AT & ANOTHER v. QC & ANOTHER

HCCT 83/2025

[2026] HKCFI 1437

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 83 OF 2025

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D E C I S I O N

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Background

1.  This is the application made by the Plaintiffs to set aside a partial award dated 24 September 2024 and the final award on costs dated 26 March 2025 (together referred to as “Awards”), on grounds that they were unable to present their case in the Arbitration and that the Awards are in conflict with public policy.

2.  As summarized by their Counsel, the basis of the Plaintiffs’ case is that in making the Awards, the Tribunal had departed from the agreed position adopted by the parties in the Arbitration without giving any notice and opportunity to the Plaintiffs to respond to the matter, and that the tribunal had resolved the dispute on a basis different to what had been agreed.

3.  The dispute submitted to arbitration related to a share purchase agreement made between the Plaintiffs and the Defendants dated 12 December 2016 (“SPA”), which was supplemented by a 1^st Supplemental SPA and a 2^nd Supplemental SPA. The agreements related to the purchase of shares in a company, XXXXX (“Company”), (the “HR Shares”), at a stated price of US $110 million (“USD Sale Price”). The Plaintiffs described the transaction simply as one for the 1^st Defendant’s purchase of shares from the 1^st Plaintiff. The Defendants claim that the Agreements comprised an investment transaction whereby they agreed to provide financing of around US $110 million to the Plaintiffs, through the purchase of the HR Shares.

4.  The Plaintiffs highlighted that under the SPA, completion of the sale was conditional upon the 1^st Defendant making payment of the USD Sale Price at the date of closing. Clause 7.10 of the SPA provided that the 2^nd Defendant had to obtain from the relevant Mainland authorities the necessary approval and permit for the overseas direct investment contemplated (“ODI Approval”) and for payment of the USD Sale Price.

5.  The 1^st Supplemental Agreement was also made on 12 December 2016. It provided for terms as to the 1^st Defendant’s withdrawal or exit from the transaction (“退出”) and the manner of the recuperation of its investment (“收回投資方式”) under the SPA. Counsel for the Plaintiffs referred to the “redemption obligations” of the Plaintiffs under clauses 2, 3 and 4 of the 1^st Supplemental Agreement, which also provided for the manner and calculation of the amounts payable to the Defendants on such redemption. The 1^st Supplemental Agreement provides, inter alia, under clause 4.1 that if the Company fails to get listed by the specified date (of 11 December 2019), the Plaintiffs had to repurchase the HR Shares upon the Defendants’ service of notice to exercise their put option. The 1^st Supplemental Agreement further set out the method of calculating the proceeds/guaranteed return of the Defendants’ invested sums which are payable to the Defendants (“Clause 4.1 Payment”).

6.  It is common ground that the parties had understood at the material time that due to the tightened control of the ODI policies on the Mainland, it might not be possible for the Defendants to obtain the relevant ODI approval before the deadline of 31 January 2017 stipulated under the SPA. Accordingly, the parties entered into the 2^nd Supplemental Agreement on 28 December 2016.

7.  Under the 2^nd Supplemental Agreement, the Defendants agreed to pay in RMB a “Domestic Payment” to the Plaintiffs, equivalent to the USD Sale Price. The payment was to be made upon the signing of the 2^nd Supplemental Agreement, and upon such payment, the Plaintiffs agreed to transfer to the Defendants the HR Shares which, under the SPA, were to be transferred to the Defendants only upon completion. The Defendants agreed that they would use their best endeavors to obtain ODI Approval, and the 2^nd Supplemental Agreement provides that upon ODI Approval being obtained, the Plaintiffs would return the Domestic Payment to the Defendants, and the Defendants would then pay the USD Sale Price to effect completion.

8.  The Defendants have highlighted the fact that under the 2^nd Supplemental Agreement (clause 2.06(a) thereof), if completion cannot take place by the extended deadline of 31 January 2020, the Defendants would still be able to exit from the transaction, and the Plaintiffs would need to pay what was referred to as the “Return Sum” (退還金額) to the Defendants. This was defined in clause 2.06(a) to mean the invested sum of the Domestic Payment plus the 10% per annum agreed minimum return provided for in the SPA. The Return Sum is numerically identical to the Clause 4.01 Payment (ie the amount which the Plaintiffs had to pay to the Defendants under clause 4.01 of the 1^st Supplemental Agreement). The Plaintiffs further agreed under the 2^nd Supplemental Agreement to pay to the Defendants 6.5% of the Domestic Payment per annum, as “Interim Investment Return” (收益保證金).

9.  There is no dispute, that pursuant to the 2^nd Supplemental Agreement, the Defendants made the Domestic Payment to the Plaintiffs by two tranches, in December 2016 and January 2017, and the HR Shares were transferred by the Plaintiffs to the Defendants.

10.  It is further not in dispute that the Defendants were not able to obtain ODI Approval by the extended deadline of 31 January 2020. The USD Sale Price was not paid, and completion as envisaged under the SPA did not take place.

11.  The IPO was aborted by the Company in June 2019. It is indisputable that there was no IPO by the deadline for listing under the 1^st Supplemental Agreement.

12.  The Defendants sought the exercise of the put option, to exit the investment and to obtain the investment returns which had been agreed. The Plaintiffs disputed their entitlement, and not being able to resolve the dispute, the Defendants commenced the Arbitration in March 2021. The hearing took place in August 2023, and the Partial Award was issued in September 2024.

The Arbitration

13.  The Plaintiffs emphasized the fact that the Statement of Agreed Facts for the Arbitration record the undisputed fact that the Defendants did not obtain ODI Approval, did not make payment to the Plaintiffs of the USD Sale Price under the SPA, and that there was no completion under the SPA. This, they claim, was the joint position of the parties in the Arbitration as submitted to the Tribunal. The Plaintiffs claim that they had relied on this position jointly taken by the parties, which had been accepted by the Defendants. On behalf of the Plaintiffs, Counsel pointed out that the Defendants admitted in the Arbitration that the Domestic Payment, ie the RMB sum, was not the USD Sale Price.

14.  However, the Plaintiffs’ case in this application for setting aside is that the Defendants resiled from the agreed position, by claiming in their closing submissions served in the Arbitration that the Domestic Payment was actually the share price for the HR Shares, and/or was the investment sum made by the Defendants. The Plaintiffs did contend in their reply submission in the Arbitration that it was unfair and illogical for the Defendants to depart from the position adopted in the Agreed Facts, and claimed that the Defendants were playing with words by using different terms (such as “investment sum” and “share price”) to circumvent what had been agreed and as recorded in the Statement of Agreed Facts. The Plaintiffs further contended in the Arbitration that it was misleading for the Defendants to argue that the parties could ignore the contractual and relevant requirement for ODI Approval, and to claim that the Domestic Payment fulfilled the requirements of the SPA and the 1^st Supplemental Agreement, without completion as contemplated under the SPA, to trigger the Plaintiffs’ redemption obligation. The Defendants’ change of stance and departure from the agreed facts is said to have caused serious unfairness and prejudice to the Plaintiffs.

15.  The Plaintiffs’ complaint is that the Tribunal likewise accepted the Defendants’ departure from the agreed position, without any notice or warning to the Plaintiffs, and that the Awards made against the Plaintiffs were based on this departure from the agreed facts and the parties’ joint position, without having given the Plaintiffs the opportunity to address the Tribunal on the Defendants’ new stance and the legal consequence thereof. According to the Plaintiffs and their PRC law expert, the findings made by the Tribunal amounted to ignoring the mandatory requirements imposed upon the parties under the PRC ODI rules and regulations, which renders enforcement and performance of the Awards (and the “redemption” permitted under the Award) impossible on the Mainland as being contrary to PRC law. According to the Plaintiffs’ expert, the consequences of the Tribunal treating the Domestic Payment of the RMB Sum as the same as or equivalent to the USD Sale Price was to permit an illegal foreign exchange in disguise.

16.  The Plaintiffs contend that the injustice and unfairness to the Plaintiffs was amplified by the fact that prior to the hearing of the Arbitration in August 2023, the Plaintiffs had in fact applied to the Tribunal on 9 November 2022 for directions and leave to adduce expert evidence on PRC law, as to whether it is legal under PRC law and the PRC regulations to equate the Domestic Payment with the USD Sale Price (“PRC Law Compliance Issue”). The Defendants had opposed that application, on the basis that it was not their case that the Domestic Payment or the RMB paid was the USD Sale Price, and also not their case that the transaction under the SPA had been closed or completed.

17.  The Tribunal accepted the Defendants’ explanation of their stance in the Arbitration, and rejected the Plaintiffs’ application to adduce expert evidence, because the Tribunal considered that the case did not involve any conversion between USD and RMB, or any cross-border payment.

18.  The Plaintiffs claim that if they had been permitted to adduce their expert evidence on the PRC Law Compliance Issue, their case would have been made clear in the Arbitration, and the Tribunal would not have ruled as it did in the Awards, on the basis of the Defendants’ claim in Closing that by paying the RMB Sum, the Defendants had paid the “investment sum” and the redemption obligations had been triggered. The Plaintiffs claim that in substance, the Defendants were equating the payment of the RMB Sum with the payment of the USD Sale Price, and that the Tribunal had accepted the Defendants’ case. The Plaintiffs had been taken by surprise by the Defendants’ change in stance, and been deprived of a fair opportunity to address the issue of the PRC Law Compliance Issue, and the reasoning of the Defendants and the Tribunal.

19.  On the Plaintiffs’ case, if the Tribunal had allowed the Plaintiffs to adduce the expert evidence it had asked for, the Tribunal might or could have reached a different conclusion on the Defendants’ claim in respect of the Plaintiffs’ redemption obligations.

Applicable legal principles

20.  The parties are not in dispute as to the legal principles applicable to an application to set aside an arbitral award on the basis of public policy, and the alleged inability to present case. These principles are as summarized in KB v S [2016] 2 HKC 325, Zemalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14, and COG v ES [2023] HKCFI 294. I would only emphasize that the burden is on the Plaintiffs, as the applicant for setting aside, to establish the egregious procedural irregularity said to have undermined due process and the structural integrity of the arbitral process.

21.  In LY v HW [2022] HKCFI 2267, this Court also highlighted various principles set out in the authorities, on the subject of minimal curial intervention. It is not the function of the court to comb an award to look for errors, find fault in the process or to assign blame. An award should be read generously, expecting as is usually the case that there will be no substantial fault that can be found with it (Zemalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14), and only to remedy meaningful breaches of rules of natural justice which actually cause prejudice. No inference will be made that the arbitrator had missed or failed to consider an important pleaded issue unless such inference is clear and virtually inescapable. The Singapore Court of Appeal has explained that as parties do not have a right to a “correct” decision from an arbitrator, but only a right to a decision which is within the ambit of their consent to have the dispute arbitrated and which follows a fair process, poor reasoning on the part of a tribunal, or a misunderstanding of the arguments put forward by a party, are not grounds to set aside an award. I fully agree. The Hong Kong cases follow the same course and principles.

Whether the grounds to set aside the Awards have been established

22.  Having carefully reviewed the submissions made by Mr Lin and Mr Lau for the Plaintiffs, and the submissions made by Ms Lok SC and Mr Lee for the Defendants, I consider that the application to set aside must be dismissed. My reasons are set out below.

The inability to present case ground

23.  I accept the submissions made for the Defendants, that the arguments made by the Plaintiffs are premised on their misreading of the Defendants’ case and of the Defendants’ arguments made to the Tribunal. I also agree, that the Awards are not made by the Tribunal on the basis of any disregard of the joint position agreed and accepted by the parties, as the Plaintiffs now contend.

24.  On the Defendants’ case, they never departed from the Agreed Facts, which correctly recorded the true position, including the position of the Defendants, that completion did not take place under the SPA. Counsel for the Defendants highlighted the fact that as can be seen from the Partial Award itself, the Tribunal had also proceeded on the basis that there was no completion under the SPA. At paragraph 112 of the Partial Award, the Tribunal clearly recorded the fact that the Defendants’ exercise of the option requiring repurchase of the shares was at the stage “before completion”, that the deadline for listing had not yet expired then, but that there were no developments in obtaining ODI Approval, and completion was still remote in the distance (“遙遙無期”). The Tribunal stated its acceptance that the parties had, since September 2019, no dispute as to the right and obligation of repurchase under the Agreements, and that the Defendants still had the right under clause 4.01 of the 1^st Supplemental Agreement to seek repurchase “in the absence of completion”.

25.  Reading the Partial Award, it is also clear, as submitted by Counsel for the Defendants, that the Awards were made on the basis that to succeed on their claims, the Defendants did not have to equate the Domestic Payment with the USD Sale Price.

26.  The Defendants had referred to and relied upon 4 bases (the “4 Routes” referred to in the Partial Award) to maintain their claims against the Plaintiffs in the Arbitration. As summarized at Part IX of the Partial Award, these claims were based on:

(1)  the construction of the repurchase obligation imposed on the Plaintiffs by clauses 4.01 and 4.02 of the 1^st Supplemental Agreement (“Clause 4 Construction Ground”);

(2)  the principle of estoppel (“Estoppel Ground”);

(3)  the construction of clauses 2.03 and 2.04 of the 2^nd Supplemental Agreement (“Clause 2 Construction Ground”); and

(4)  implied terms under clause 2.06 (a) of the 2^nd Supplemental Agreement (“Implied Term Ground”).

27.  The Tribunal found in favor of the Defendants on all the 4 grounds.

28.  On behalf of the Defendants, Counsel pointed out that the pleadings in the Arbitration clearly reflected their claim against the Plaintiffs. Their claim, as pleaded in paragraph 8 of the Amended Statement of Claim served in the Arbitration, is that the commercial purpose of the SPA and the Supplemental Agreements was for the Defendants to provide financing of US $110 million to the Plaintiffs. Paragraph 18 of the Amended Statement of Claim served in the Arbitration clearly sets out the Defendants’ case, that because ODI approval had not been obtained, the USD Sale Price was not paid under clause 2.03 of the SPA, and completion did not take place. The pleading states that nevertheless, the Defendants had paid the investment amount under the Agreements, by making the Domestic Payment.

29.  Paragraph 14A of the Amended Statement of Claim (dated 6 June 2022) pleads the Defendant’s case, that the Domestic Payment was the same in commercial nature as the USD Sale Price, and was to provide the agreed financing to the Plaintiffs. In this regard, it cannot be said that the Defendants had (as the Plaintiffs now claim) made a surprising turn, by arguing in Closing that the USD Sale Price should be equated with the Domestic Payment in RMB. The meaning and effect of the 1^st and 2^nd Supplemental Agreements as contended by the Defendants was pleaded at paragraph 14A of the Amended Statement of Claim.

30.  The Defendants’ case in the Arbitration was that completion was not the prerequisite for the Defendants to exercise the option under clauses 4.01 and 4.02 of the 1^st Supplemental Agreement, and that by making the Domestic Payment, the Defendants discharged their obligation to make the invested sum under the SPA. They claimed that the Plaintiffs had obtained the practical commercial benefit of having received the sum of RMB 758,000,000 for years, and that the Defendants were entitled to the returns as provided for under the Agreements. This was the Clause 4 Construction Ground.

31.  I accept the submissions made for the Defendants, that the Tribunal did not conflate the Domestic Payment and the USD Sale Price. This is clear from the reading of the Partial Award.

The Partial Award and the findings made

32.  At paragraph 82 of the Partial Award, the Tribunal first pointed out that the SPA, the 1^st Supplemental Agreement and the 2^nd Supplemental Agreement was one and the same transaction, and that they should be read and construed together because of their close connection.

33.  The Tribunal’s findings, so far as relevant to the setting aside application, are as follows.

(1)  The provisions of the 1^st Supplemental Agreement continued to apply, notwithstanding that completion under the SPA did not take place.

(2)  The Plaintiffs obtained the commercial benefit bargained for when they received the investment amount of the Domestic Payment. To that extent, against the background of the 3 Agreements, the Domestic Payment was in substance or by nature the same as the price payable on completion of the share transfer.

(3)  The Domestic Payment was in substance payment of the investment amount, and not just a “guarantee or security deposit” as the Plaintiffs argued.

(4)  The Tribunal rejected the Plaintiffs’ claim that by virtue of the 2^nd Supplemental Agreement, the transaction between the parties had been converted into an agreement for the sale and purchase of shares to be completed by payment of the price in US dollars. The Tribunal found, on their construction and in the commercial context in which the SPA, 1^st Supplemental Agreement and the 2^nd Supplemental Agreement were made, that read together, completion and payment in USD after ODI Approval was not a condition precedent for the Plaintiffs’ repurchase obligation to arise under clause 4.01 of the 1^st Supplemental Agreement.

34.  It was on the Tribunal’s construction of clause 4.01 and 4.02 of the 1^st Supplemental Agreement as summarized above, that it found in favor of the Defendants on the first of the 4 Grounds. Whether the Tribunal is right, or wrong, in finding that the Mainland regulations relied upon by the Plaintiffs were not applicable to the Domestic Payment, and that there was no cross-border payment involved, and whether the Tribunal should have found that the Domestic Payment was an illegal foreign exchange in disguise, all go to the merits and correctness of the Tribunal’s decision, and are not for review by this Court.

35.  Having considered the pleadings and the findings made in the Award, I do not accept that the Plaintiffs had been taken by surprise either by the Defendants’ submissions in Closing, or by the findings made by the Tribunal on the purpose of the Agreements, the nature of the Domestic Payment, the USD Sale Price, and the parties’ respective rights and obligations under clause 4 of the 1^st Supplemental Agreement. The Defendants had adequately pleaded their case, and the Plaintiffs did have the fair and reasonable opportunity to present their case and make their arguments on the Defendants’ pleaded case. It is only that they were unable to meet the Defendants’ arguments and failed to persuade the Tribunal to accept their case.

36.  As for the Plaintiffs’ complaint with regard to the Tribunal’s dismissal of their earlier application to adduce expert evidence, the Tribunal explained in its ruling that on the pleaded case, the Mainland regulations were neither material nor necessary to the issues for determination in the Arbitration. This is a case management decision, which the Tribunal was in the best position to decide in the exercise of its discretion (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 2) [2012] 4 HKLRD 1 (CA)). The court will not lightly interfere with such case management decisions unless they can be shown to be a serious denial of justice (COG v ES [2023] HKCFI 294). I do not agree that there has been a serious denial of justice in this case or that the Plaintiffs have suffered serious prejudice, in view of the findings made in the Partial Award as to the parties’ rights and obligations under the Agreements, which the Tribunal concluded were not affected in any way by the Mainland regulations.

No material difference/prejudice

37.  Even if I should be wrong in finding that the Plaintiffs had been able to present their case on the PRC Law Compliance Issue and on the breach of the Mainland regulations, I also accept the submissions made for the Defendants, that the alleged irregularity did not affect the outcome of the Awards.

38.  It is clear from the Partial Award that even if the Tribunal was in error in any way by refusing leave to the Plaintiffs to adduce the PRC law expert evidence on the meaning and effect of the Mainland regulations and the impact on the transactions under the Agreements, and even if the Plaintiffs had been deprived of the reasonable opportunity to present their case on the effect of the regulations on the transaction and payments ordered, the result of the Arbitration would have been the same. In the Partial Award, the Tribunal found that the Defendants were entitled to the relief they sought under the Agreements, on the Estoppel Ground, the Clause 2 Construction Ground, and the Implied Term Ground as well. These grounds, and in particular the latter two grounds, have no relation to whether or not there was compliance with or contravention of any relevant Mainland regulation on foreign exchange.

39.  In gist, on the Estoppel Ground, the Tribunal found on the facts that the Plaintiffs had represented and acknowledged that they would honour their obligation to repurchase the HR Shares, and were estopped from denying their obligation under clauses 4.01 and 4.02 of the 1^st Supplemental Agreement, and from arguing that the redemption obligation could not be triggered without closing under the SPA.

40.  Significantly, the Tribunal also found that under clause 2.04 of the 2^nd Supplemental Agreement, the long stop date of the SPA for completion had expired, and the Defendants had the right thereunder to terminate the SPA, and upon termination to be paid the Return Sum of their investment (under the Clause 2 Construction Ground). Further, it was the Tribunal’s finding that there was an implied term under the 2^nd Supplemental Agreement that the Defendants would have the right to terminate the SPA and to be repaid the Return Sum, when the Company failed to be listed by the deadline of 11 December 2019 (under the Implied Term Ground). Whether there was completion, whether or not there was cross-border payment or transfer, and whether or not there was a breach of the relevant Mainland regulations, did not affect the Tribunal’s findings on these grounds. Based on the Tribunal’s findings, the money ordered to be repaid to the Defendants simply represented what had been paid by the Defendants, when the consideration for the payment had failed. Again, the question before the Court is not whether the Tribunal’s findings of fact and law are correct in these respects. As Counsel for the Defendants also pointed out, even the Plaintiffs’ expert did not address the issue of why ODI Approval was required, when the payment under the Clause 2 Construction Ground and the Implied Term Ground did not involve any US dollars payment or the remittance of any money offshore. Nor can I see how repayment of the money paid by the Defendants upon their lawful termination of the Agreements can be said to be an illegal foreign exchange in disguise (which is the premise of the PRC expert’s opinion).

41.  Since the Awards would have been the same, it cannot be shown that the Plaintiffs have suffered any prejudice as a result of any irregularity they now complain of. In such event, even if they had any ground to set aside by virtue of their inability to present their case, this Court will still exercise its discretion and not set aside the Awards. The existence of such discretion is beyond dispute (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, 136A-B).

Public Policy Ground

42.  There is no question that “public policy” in Article 34(2)(b)(ii) of the Model Law, applied to Hong Kong, means the public policy of Hong Kong, and not the public policy of the Mainland, or anywhere else. As the Hong Kong Court has emphasized, public policy is to be narrowly construed.

43.  The gravaman of the Plaintiffs’ complaint on the public policy ground is that the Tribunal’s interpretation of the SPA, 1^st Supplemental Agreement and the 2^nd Supplemental Agreement, and its order for the Plaintiffs’ performance of the redemption obligations amount to enforcement or facilitation of a contract which would be illegal under the laws of Mainland China where the Agreements and Awards are required to be performed.

44.  The Tribunal found that there was no contravention of any Mainland regulation. This Court cannot review the correctness of that decision (Betamax Ltd v State Trading Corp (Mauritius) [2021] UKPC 14). On the analysis set out in the Awards, the money ordered to be repaid to the Plaintiffs had nothing to do with completion of the sale and purchase of the shares, and cannot be seen to have been equated with payment of the USD Sale Price. There is nothing contrary to public policy to enforce an agreement which is not found to be illegal and not requiring any illegal act to be performed.

45.  Any control on cross-border payments or remittance of foreign currency under PRC law does not apply to Hong Kong. There is no basis to find that enforcement of the Awards would be shocking to the conscience of the Hong Kong Court or offending the most basic notions of morality and justice here, to be contrary to the public policy of Hong Kong. Even if, for any reason, the Awards cannot be enforced on the Mainland, that does not by itself render the Awards invalid, or unenforceable, under Hong Kong law. On the findings made by the Tribunal, I do not accept that the Hong Kong Court would be lending its hand to facilitate any illegal transaction, as the Plaintiffs allege.

Disposition

46.  For all the above reasons, the application to set aside the awards is dismissed. The order nisi on costs is that the Plaintiffs are to pay to the Defendants the costs of and incidental to the Originating Summons (including costs reserved), on indemnity basis, with Certificate for 2 Counsel.