay of 6 months is not in my judgment unduly long in the circumstances of this case. A argued that during this period of delay, there is a risk that B may be restructured, and a risk that its assets may be taken out of Hong Kong, given that B Corp has been delisted and B’s liability under the current Award is likely to be an impediment if the B Group should secure a relisting, to render it likely for B’s assets to be restructured or transferred.

57.  I accept the submissions made on behalf of B, that the arguments as to the risks of dissipation and restructuring as a result of the delisting of B Corp are speculative. A has referred to evidence on the general risks associated with VIE structures, and statistics on the general probability of formerly listed companies to dismantle, restructure or dissolve their Mainland VIE structures upon delisting. However, there is no specific or clear evidence that B Corp has or had any plans to remove B’s assets out of Hong Kong, to make it more difficult for A to enforce the Award here. B has also given reasons for the privatization of B Corp, and its belief that the privatization was in the best interests of the long-term development of B Corp. There is no evidence that the privatization, which had been announced in September 2020, had anything to do with the evasion or avoidance of enforcement of the Award, and no evidence that there is a real or serious risk apart from conjecture that it would involve disposal of the assets of B.

58.  Materially, there is no evidence of any dissipation of any of B’s assets in Hong Kong from the date of the Award to the present. In fact, the evidence adduced by B and A demonstrates that B has substantial and sufficient assets in and outside Hong Kong, including shares in subsidiaries and contractual arrangements with 2 VIEs on the Mainland, and in particular, shareholding interests in a company on the Mainland known as I Listco. B’s indirect stake in I Listco is, on B’s evidence, worth RMB 4 billion (or HK$4.8 billion) as at December 2021. Even taking into account what A has pointed out as the fluctuating value of these shares, their lowest value is in excess of the Award of US$130 million.

59.  In fact, A was able by way of enforcement of the Award to obtain a provisional charging order from the BVI Court on 6 December 2021, in relation to B’s shares in a BVI company, BBVI, which holds the shares of a Hong Kong company (“B HK”) which in turn holds 332 million shares in I Listco. It is B’s case that A is more than adequately covered in terms of security for enforcement.

60.  There is no claim that B has not disclosed, or has hidden, any assets.

61.  The shares in I Listco are not assets within Hong Kong, but B has confirmed to A that it would not sell, dispose of, encumber or otherwise deal with any of its shares in BBVI, and will procure that BBVI and BHK will not sell, dispose of, or encumber etc any of its respective shares in BHK and I Listco, without giving 28 days’ advance written notice to A (“Confirmation”). The Confirmation extended to the determination of the Dutch Setting Aside Proceedings, or 2 January 2023, whichever the earlier, 2 January 2023 being the expiry of a 3-year lockup period imposed under relevant Mainland regulations, during which BHK could not dispose of its stake in I Listco.

62.  In Hong Kong, the evidence shows that B has 2 main assets, being 300 million shares in a Hong Kong listed company, which shares have been held by it since 2014 and are worth approximately HK$300 million; and cash and bank balances and trade receivables worth around HK$275 million. On the evidence, the Hong Kong assets have remained the same, from before the commencement of the Arbitration, to the handing down of the Award, until 30 June 2021 and notwithstanding the delisting from NASDAQ. B has emphasized that its cash position has in fact increased from 2015 to 2021.

63.  Counsel for A argued, on the basis of the judgment in NJSC Naftogaz, that where enforcement of an arbitral award is being sought in other jurisdictions, the Court should take a wider approach when it considers the question of whether the creditor can be and is being protected from the risk of dissipation, and take into account the position in other jurisdictions.

64.  On the limited evidence available, I cannot conclude from B’s statement, that B had no intention of removing or doing anything to dissipate any of its assets in Hong Kong, that it did have intention to remove or dissipate, or that there is a risk of the removal and dissipation of, its assets outside Hong Kong.

65.  Even in the case of Naftogaz itself, the Court ultimately pointed out that the focus is still on the consideration of the deterioration in the position of the creditor, if an order for adjournment should be made.  The second important factor outlined in Staunton LJ’s judgment in Soleh Boneh made it clear that if there are and always will be insufficient assets within the jurisdiction, the case for security must necessarily be weakened. Even if the correct reference should be to there being “sufficient” assets (as contended in some cases), there is little difference, the point being that if, upon comparison of the position of the creditor with and without an order for adjournment, there is no deterioration in his position, then the need for security diminishes. Whilst the existence of assets outside the jurisdiction and enforcement proceedings taken elsewhere may be considered in the context of whether the creditor is adequately secured and any prejudice minimized, the focus is on the preservation of assets, if there are any, within the jurisdiction in which enforcement is sought. It would be unfair to improve the creditor’s position by requiring him to bring into the jurisdiction of Hong Kong assets which were hitherto not available for enforcement here (Kahara Bodas Co LLC v Perusahaan Pertambangan Minydak Dan Gas Bumi Negara [2003] 2 HKLRD 381, X v Jemmy Chien).

66.  In this case, A has already obtained a charging order on the shares in BBVI. There is no evidence that the charging order has since been discharged. The value of the shares covered by the charging order exceeds the amount of the Award. The Confirmation adequately gives safeguards to A, upon receiving written notice from B, to apply to the relevant court to obtain any appropriate order in the event of any threatened disposition of the shares in BBVI, BHK or I Listco.

67.  The difficult financial situation referred to by A in its evidence, regrettable though it may be, was caused by “repercussions of the pandemic on the world economy”, and aggravated by B’s failure to honour the Award. It was not caused by the delay in the adjournment of the enforcement proceedings. An order for security in the interim of the adjournment would not alleviate A’s alleged financial difficulty, short of an outright payment of the amount ordered under the Award.

68.  I have considered the overall merits of the Dutch Setting Aside Proceedings and my preliminary conclusion is that they have realistic prospects of success. Bearing in mind the fact that there is no evidence of the risk of dissipation of B’s assets, the fact that A has already obtained security under the charging order of shares in BBVI of a value of HK$4.8 billion (equivalent to approximately US$615 million), the value of the Award being US$130 million, and the delay occasioned by the adjournment of the Hong Kong proceedings being approximately 6 to 12 months until the determination of the Dutch Setting Aside Proceedings, I am not satisfied that there is need in this case to order security from B.

Material non-disclosure?

69.  Having considered that adjournment is appropriate, I will not elaborate further on the substance of the other grounds relied upon by B for setting aside the Enforcement Order. Most of the issues are more appropriately to be dealt with by the Court of the Netherlands. On the question of alleged material non-disclosure in A’s ex parte application for the Enforcement Order, it was contended by B that A failed to disclose that it had commenced proceedings in the USA against (inter alia) B, on the basis of alleged conspiracy on the part of the B Group to misappropriate the valuable assets of A, and/or to defraud A. A and ANV further allege in the US proceedings that the B Group including B committed wire fraud and/or racketeering under US law, by virtue of statements made at a meeting of the board of directors of JV on 10 July 2014.  B claims that the allegations made in the US proceedings were inconsistent with the factual findings made in the Award, in the context of the circumstances which led to the parties’ execution of the 2014 Licence. It is claimed that the assertions made by A and ANV in the US proceedings, that they had been fraudulently induced by the VIE structure of the B Group to enter into the 2014 Licence, are contrary to the factual findings made in the Award, and that the US proceedings constitute an abuse of process on the part of A.  It was argued that A was in breach of its duty to make full and frank disclosure to the Hong Kong Court, by failing to disclose that it was seeking to undermine the Award in the US proceedings, at the same time as it sought enforcement of the Award in Hong Kong.

70.  I do not consider that the action commenced by A in the United States dealt with enforcement of the Award, to be material to the ex parte judge’s consideration of whether the Enforcement Order should be made in Hong Kong. In dealing with applications for leave to enforce an arbitral award, the Court adopts a mechanistic approach, particularly at the ex parte stage. Whether A had separately made tortious claims against B in the USA would not have affected the Court’s determination of whether ex parte leave should be granted to enforce the Award, which is decided on the basis of whether facts exist to justify refusal of enforcement on the exhaustive grounds set out in section 86 of the Arbitration Ordinance.

Disposition

71.  The application to adjourn B’s summons of 29 April 2021 is accordingly granted in terms of paragraph 2 of the summons.

72.  A has claimed that the Confirmation given by B, with regard to the shares in BHK and I Listco, over and above the charging order on B’s shares in BBVI, has no effect as it is not an undertaking given to the Court. I will order that the Confirmation be included in the Order to be made on A’s summons of 3 June 2021, to reflect that the Confirmation was considered and accepted by the Court in the determination of the summons, and that it was on the basis of the Confirmation that no order for security is made on the said summons.

73.  The costs order nisi is that the costs of and occasioned by the 2 summonses are to be in the cause of the application to set aside the Enforcement Order, with certificate for 2 counsel.