XX, YY AND OTHERS v. ZZ

HCCT 136/2024

[2025] HKCFI 3089

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 136 OF 2024

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J U D G M E N T

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Introduction

1.  By Originating Summons issued on 8 November 2024 (“OS”), the Plaintiffs seek an order to set aside the decision of the arbitral tribunal (“Tribunal”)  in  HKIAC███  (“Arbitration”)  dated ██████████ (“Decision”), insofar as the Tribunal held that it has jurisdiction to determine Claims 1 to 3 as pleaded in the Defendant’s Statement of Claim dated ██████████ (“SOC”)  served in the Arbitration.

2.  The application was made pursuant to Article 16(3)  of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), as incorporated into Hong Kong law by section 34(1)  of the Arbitration Ordinance (“Ordinance”).

Parties

3.  The Plaintiffs are 10 entities forming part of a corporate group referred to as the “Group”, which is principally engaged in providing ██████████ services (“Business”)  on the Mainland.

4.  The 1^st Plaintiff, ██████████ is incorporated in the Cayman Islands (“Company”). The Company is an investment holding vehicle controlling a number of entities involved in the Business on the Mainland through a variable interest entity (“VIE”)  structure. It is the 1^st Respondent in the Arbitration and the 1^st Respondent in another HKIAC arbitration (“Arbitration 2”)  referred to below.

5.  ██████████ (the “2^nd Plaintiff”)  is a company incorporated in the Cayman Islands and is the majority and controlling shareholder of the Company. The 2^nd Plaintiff is the 2^nd Respondent in both the Arbitration and Arbitration 2.

6.  ██████████ (the “3^rd Plaintiff”)  is a company established under the laws of the PRC and is the sole shareholder of the 4^th Plaintiff. The 3^rd Plaintiff is the 3^rd Respondent in the Arbitration.

7.  ██████████ (the “4^th Plaintiff”)  is the domestic operating company within the Business. It is controlled by the 10^th Plaintiff through a series of control documents and is the parent company of several PRC entities involved in the Business. The 4^th Plaintiff is the 4^th Respondent in the Arbitration.

8.  The 5^th to 9^th Plaintiffs are PRC-incorporated entities. Each is a Respondent in the Arbitration: -

8.1  ██████████ (the “5^th Plaintiff”)  is the 5^th Respondent in the Arbitration;

8.2  ██████████ (the “6^th Plaintiff”)  is the 6^th Respondent in the Arbitration;

8.3  ██████████ (the “7^th Plaintiff”)  is the 7^th Respondent in the Arbitration;

8.4  ██████████ (the “8^th Plaintiff”)  is the 8^th Respondent in the Arbitration;

8.5  ██████████ (the “9^th Plaintiff”)  is the 9^th Respondent in the Arbitration.

8.6  ██████████ (the “10^th Plaintiff”)  is a wholly foreign-owned enterprise established under PRC law. It controls the 4^th Plaintiff through a series of control documents. The 10^th Plaintiff is the 10^th Respondent in the Arbitration.

9.  ██████████ (the “Defendant”)  is a limited liability company incorporated in Australia. The Defendant is a preferred shareholder of the Company, holding Series B and Series B+ preferred shares. The Defendant is the Claimant in both the Arbitration and Arbitration 2.

The VIE Structure

10.  The Company operates through a complex structure involving both offshore and onshore entities, with control over the PRC-based operating companies secured through a VIE arrangement. The VIE structure was implemented through a set of contractual arrangements collectively referred to as the “Control Documents”, most of which were executed on 16 December 2014, between the 3^rd Plaintiff, the 4^th Plaintiff and/or the 10^th Plaintiff. The Control Documents consist of:

10.1 The Equity Pledge Agreement dated ██████████ entered into between the 3^rd Plaintiff, the 10^th Plaintiff, and the 4^th Plaintiff;

10.2   The Voting Trust Agreement dated ██████████ entered into between the 3^rd Plaintiff, the 10^th Plaintiff, and the 4^th Plaintiff;

10.3   The Operation Agreement dated ██████████ entered into between the 3^rd Plaintiff, the 10^th Plaintiff, and the 4^th Plaintiff;

10.4   The Exclusive Call Option Agreement dated ██████████ entered into between the 3^rd Plaintiff, the 10^th Plaintiff, and the 4^th Plaintiff;

10.5   The Exclusive Consultancy and Service Agreement dated ██████████ entered into between the 10^th Plaintiff and the 4^th Plaintiff (“Service Agreement”);

10.6  The Undertaking dated ██████████ issued by the 10^th Plaintiff to the 4^th Plaintiff; and

10.7   The Renewal Notice dated ██████████ issued by the 10^th Plaintiff to the 4^th Plaintiff.

The 2017 transaction

11.  On ██████ 2017, the Defendant entered into the Series B and Series B+ Preferred Share Purchase Agreement (as amended on ███ 2017)  (“2017 SPA”)  with all ten Plaintiffs and other investors. Pursuant to the 2017 SPA, the Defendant subscribed for ██████ Series B and ██████ Series B+ preferred shares (“Preferred Shares”)  in the Company for an investment of approximately US$30 million.

12.  Clause 2.3 of the 2017 SPA provides that the proceeds of the subscription should be used for purposes of business operations, business development, investment in the defined business, and general working capital needs of the Group companies.

13.  Section 9.5 of the 2017 SPA contains the arbitration agreement, the relevant provisions of which state: -

“9.5 Dispute Resolution.

(i)  Any dispute, controversy or claim (each, a “Dispute”)  arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be referred to arbitration upon the demand of either party to the dispute with notice (the “Arbitration Notice”)  to the other.

(ii)  The Dispute shall be settled by arbitration in Hong Kong by the Hong Kong International Arbitration Centre (the “HKIAC”)  in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules (the “HKIAC Rules”)  in force when the Arbitration Notice is submitted in accordance with the HKIAC Rules. There shall be three (3)  arbitrators. The Warrantors acting together shall and the Investors acting together shall each select one arbitrator, and the HKIAC shall select the third arbitrator. All of the arbitrators shall be qualified to practice law in Hong Kong.

…”

14.  Pursuant to the 2017 SPA, on 4 August 2017, the Company updated its constitutional document by adopting the Fourth Amended and Restated Memorandum and Articles of Association (“4^th M&A”).

15.  Shortly thereafter, on 31 August 2017, a Third Amended and Restated Shareholders Agreement was entered into by the parties to the 2017 SPA with other preferred shareholders of the Company (“2017 SHA”). On the same date, the Company updated its constitutional document by adopting the Fifth Amended Memorandum and Articles of Association (“5^th M&A”).

The 2021 transaction

16.  After the financing in 2017, the Company began preparations for an intended IPO. However, in around 2020, there was obstruction to the intended IPO plan. This led to the negotiation and execution of a new agreement on ██████ 2021, in which the Company, the 2^nd Plaintiff, and the Defendant entered into a tripartite share purchase agreement dated 27 January 2021 (“2021 SPA”). None of the 3^rd to 10^th Plaintiffs are parties to the 2021 SPA.

17.  Under the 2021 SPA, the Company and the 2^nd Plaintiff agreed to repurchase the Defendant’s Preferred Shares in two tranches: -

17.1   The first tranche (half of the Preferred Shares)  was to be repurchased on or before 31 January 2021 either by the Company (“the Initial Repurchase”)  and/or by the 2^nd Plaintiff exercising the “Founder Call Option”.

17.2   The second tranche could be acquired (i)  by the Company exercising a call option between completion of the Initial Repurchase and 4 August 2021; (ii)  by the 2^nd Plaintiff exercising a call option; or (iii)  by the Defendant exercising a put option during the 10-business day period commencing 4 August 2021, and requiring the Company to purchase its remaining shares.

18.  Section 6.2 of the 2021 SPA contains an arbitration agreement (“2021 SPA Arbitration Agreement”). It provides, inter alia, that:

“6.2 Dispute Resolution.

(a)  Any dispute, controversy or claim (each, a “Dispute”)  arising out of or relating to this Agreement, or the interpretation, breach, termination, validity or invalidity thereof, shall be referred to arbitration upon the demand of any party to the dispute with notice (the “Arbitration Notice”)  to the other.

(b)  The Dispute shall be settled by arbitration in Hong Kong by the Hong Kong International Arbitration Centre (the “HKIAC”)  in accordance with the Hong Kong International Arbitration Centre Administered Arbitration Rules (the “HKIAC Rules”)  in force when the Arbitration Notice is submitted in accordance with the HKIAC Rules. There shall be three (3)  arbitrators. The Company and the Investor shall each select one arbitrator, and the HKIAC shall select the third arbitrator. All of the arbitrators shall be qualified to practice law in Hong Kong. …”

19.  Section 4 of the 2021 SPA provides that the Defendant must approve the adoption of an amendment to the 5^th M&A in the form as attached to the 2021 SPA as “Exhibit A”. The substantive terms of the amendment adopted by the Company, with an effective date of 2 February 2021, were identical to the said “Exhibit A” (“2021 M&A Amendment”). The 5^th M&A as amended by the 2021 M&A Amendments is referred to as the “2021 M&A”.

Performance

20.  On 2 February 2021, the 2^nd Plaintiff issued a “Call Option Notice” to the Defendant for the Initial Repurchase. On 3 February 2021, The 2^nd Plaintiff repurchased half of the Defendant’s Preferred Shares.

21.  On 4 August 2021, the Defendant issued a “Put Option Notice” to the Company. There is no dispute that the Company and the 2^nd Plaintiff did not repurchase the second tranche of the Preferred Shares. There is, however, a dispute between the Company, the 2^nd Plaintiff and the Defendant as to whether the Put Option Notice was sufficient to give rise to the Company’s obligation to repurchase its remaining shares.

The two Arbitrations

22.  On ██████ 2021, the Defendant filed a Notice of Arbitration (“NOA”)  under the HKIAC Administered Arbitration Rules to commence the Arbitration against, inter alios, all Plaintiffs. In the NOA, the Defendant alleged that the Company and the 2^nd Plaintiff had failed and/or refused to repurchase the remaining Preferred Shares held by Defendant, and that such failure constituted breaches of obligations arising under the 2017 SPA (by reason of breaches of the Company’s Memorandum and Articles, as amended by the 2021 M&A Amendment), and/or under the 2021 SPA.

23.  On ██████ 2022, the Plaintiffs responded to the NOA, contending that it was defective and invalid on several grounds, including (i) the inclusion of the 3^rd Plaintiff to the 10^th Plaintiff as respondents despite their not being parties to the 2021 SPA or its arbitration clause; and (ii)  the Defendant wrongly referred disputes under two separate contracts (ie the 2017 SPA and the 2021 SPA)  involving different contracting parties in a single arbitration, as the requirements under Article 29 of the HKIAC Rules are not satisfied.

24.  On ██████ 2022, the HKIAC determined that it was not satisfied, on a prima facie basis, that the arbitration agreements in the 2017 SPA (ie Section 9.5)  and the 2021 SPA (ie Section 6.2)  were compatible with the purpose of Article 29 of the HKIAC Rules. The Defendant was invited by the HKIAC to amend the NOA.

25.  The Defendant subsequently filed an Amended Notice of Arbitration on ███ 2022, proceeding solely under the arbitration agreement in the 2017 SPA.

26.  The Tribunal in the Arbitration was constituted on 22 September 2022, comprising three arbitrators.

27.  Pursuant to Procedural Order No 1 issued by the Tribunal on 18 August 2023, the Defendant served its SOC on ██████ 2023. As pleaded in the SOC, the Defendant advanced five claims, each of which is said to arise out of and under the 2017 SPA. Of the five claims, the present OS is concerned with whether Claims 1 to 3 fall within the jurisdiction the Tribunal.

28.  Claim 1 is a claim for indemnification brought by the Defendant pursuant to Section 8.3 of the 2017 SPA. The Defendant contends that the Company breached Article 22(g)  of the 2021 M&A by failing to repurchase the balance of the Preferred Shares and pay the Option Price of US$19,980,840, and that the 2^nd Plaintiff failed to use its reasonable best efforts to prevent such non-performance, contrary to Article 22(f)  of the 2021 M&A. The 2021 M&A is said to form part of the “Transaction Documents”, as defined under the 2017 SPA.

29.  Relying on section 8.3 of the 2017 SPA, the Defendant alleges that all Plaintiffs are jointly and severally liable as “Warrantors”, which are defined under Section 1.1 of the 2017 SPA to include the “Company, Founder Holdco (ie the 2^nd Plaintiff)  and the Subsidiaries of the Company”. The Defendant further avers that the 2^nd Plaintiff, 4^th to 10^th Plaintiffs are subsidiaries of the Company and, therefore, fall within the definition of Warrantors. In the premises, the Defendant seeks to hold all Plaintiffs jointly and severally liable to indemnify it under Section 8.3 of the 2017 SPA for losses alleged to arise out of the breaches of Articles 22(f)  and 22(g)  of the 2021 M&A.

30.  Claim 2 is for damages for breach of Section 9.2 of the 2017 SPA, arising from the Plaintiffs’ alleged failure to use best efforts to procure the Company’s performance of Article 22(g)  of the 2021 M&A.

31.  Claim 3 is based on the alleged non-performance of the Control Documents, particularly the Service Agreement, resulting in the 10^th Plaintiff’s failure to receive income from the 4^th Plaintiff. This is said to constitute a breach of warranty (ie Section 3.24), a breach of the best-efforts obligation (ie Section 9.2), and/or a breach of an implied term of the 2017 SPA.

32.  On 24 November 2023, the Plaintiffs submitted “The Respondents’ Jurisdictional Objection and Early Determination Application” (the “Jurisdictional Objection”). The Defendant submitted its opposition on 22 December 2023, and the Plaintiffs’ reply was served on 5 January 2024.

33.  By a notice of arbitration dated ██████ 2024, the Defendant commenced Arbitration 2 under reference number of HKIAC██████ against the Company and the 2^nd Plaintiff, pursuant to the arbitration agreement contained in the 2021 SPA (ie section 6.2 thereof).

34.  On 10 October 2024, the Tribunal issued its Decision to dismiss the Jurisdictional Objection. It is this jurisdictional ruling, insofar as it concerns Claims 1 to 3, that the Plaintiffs now challenge by way of the present OS.

35.  On 18 October 2024, HKIAC confirmed the arbitral tribunal of Arbitration 2. There is one arbitrator common to the tribunal for the Arbitration and Arbitration 2.

Applicable legal principles

36.  There is no dispute that in deciding on the jurisdiction of the Tribunal under Article 16(3)  of the Model Law, the hearing before the Court is de novo and the Court is not bound by or limited to either the findings made by the Tribunal or the evidence adduced before it (R v A [2023] 6 HKC 189).

37.  Each of the 2017 SPA and the 2021 SPA has a dispute resolution clause, for disputes or claims arising out of or relating to the agreements, or the interpretation, breach, termination, validity or invalidity thereof, to be referred to arbitration by the HKIAC. Clause 9.5 of the 2017 SPA provides for arbitration by 3 arbitrators, the Warrantors of the 2017 SPA (defined to include all the Plaintiffs in this action)  acting together, and the Investors (defined to include the Defendant in this action)  acting together, each selecting one arbitrator, and the HKIAC selecting the third arbitrator. Clause 6.2 of the 2021 SPA likewise provides for arbitration by 3 arbitrators, but each of the Company and the Investor (which is the Defendant in this action)  was to select one arbitrator, and the HKIAC was to select the third arbitrator.

38.  The present dispute on jurisdiction centers on whether Claim 1, Claim 2 and Claim 3 in the Arbitration fall within the arbitration clause contained in the 2017 SPA, under which the Tribunal was appointed, or whether they fall within the arbitration clause contained in the 2021 SPA, such that the Tribunal does not have jurisdiction to deal with the claims.

39.  The Tribunal decided that “it is quite possible” for Claim 1 to arise out of both the 2017 arbitration agreement and the 2021 arbitration agreement, and that the Defendant (as claimant in the Arbitration)  had “squarely presented Claim 1 as arising out of the 2017 SPA and more particularly the 2017 Arbitration Agreement”.

40.  The Plaintiffs claim that the Tribunal had erred in law in its analysis and decision, and that the “centre of gravity” of the disputed Claims is in fact the 2021 SPA, such that the Tribunal should have found that it has no jurisdiction. The Plaintiffs contend, in particular, that the Tribunal erred when it found that it was not necessary to decide which of the 2017 SPA or the 2021 SPA is the agreement with the centre of gravity out of which Claim 1 most naturally arises, because (in the Tribunal’s opinion)  it is possible for Claim 1 to arise out of both.

41.  Counsel for the Plaintiff argued that locating the “centre of gravity” of a claim has been the test and approach adopted by the courts, in Amtrust Europe Ltd v Trust Risk Group SpA [2017] 1 CLC 456, X v Y [2021] 2 HKC 68, Zmpc-Red Box Energy Services Ltd v Philip Jeffrey Adkins [2021] HKCFI 3501, and AAA v DDD [2024] 1 HKLRD 1358, and that the Tribunal’s analysis is inconsistent with this line of authorities.

42.  The parties have referred to authorities which establish the approach of the courts in interpreting competing jurisdiction clauses, by identifying the substance of the dispute, and ultimately finding the contract which has the closest connection with the dispute to govern the proper jurisdiction of the tribunal over the claim. In X v Y, this Court set out an analysis at paragraphs 46 to 49 of the judgment, which analysis is relevant to the present case and task at hand, but will not be repeated here.

43.  However, before dealing with the submissions made by the parties as to the relevant tests to be applied in light of the authorities, and on whether any presumption is applicable, it should be remembered that the task of the Court is the construction of the relevant dispute resolution/arbitration clause which governs the jurisdiction of the relevant tribunal. This is the ascertainment of the intention of the parties as reflected by the language they chose in expressing the relevant arbitration clause in their contract. For this exercise, the courts have pointed out that there should be a “broad and purposive construction” of a jurisdiction clause (Deutsche Bank AG v Sebastian Holdings Inc [2010] EWCA Civ 998), and that the purpose and “overall scheme” as part of the context of the agreement must be taken into consideration. Any presumption is only an aid in the construction analysis.

The parties’ scheme of agreements

(1) The 2017 SPA

44.  As narrated under the first part of this Judgment, the Defendant first entered into the 2017 SPA with all the 10 Plaintiffs, and other investors. By that agreement, the Defendant invested in the Company by subscribing for its Preferred Shares, upon the terms set out in the 2017 SPA. Pursuant to the 2017 SPA, amendments were made to the Company’s Memorandum and Articles, to reflect the option right conferred on the Investors (including the Defendant)  under the 2017 SPA, to require the Company to purchase all of the Preferred Shares at the Option Price defined. The Put Option was exercisable within a period of 3 months from the 4^th anniversary of the Initial Closing Date as defined, namely 4 August 2017. The amendments to the Memorandum and Articles were adopted by the Company on 4 August 2017 as the “4^th M&A”.

45.  At the time of the 2017 SPA, the parties had contemplated that the Company would be listed in either ██████ or ██████. Upon such listing, the Defendant’s Preferred Shares would be converted into ordinary shares pursuant to the provisions of the 4^th M&A, and the Defendant would be able to realize its investment in the Company in the market, by selling the shares. If the contemplated listing should not materialize, Article 22(a)(ii)-(iii)  of the 4^th M&A enables the Defendant to exercise the Put Option and require the Company to repurchase its Preferred Shares. That was the scheme intended by the parties at the time when the 2017 SPA was made.

46.  As highlighted by Counsel for the Defendant, the 2017 SPA was made not only with the Company, but with the 3^rd to 10^th Plaintiffs named in this action. One of the purposes, if not the main reason, for the joinder of the 3^rd to 10^th Plaintiffs in the 2017 SPA, was to obtain warranties from those companies which had real assets and were in a position to back the warranties and indemnities provided under the 2017 SPA. On behalf of the Defendant, Mr Lai explained this in the context of the shareholding structure of the Group and the Plaintiffs, as follows.

47.  There is the offshore structure, the onshore structure, and the VIE (Variable Interest Entity)  structure for holding and operating the Business.

48.  The offshore structure comprises the Company and the 2^nd Plaintiff. The Company (incorporated in the Cayman Islands)  is at the apex of the Group. The 2^nd Plaintiff (also incorporated in the Cayman Islands)  is the controlling shareholder of the Company. The Company indirectly owns the 10^th Plaintiff, which is the wholly foreign-owned enterprise established under PRC law (“WFOE”).

49.  Neither the Company nor the 10^th Plaintiff/WFOE runs the Business, which is in fact operated by the domestic companies which are the 4^th to 9^th Plaintiffs (“Domestic Companies”). The onshore structure comprises the 3^rd Plaintiff, a Mainland company, holding the shares of the 4^th Plaintiff (“Shanghai VIE”), and the 4^th Plaintiff (also a Mainland company), holding the shares of the other domestic companies, which are the 4^th to the 9^th Plaintiffs.

50.  Neither the Company nor the WFOE/10^th Plaintiff holds any shareholding interest in the 4^th Plaintiff/Shanghai VIE or the Domestic Companies. This is because the Business engaged and operated by the Domestic Companies is a restricted business, which under Mainland law does not admit any foreign shareholders. Accordingly, neither the Company nor the WFOE could control the Shanghai VIE or the Domestic Companies by way of shareholding.

51.  In order to obtain and secure control over the Shanghai VIE and the Domestic Companies, the Group adopted the VIE Structure. This is implemented by the series of Control Documents particularized under the introductory section of this Judgment. Through the Control Documents, the Company via the WFOE/10^th Plaintiff controls the board of directors of the 4^th Plaintiff/Shanghai VIE, which controls the Domestic Companies.

52.  The Control Documents include the Service Agreement which was made between WFOE and the Shanghai VIE. According to the Defendant, this provides a contractual basis upon which WFOE charges service fees. It is through this VIE structure that the WFOE extracts profits from the Domestic Companies which carry on the substantive Business, when such companies cannot deliver up profits by way of dividends. The due performance of the Service Agreement is therefore important to the Defendant and the Company, as it affects the ability of the shareholders of the Company to enjoy the economic benefit derived from the Business. The VIE structure enables the transfer of the incomes of the Domestic Companies to the Company via the WFOE, for the Company to enjoy the economic benefit flowing from the Business and/or the Domestic Companies, notwithstanding the fact that the Company does not own any of the Domestic Companies, or equity interests therein, and does not itself engage in any substantive operation of the Business.

53.  The Defendant highlights the fact that the importance of the due performance of (inter alia)  the Service Agreement (as a Control Document)  is reflected in, and forms part of the representations and warranties made by the Warrantors named in the 2017 SPA. The 2017 SPA remains the only agreement which involved the Defendant and all the Plaintiffs, and under clause 8.3 of the 2017 SPA, each of the Plaintiffs, individually as an indemnifying party, agreed jointly and severally to indemnify the Defendant (as investor)  against damage or loss by reason of, resulting from, based upon or arising out of (inter alia):

“any breach of any representation or warranty of the Warrantors, contained in or made pursuant to (the 2017 SPA), any other Transaction Documents or any other document delivered by the Warrantors in connection with (the 2017 SPA)”.

54.  Further, each of the Plaintiffs as parties to the 2017 SPA agreed (under clause 9.2):

“to use its best efforts to take or cause to be taken all action, to do or cause to be done, to execute such further instruments, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable under applicable law or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by (the 2017 SPA)  and any other Transaction Documents”.

55.  It is an important aspect of the Defendant’s case in the Arbitration that the indemnity and warranties given in clauses 8.3 and 9.2, relating to the due performance of the Transaction Documents and the transactions contemplated by the Transaction Documents, extend (by definition in the 2017 SPA)  to not only the 2017 SPA and the 2017 SHA, but to the Memorandum and Articles of the Company. The Defendant further relies on the fact that by virtue of clause 9.15 of the 2017 SPA, references in the 2017 SPA to any of the Transaction Documents are to be construed as references to such document or documents “as the same may be amended, supplemented or notated from time to time”. On the Defendant’s case, the warranties, representations and indemnity given in clauses 8.3 and 9.2 extend to the due performance of the 2021 M&A, and Article 22(g)  thereof concerning the 2021 Put Option.

56.  On the Plaintiffs’ part, it was argued that the provision in clause 9.15 relied upon by the Defendant is expressed in the 2017 SPA to apply “unless a provision (in the 2017 SPA)  expressly provides otherwise”, and under clause 1.1 of the 2017 SPA, “Memorandum and Articles” is defined as meaning the 4^th Amended M&A as attached to the 2017 SPA. Counsel for the Plaintiffs contend that any breach of the 2021 M&A cannot constitute a breach of warranty for indemnification under the 2017 SPA.

57.  In my judgment, the above goes to the merits of the Defendant’s claims made in the Arbitration on the basis of the 2017 SPA. If the Plaintiffs are correct in their contention as to the definition of “Memorandum and Articles”, it only means that the Defendant may fail in its claims for breach of the warranties in the 2017 SPA, but that is for determination in the Arbitration, and does not affect the jurisdiction of the Tribunal. A weak claim does not deprive the tribunal of its jurisdiction where such jurisdiction exists.

(2) The 2021 SPA

58.  By the end of 2020, a listing of the Company was not imminent and it became clear that it would not be possible for the listing to materialize by August 2021. This led to discussions amongst the Company and some of its shareholders, and the 2021 SPA was eventually made between the Company, the 2^nd Plaintiff and the Defendant on 27 January 2021. None of the 3^rd to 10^th Plaintiffs are parties to the 2021 SPA.

59.  Under the 2021 SPA, the Defendant’s Preferred Shares were agreed to be purchased in 2 tranches. First, half of the Defendant’s Preferred Shares were to be repurchased either by the Company on or before 31 January 2021, pursuant to section 1 of the 2021 SPA, or by the 2^nd Plaintiff exercising the “Founder Call Option” pursuant to section 6.10 of the 2021 SPA. The second tranche of the remaining half of the Defendant’s Preferred Shares was to be repurchased either by the Company exercising the call option between completion of the Initial Repurchase and 4 August 2021, pursuant to section 2 of the 2021 SPA; or by the 2^nd Plaintiff exercising the call option pursuant to section 6.10 of the 2021 SPA; and/or by the Defendant’s exercise of the so-called Investor Put Option, thereby requiring the Company to repurchase all of the Defendant’s Preferred Shares at hand, pursuant to section 3 of the 2021 SPA.

60.  The 2021 SPA recited the fact that the Company, the 2^nd Plaintiff and the Defendant were parties to the 2017 SPA, that the Defendant had the right under the 2017 SPA and the Company’s Memorandum and Articles (as amended from time to time)  to exercise the applicable put options, and that the parties wished to effect the repurchase by the Company or the purchase by the 2^nd Plaintiff of all or part of the Preferred Shares held by the Defendant, and to modify the terms of the put options set out in the 2017 SPA and the Company’s Memorandum and Articles as amended from time to time.

61.  The Company’s Call Option and the Call Option Price are set out at clause 2 of the 2021 SPA, whereas the Investor Put Option is set out at clause 3, as follows:

“3. The Investor Put Option

3.1 The Investor hereby agrees that, if the Call Option is not exercised in full by the Company at the end of the Call Option Period, then the Investor shall have the right, by giving a written notice (the “Put Option Notice”), at any time during a 10-Business-Day period starting from August 4, 2021, to require the Company to purchase all (but not less than all)  of the Call Option Shares then held by the Investor that have not been purchased by the Company pursuant to the Call Option (the “Put Option Shares”)  at the price per share (the “Investor Put Option Price”)  determined as follows (such right, the “Investor Put Option”):

Investor Put Option Price = the per share Second Series B Call Option Price and the per share Second Series B+ Call Option Price, as applicable (each as calculated in accordance with Section 2.2 assuming the applicable Call Option Closing Date is August 4, 2021).

3.2 Within 60 calendar days of the receipt by the Company of the Put Option Notice from the Investor, the Company shall pay or cause to be paid to the Investor by way of immediately available funds (without any withholding or deduction)  the entire Investor Put Option Price. If such price is paid in full within such 60-day period, no additional interest shall be payable by the Company on the Investor Put Option Price. If the Company fails to pay the Investor Put Option Price in full within such 60-day period, any unpaid amount thereof shall carry an interest accruing from the last day of such 60-day period to and including the date of actual payment at 0.02155% per day.

3.3  If the Investor elects to exercise the Investor Put Option pursuant to Section 3.1, the Company’s obligation to pay the Option Price as defined in and pursuant to the Shareholders Agreement and, if applicable, the M&AAs shall be fully discharged by the payment by the Company of the Investor Put Option Price to the Investor. If the Investor has not exercised the Investor Put Option within the time limit prescribed in Section 3.1 above, the Investor’s right to require the Company to purchase or redeem any Equity Securities of the Company from the Investor shall be deemed to have been irrevocably waived and shall automatically terminate and expire notwithstanding anything to the contrary in the Shareholders Agreement or the M&AAs.”

62.  Under the 2021 SPA, amendments were agreed to be made to the Company’s Memorandum and Articles, with a final form of the amendments attached to the 2021 SPA as Exhibit A. Those amendments were approved and adopted by special resolution of the Company on 30 January 2021, to be effective on 2 February 2021 (ie the 2021 M&A). The repurchase of the 1^st tranche of shares was given effect to by Article 21A, the terms concerning the Company’s Call Option by Article 21B, and the terms concerning the Investor Put Option were provided for under Articles 22(c)  and (g).

63.  Article 22(g)  states:

“Notwithstanding anything to the contrary contained in these Articles, upon the completion of the Initial Repurchase from any Option Holder in accordance with the relevant transaction document between the Company and such Option Holder, Articles 22(b), 22(d)  and 22(e)  shall no longer apply to such Option Holder. Instead, such Option Holder shall have the right to serve the Option Notice at any time during a 10-Business-Day period starting from August 4, 2021, to require the Company to purchase all (but not less than all)  of the Preferred Shares held by such Option Holder that have not been purchased by the Company pursuant to the Call Option. Within 60 calendar days of the receipt by the Company of such Option Notice, the Company shall pay or cause to be paid (without any withholding or deduction)  the entire Option Price payable to such Option Holder to the fullest extent permitted under the Companies Law. If the Option Price is paid in full within such 60-day period, no additional interest shall be payable by the Company. If the Company fails to pay the Option Price in full within such 60-day period, any unpaid amount thereof shall carry an interest accruing from the last day of such 60-day period to and including the date of actual payment at 0.02155% per day in the case of Series B+ Preferred Shares and Series B Preferred Shares, or 0.01673% per day in the case of Series A Preferred Shares.”

64.  As neither the Company nor the 2^nd Plaintiff initiated repurchase of the 2^nd tranche of the Defendant’s shares in the Company, the Defendant issued its Put Option Notice on 4 August 2021 (“PO Notice”). There can be no dispute that the PO Notice refers expressly to the 2021 SPA, and that it was given in accordance with the provisions of section 3.1 of the 2021 SPA. In full, the PO Notice states as follows:

“We refer to the Share Purchase Agreement by and among ████████████ (the "Company"), ██████ (the "Founder Holdco")  and ██████ (the "Investor"), dated as of January 27, 2021 (the "SPA"), which is attached hereto as Appendix I. All capitalized terms used but not defined herein shall have the meaning ascribed to them in the SPA.

The Investor hereby gives notice in accordance with the provisions of Section 3.1 of the SPA that it is exercising the Investor Put Option and hereby requires the Company to purchase all (but not less than all)  of the Preferred Shares held by the Investor at the Investor Put Option Price in accordance with the terms and conditions set forth in the SPA.”

The NOA

65.  The Company did not repurchase the Defendant’s Preferred Shares despite the PO Notice. It is not disputed that in the original NOA filed in the Arbitration, the Defendant invoked the arbitration agreements contained in both the 2017 SPA and the 2021 SPA. The Defendant also referred to the dispute as arising under both the 2017 SPA and the 2021 SPA, and to the put option under the 5^th Amended M&A as amended by the 2021 SPA and the Defendant’s right under both the 5^th Amended M&A and the 2021 SPA to require the Company to purchase its Preferred Shares.

66.  It is also not disputed that because the HKIAC considered that the arbitration agreements in the 2017 SPA and the 2021 SPA were not compatible, the Defendant amended the NOA on 18 March 2022, and proceeded solely under the 2017 SPA.

67.  In the Amended Notice of Arbitration served by the Defendant in the Arbitration (“Amended NOA”), it referred to the dispute under the 2017 SPA as arising from and/or in connection with the failure to perform the Service Agreement (Section D1 of the Amended NOA), and with the failure to perform the M&A as amended by the 2021 SPA amendments (Section D2 of the Amended NOA)  when referring to and relying on its rights under the put option. At paragraph 41 of the Amended NOA, the Defendant referred to the PO Notice as being issued in accordance with the 2021 M&A, and at paragraph 43 of the Amended NOA, the Defendant claimed that the failure and refusal by the Company and the 2^nd Plaintiff to repurchase the Defendant’s remaining Preferred Shares despite the PO Notice constituted breaches of obligations under the 2017 SPA through the breach of the amended M&A. By way of relief, the Defendant sought declarations of breach of the 2017 SPA, relief including specific performance of the 2017 SPA, damages and indemnity against each of the Plaintiffs (named as Respondents in the Arbitration). The Amended NOA referred to the indemnities given by the Plaintiffs/Respondents in the Arbitration in Article 8.3 of the 2017 SPA, for breach of representations and warranties, and breach and non-performance of obligations contained in the Transaction Documents which include the 2017 SHA, and the 2021 M&A.

The nature of the claims made or the centre of gravity of the dispute

68.  Counsel for the Plaintiffs have highlighted the fact that in determining the nature of the claims made in the Arbitration, the Court should look at the true substance of the claims, and guard against their artificial formulation, as pleadings may be manipulated by a claimant in order to circumvent an arbitration agreement which may actually cover the substance of the dispute. Reference was made to the case of NDK Ltd v HUO Holding Ltd [2022] Bus LR 761 at para 31, where the following passage was cited by Foxton J:

“… in considering whether the subject-matter of litigation falls within the scope of an arbitration agreement, the approach to be adopted is that set out by Andrew Smith in Lombard North Central, para 14:

‘The question of course depends upon the nature of the claim (or claims)  made in the legal proceedings, but not, I think, only on the formulation of it (or them)  in the claim form and any pleadings. That would allow a claimant to circumvent an arbitration agreement by formulating proceedings in terms that, perhaps artificially, avoid reference to a referred matter.’”

69.  The exercise must inevitably start with the review of the pleadings, to examine the claims made, the relief sought, the disputes which have been raised, and the overall context of the dispute. In Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) [2024] 1 All ER 763, Lord Hodge aptly pointed out that ascertaining the substance of the dispute involves looking at the pleadings, “but not being overtly respectful to the formulations in those pleadings which may be aimed at avoiding a reference to arbitration by artificial means”.

70.  The facts and claims set out in the Amended NOA which initiated the Arbitration have been outlined above. The SOC served in the Arbitration pleads the facts of the 2017 SPA and the 2021 SPA, the amendments made to the Company’s M&A in 2021, and Article 22(g)  thereof. It pleads the Defendant’s right to the put option under Article 22(g)  as the “2021 M&A Put Option”. It further pleads that the Defendant validly exercised the 2021 M&A Put Option by the PO Notice, which conveyed to the Company the Defendant’s decision to exercise the 2021 M&A Put Option by requiring the Company to purchase its shares. At paragraph 64, the SOC sets out the claims, as follows:

“██████ (the Defendant)  hereby makes the following claims which arise out of and/or are in connection with the 2017 SPA against the Respondents:

(1)  a claim against all of the Respondents for indemnification pursuant to Section 8.3 of the 2017 SPA from and against all loss and damage suffered by ██████ by reason of the breaches and/or non-performance of Article 22(g)  and/or Article 22(f)  of the 2021 M&A on the part of ██████ and/or ██████;

(2)  a claim against all of the Respondents for failing to use its best efforts to do or cause to be done all things necessary to effect the payment of the Option Price to ██████ payable under the 2021 M&A in breach of Section 9.2 of the 2017 SPA;

(3)  a claim against all of the Respondents for breaches of Section 3.24(iv), 8.5 and 9.2 of the 2017 SPA as to the non-performance of the Control Documents;

(4)  a claim against all of the Respondents for breaches of Section 2.3 of the 2017 SPA as to the failure to present annual budgets;

(5)  a claim against all of the Respondents for breaches of the 2017 SPA as to the breaches of the Information Rights.”

71.  In challenging the Tribunal’s jurisdiction over the disputed Claims 1 to 3 (“Claims”), it was argued for the Plaintiffs that the true substance of the Defendant’s claims, and the contractual basis in support of the Defendant’s alleged entitlement to and rights under the Put Option relied upon, and to the Option Price claimed, is in fact section 3 of the 2021 SPA, as opposed to any provision of the 2017 SPA. Counsel for the Plaintiffs contended that applying the “centre of gravity” test, the 2021 SPA is clearly that centre, and is the contract which has the closest connection with the Claims made by the Defendant. The 2017 SPA contains no provision governing the Defendant’s entitlement to or the calculation of the Option Price that is claimed, or additional interest thereon. It is only by reference to the 2021 SPA that the Option Price payable to the Defendant as a result of its exercise of the Put Option can be calculated and ascertained by the Tribunal.

72.  According to the Plaintiffs, the fact that the Defendant’s claim truly arises out of the 2021 SPA, which has the closest connection with Claims 1, 2 and 3, is clearly demonstrated by the PO Notice, which referred only to the 2021 SPA, and section 3.1 thereof, when the Defendant exercised the Put Option.

73.  On the Plaintiffs’ case, the formulation of the Defendant’s claim in the Amended NOA, by references to the Company’s 2021 M&A, is purely artificial, aimed at avoiding the 2021 SPA Arbitration Agreement, and should not be given credence.

74.  Having given careful consideration to the submissions made by both parties, I have come to the conclusion that the true substance of the Claims made by the Defendant in the Arbitration in relation to the parties’ dispute over the Put Option is the (alleged)  breach of the warranties made in the 2017 SPA and a claim for indemnification from all the Plaintiffs for the damages suffered by the Defendant, when the Company failed to honour its obligation to purchase the Preferred Shares upon the Defendant’s exercise of the Put Option.  On that basis, the 2017 SPA is the centre of gravity of the dispute and the contract which has the closest connection with the claims for breach of warranty and indemnity.

75.  Bearing in mind that the warranties from the 3^rd to 10^th Plaintiffs can only be found in the 2017 SPA (since these Plaintiffs are not even parties to the 2021 SPA), it cannot in truth be said that these claims as formulated against the 3^rd to 10^th Plaintiffs for breach of warranties and indemnification are “artificial” or manipulated, to avoid the 2021 SPA or the 2021 SPA Arbitration Agreement. There is simply no other agreement to avoid.  Having considered the 2021 SPA, it cannot be seen that the provisions and covenants contained therein can on any construction be extended to any of the 3^rd to 10^th Plaintiffs, or any party other than those named, ie the Company, the 2^nd Plaintiff and the Defendant.

76.  For that reason, Mr Lai as Counsel for the Defendant made it his primary case that the “centre of gravity” analysis simply does not apply or become relevant, when there is no other competing agreement.  The dispute with the 3^rd to 10^th Plaintiffs in relation to their alleged breach of the warranties contained in the 2017 SPA can only arise out of, and centre upon the 2017 SPA and the arbitration agreement contained therein. Even if it can be said that the dispute between the Defendant and the Plaintiffs is closely related to the 2021 SPA and the terms of the exercise of the Put Option contained in clause 3 thereof, the claims of indemnity can only arise out of the 2017 SPA, the only agreement which makes provision for the indemnity from all the Plaintiffs.

77.  The references made to C v D1 [2015] EWHC 2126 (Comm)  cannot assist the Plaintiffs in this case.  As Mr Lai pointed out, the decision of the Court in that case, allowing the tribunal to claim jurisdiction over indemnity claims made under a contract different to the agreement under which the tribunal is constituted, was to avoid fragmentation of issues. In that case, the tribunal was constituted under an SPA, which contains the indemnity liabilities of the party. On a “broad commercial and purposive construction”, the language used in the SPA was held to be wide enough to cover both the indemnity claims and the claims made under a separate PSC which provides for the primary liability of the relevant party. The Court concluded in the case that the indemnity claim under the SPA extends to claims under the PSC which gave rise to the primary liability, and as the PSC was before the tribunal for the purpose of determining the indemnity claims, it cannot be argued that the PSC-related claims do not arise out of or in connection with the SPA under which the arbitration was brought, to confer jurisdiction on the tribunal. At paragraph 118 of her judgment, Carr J pointed out:

“So far as the D1 Indemnity Claims specifically are concerned, it would be an extraordinary fragmentation for the Tribunal to have jurisdiction to make a declaration of indemnity in respect of liability on the part of C under the PSC to D1, but not to have jurisdiction to adjudicate on the underlying claims. It would need the clearest wording for such an impractical and uncommercial result to have been intended by the parties and there is no such wording in Clause 11 to suggest such an outcome. It would be a result that would offend the clear line of authorities starting with Fiona Trust and following.” (Emphasis added)

78.  Counsel for the Defendant pointed out that the effect of Carr J’s holding in C v D1 is to avoid fragmentation, and not to create fragmentation (which would result in this case, if the Plaintiffs were correct in their construction), by allowing an arbitral tribunal to have jurisdiction over claims which arose out of a contract different to the one under which it is constituted.

79.  On the facts in C v D1, there was a proper joinder of D3 to the arbitration (it not being a party to the PSC)  and D3 had made a counterclaim in the arbitration, arguably submitting to the jurisdiction of the tribunal. In our case, the 3^rd to 10^th Plaintiffs are not parties to the 2021 SPA, are not parties in Arbitration 2, and did not apply to be joined in Arbitration 2.

80.  Considering the claims made by the Defendant against the Company and the 2^nd Plaintiff, there is room for the Plaintiffs to argue that there is at least overlap in the claims asserted, as to whether these claims arise out of the 2017 SPA and the issue of breach of the Transaction Documents (including the 2021 M&A and the 2021 M&A Put Option), or whether they arise out of the 2021 SPA and the Investor Put Option conferred on the Defendant under clause 3 thereof. For these overlapping issues, the Plaintiffs contend that the 2021 SPA is the true centre of gravity of the parties’ dispute over the Put Option, and that the parties had clearly intended the 2021 SPA to be the agreement which should govern all the aspects of the Put Option and the parties’ respective rights and liabilities relating thereto.

81.  Viewing the 2017 and 2021 SPA in the proper context of the parties’ dealings, the relationship between the Company and the 2^nd Plaintiff on the one part and the Defendant on the other part cannot be regarded to be in either extreme end of the spectrum of cases referred to by the courts in the authorities, as to whether any presumption of intention should apply. To start off, it is certainly not a case of there being one contract between the same parties, when different issues arise under the contract and the dispute is whether these issues should be dealt with by the one tribunal specified in the contract, or by different tribunals (the classic Fiona Trust situation). The clear presumption in such a case is that the parties as rational businessmen could not have intended different issues arising under the same contract or out of their relationship to be dealt with by different tribunals, in the absence of clear language to exclude particular disputes from the agreed process.

82.  The Fiona Trust presumption has been extended to cases where parties enter into a series of related agreements. In Deutsche Bank AG  v Sebastian Holdings (No 2) [2011] 2 All ER 245, which involved multiple contracts, Thomas LJ made various observations in his judgment, including the following:

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

83.  In AAA v DDD [2024] HKCFI 513, the Court referred to Terre Neuvre Sarl v Yewsdale Ltd & Ors [2020] EWHC 772 (Comm), where it was pointed out that the extended Fiona Trust principle was most likely to be useful when the parties to the multiple related contracts were the same, and the contracts “have been concluded at the same time as part of a single package or transaction or (if concluded at different times)  dealt with the same subject-matter”.

84.  The English Court’s judgment in Trust Risk Group SpA v AmTrust Europe Ltd [2017] 1 CLC 456 highlighted the fact that where there are different agreements “entered into for different aspects of an overall relationship”, and those different agreements contain different terms as to jurisdiction, it would be applying “too broad and indiscriminate a brush simply to ignore the parties’ careful selection of palette”. Beatson LJ further pointed out (at paragraph 49 of the judgment)  that:

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

85.  His Lordship referred (at paragraph 53 of the judgment)  to Yien Yieh Commercial Bank Ltd v Kwai Chung Cold Storage Co Ltd [1989] 2 HKLR 639. In that case, Lord Goff stated that “to reject one clause in a contract as inconsistent with another involves a rewriting of the contract which can only be justified in circumstances where the two clauses are in truth irreconcilable”. Accordingly, the Judicial Committee in Yien Yieh resolved the apparent inconsistency in the clauses by finding that they served different functions to cover different events or claims. Beatson LJ explained at paragraph 62 of his judgment as follows:

“The starting point is the words used and the principle that the commercial parties who agreed the wording intended them to mean what they state in setting out the parties’ respective rights and obligations. If there are two possible constructions, the court is entitled to prefer the construction which is more consistent with ‘business common sense’ if that can be ascertained: Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 2 CLC 923; [2011] 1 WLR 2900 at [21] per Lord Clarke.”

86.  In Dicey, Morris and Collins (16^th edition), the learned editors stated (at para 12-110):

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

87.  As the learned judge pointed out in AAA v DDD, the mapping out of disputes intended to be governed by the dispute resolution clause of a given contract may not be straightforward, because the contractual arrangements may be inter-related, and the disputes among the parties may involve intertwined issues which might reasonably be regarded as falling within the ambit of two or more dispute resolution clauses. This illustrates the difficulties in the present case.

88.  It cannot be said that the 2017 and the 2021 SPA are independent and unrelated. They both deal with the relationship established between the Company, the 2^nd Plaintiff and the Defendant under the 2017 SPA, and as a result of the Defendant’s subscription for shares in the Company. However, the 2017 SPA and the 2021 SPA can be said to govern and deal with different aspects which had arisen between the parties concerning their respective rights and liabilities in the Company and the shares issued to and held by the Defendant. As highlighted by Counsel for the Defendant, it cannot be said that the 2017 and 2021 SPA are part of the same “package”, because the 2021 SPA was made 4 years after the conclusion of the 2017 SPA. The Plaintiffs contended that Claim 1 in particular of the Arbitration (for indemnification pursuant to section 8.3 of the 2017 SPA, for breach of the 2021 M&A)  relates to the Defendant’s “exit” from its investment in the Company, which is a matter governed exclusively by the 2021 SPA, which conferred on the Defendant the right to call on the Company and the 2^nd Plaintiff to repurchase its Preferred Shares. Whilst it may be said on the one hand that the so-called exit mechanism still related to the shareholding relationship between the Company and the Defendant created as a result of the Defendant’s acquisition of the Preferred Shares under the 2017 SPA, it was different to the exit mechanism provided for under the 5^th M&A, and it can be said that the 2021 SPA governed a different aspect of the relationship (in light of the events which had transpired since 2017 and the disputes which had arisen), namely its termination, and that the 2021 SPA was made to provide for the terms for the Defendant to recover its investment, at least between the Company, the 2^nd Plaintiff and the Defendant.

89.  Nor can the 2021 SPA be treated simply as an agreement for settlement of any dispute which had arisen or may arise in relation to the 2017 SPA, of the type referred to by Popplewell J in Monde Petroleum SA v WesternZagros Ltd [2015] 1 Lloyd’s Rep 330. In that case, which involved a chain of contracts, His Lordship stated:

“The presumption in favour of one-stop adjudication may have particular potency where there is an agreement which is entered into for the purpose of terminating an earlier agreement between the same parties or settling disputes which have arisen under such an agreement. Where parties to a contractual dispute enter into a settlement agreement, the disputes which it can be envisaged may subsequently arise will often give rise to issues which relate both to the settlement agreement itself and to the previous contract which gave rise to the dispute. It is not uncommon for one party to wish to impeach the settlement agreement and to advance a claim based on his rights under the previous contract. In such circumstances rational businessmen would intend that all aspects of such a dispute should be resolved in a single forum. Where the settlement/termination agreement contains a dispute resolution provision which is different from, and incompatible with, a dispute resolution clause in the earlier agreement, the parties are likely to have intended that it is the settlement/termination agreement clause which is to govern all aspects of outstanding disputes, and to supersede the clause in the earlier agreement, for a number of reasons. Firstly it comes second in time and has been agreed by the parties in the light of the specific circumstances which have given rise to the disputes which are being settled and/or the circumstances leading to the termination of the earlier agreement. Secondly it is the operative clause governing issues concerning the validity or effect of the termination/settlement agreement and therefore the only clause capable of applying to disputes which arise out of or relate to the termination/settlement agreement. Thirdly, in considering any dispute about the scope or efficacy of a settlement or termination agreement, the tribunal is likely to have to consider the background, of which an important element will often be the circumstances in which the dispute arose and the rights of the parties under the earlier contract. There will therefore often arise a risk of inconsistent findings if the tribunal addressing the validity or efficacy of the termination/settlement jurisdiction is not seised of disputes arising out of the earlier contract and the latter fall to be determined by a different tribunal. ”

90.  In the present case, the 2021 SPA does not state that it governs all aspects of outstanding disputes arising under the 2017 SPA, or that it supersedes any provision of the earlier 2017 SPA. It does not even terminate the 2017 SPA in part, or in its entirety. There is a limited release of claims set out in clause 5 of the 2021 SPA, but it remains to be debated before the Tribunal whether it applies to all of the 3^rd to 10^th Plaintiffs named in these proceedings.

91.  The 2021 M&A which was amended and adopted pursuant to the 2021 SPA inserted an Article 21A in relation to the Initial Repurchase of the Defendant’s Preferred Shares, and an Article 21B to provide for the Call Option, but it did not delete Article 22(a), Article 22(f)  or Article 22(c)  in its entirety (only Article 22(c)(i)  to (iii)).

92.  As emphasized throughout, the 2021 SPA does not involve all the parties to the 2017 SPA.

93.  In these circumstances, it cannot be said that by the execution of the 2021 SPA, the parties must have intended that the 2017 SPA was to be replaced and that it is the 2021 SPA which, as the settlement/termination agreement, is to govern all aspects of disputes arising under the 2017 SPA.

94.  The HKIAC considered the arbitration agreements in the 2017 and 2021 SPA to be different, in its provision for the manner of dispute resolution. The parties’ choice of the different manner of resolution of disputes arising under the 2017 and 2021 SPA should be given effect, and the former involves the 3^rd to 10^th Plaintiffs as parties in the Arbitration and provides for their nomination of a member to the tribunal to be constituted.

95.  Counsel for the Plaintiffs argued that the circumstances of this case call for the identification of the centre of gravity and the assessment of which one of the two SPA has the closest connection with the Claims made. It was contended that the Tribunal failed to do this, and had erred in simply finding that the Claims can fall within the scope of the arbitration clause in the 2017 SPA, when it should have found (applying the centre of gravity test)  that the 2021 SPA is at the centre of the true dispute.

96.  Although the Plaintiffs’ contention is that the entire dispute between the Defendant as Claimant and the Company and 2^nd Plaintiff as Respondents in the Arbitration relates to the Defendant’s exercise of its rights under the Put Option, it can fairly be said that the claims and issues relating to the Put Option may well fall within the scope of both the arbitration agreements contained in the 2017 SPA (for breach of the warranties on the due performance of the Transaction Documents including the 2021 M&A), and in the 2021 SPA. The claims and issues raised concern and depend on the construction of the relevant provisions of the 2017 SPA, the 4^th Amended M&A, the 2021 M&A, and the 2021 SPA. However, bearing in mind the fact that the Claims made in the Arbitration include, focus and turn on the claims against all the Plaintiffs for breach of their warranties contained in the 2017 SPA and their joint and several liability for indemnifying the Defendant under clause 8.3 of the 2017 SPA, the Claims against the Plaintiffs including the Company and 2^nd Plaintiff are in fact more closely related to the 2017 SPA.

97.  Adopting the rationale in C v D1, I agree that it would be unnecessary and totally undesirable to fragment the issues of the Company and 2^nd Plaintiff’s liability under the indemnities, from the issue of their primary liability for alleged breach of the 2021 M&A/Transaction Documents. As the 3^rd to 10^th Plaintiffs are not parties to the 2021 SPA Arbitration Agreement, any finding made by the tribunal under the 2021 SPA Arbitration Agreement on claims falling within the scope of that agreement would not be binding on any of the 3^rd to 10^th Plaintiffs. This would create not only the risk of inconsistent findings but unnecessary waste of time and costs between the Company, the 2^nd Plaintiff and the Defendant, when the Tribunal can decide all issues affecting all the Plaintiffs and the Defendant in the Arbitration.

98.  At the time of the conclusion of the 2017 SPA, the parties clearly intended to include the 3^rd to 10^th Plaintiffs as Warrantors in the 2017 SPA, to give the protection to the Defendant and other investors of having the warranties and indemnities backed by entities which had assets.  By the provisions of the arbitration clause contained in the 2017 SPA, the parties also clearly expressed the intention that the Warrantors should have the right to nominate a member to the tribunal to be constituted in the Arbitration provided for the resolution of disputes arising out of or relating to the 2017 SPA.  That intention should be respected and given effect.  As rational businessmen, the parties to the 2017 SPA could not have intended that the issues relating to the Warrantors’ liability for indemnification should be decided by one tribunal of their choice, and the issues relating to the Defendant’s exercise of the Put Option and the liability of the Company and the 2^nd Plaintiff in respect of such exercise (which is subject to the indemnity given by the 3^rd to 10^th Plaintiffs)  should be decided by another tribunal under the 2021 SPA Arbitration Agreement, to which the Warrantors were not parties and had no right to take part in the arbitration commenced under the 2021 SPA. As Counsel for the Defendant pointed out, nor could the parties have intended that any part of Claim 1 as relating to the Company and the 2^nd Plaintiff, for indemnity under the 2017 SPA, should be carved out from the Tribunal’s determination in the Arbitration under the 2017 SPA, and to have that part determined by the tribunal constituted under the 2021 SPA Arbitration Agreement. It would not accord with business common sense to do so.

99.  All this leads to the conclusion that whether as a matter of construction of the relevant arbitration clause in the 2017 SPA, or on the application of the centre of gravity test as the Plaintiffs contend, the Claims fall within the 2017 SPA, which is the contract giving rise to the Claims and is the one which is most closely related to the dispute. 

100.  In coming to such conclusion, I have taken into consideration the finding made in U v A HCCT 34/2016, 23 February 2017, that in deciding matters which are within, or beyond, the scope of the submission to a tribunal for arbitration, “only decisions which are clearly unrelated to, or not reasonably required for the determination of the subject dispute or issues submitted to arbitration” can rightly be labeled as “decisions on matters beyond the scope of the submission”. With this in mind, it is clear that the Tribunal constituted under the 2017 SPA has jurisdiction, when deciding on disputes arising in connection with the breach of the 2017 SPA, to consider such issues as the calculation of the Option Price by reference to the 2021 SPA.

Conclusion

101.  In my judgment, the Tribunal has jurisdiction over Claims 1, 2 and 3 which arise out of the alleged breach of the failure to perform Articles 22(g)  and (f)  of the 2021 M&A, for indemnification under section 8.3 of the 2017 SPA, and alleged breach of sections 3.24(iv), 8.5 and 9.2 of the 2017 SPA. I do not consider that these claims are artificially formulated to bring the claim outside the scope of the 2021 SPA Arbitration Agreement. 

102.  Since the Claims fall within the scope of the arbitration agreement contained in the 2017 SPA, it follows that the commencement of the Arbitration is not a breach of the 2021 SPA Arbitration Agreement. In relation to the Plaintiffs’ claim that they should have been entitled to an anti-arbitration injunction, to restrain the Defendant from pursuing the Arbitration on the basis that the Tribunal has no jurisdiction, it suffices to say that such relief is exceptional and is certainly not appropriate in the light of my findings in this case.

Disposition

103.  The Plaintiffs’ OS to challenge the Tribunal’s jurisdiction under Article 16(3)  of the Model Law is dismissed, with costs on indemnity basis, and certificate for two Counsel.