Arbitration proceedings
In A v B [2022] HKCFI 607, the substantive dispute in the arbitration arose from a licence agreement executed by Company A and a joint venture (JV) in 2014 for use in the mainland of software owned by Company A relating to the provision of location-based services for social media applications. The licence agreement was governed by Dutch law and contained an arbitration clause providing for disputes to be submitted to the Netherlands Arbitration Institute.
Company A was a company within a group of Dutch technology companies and owned by a company called ANV. At the time of signing the licence agreement, the JV was owned by ANV (40 percent) and Company B (60 percent). Company B was incorporated in Hong Kong and part of a group of mainland technology companies (B Group). The holding company of B Group, B Corp, was listed on NASDAQ in the United States.
ANV and company B also signed the licence agreement under a statement that they respectively "Acknowledged and Agreed". One main issue in dispute in the arbitration was whether company B was in fact a party to the licence agreement.
In January 2016, A and ANV commenced arbitration against the JV and Company B before the Netherlands Arbitration Institute, claiming that the JV and Company B were in breach of the licence agreement by offering and incorporating the intellectual property rights of A and ANV into products of the B Group for free.
Company B contested the tribunal's jurisdiction claiming that it was not a signatory to the licence agreement. The tribunal handed down it's jurisdiction award (the Jurisdiction Award) in November 2017, finding that Company B was a party to the licence agreement and was thus bound by the arbitration agreement.
A further award was made in December 2019, holding that Company B was in breach of the licence agreement and liable to pay damages to Company A of more than US$115 million (excluding interest and costs) (the Award).
Post-award developments
Following the making of the Award, Company B applied in March 2020 to the Amsterdam Court of Appeal to set aside both the Award and the Jurisdiction Award. A year or so later, Company A applied to the Hong Kong court for leave to enforce the Award. The order was granted on 14 April 2021 (the Enforcement Order).
On 29 April 2021, Company B applied to set aside the Enforcement Order on the ground that the tribunal had no jurisdiction over Company B, or alternatively that that the enforcement proceedings in Hong Kong should be adjourned pending the outcome of the Dutch setting aside proceedings.
Company A did not oppose the adjournment but maintained that security for the adjournment should be provided by Company B because of the prejudice that would be caused to Company A by delaying the enforcement. Company A pointed out that B Group had been delisted from NASDAQ which gave rise to a risk that Company B would be restructured and its assets would be taken out of Hong Kong.
Whether Company B was a party to the licence agreement
Before the court, Counsel for Company B argued that the tribunal, in finding that the arbitration agreement was binding on Company B, had ignored the clear language of the licence agreement and the relevant context including the following matters:
- The preamble of the licence agreement referred to Company A and the JV making and entering into the agreement, which was clearly expressed and intended to be a bipartite agreement.
- Most of the provisions in the licence agreement expressly referred to two parties only with references to "both parties", "either party" or "the other party".
- The only reference to company B and ANV in the body of the licence agreement was a clause providing for a loan agreement to be executed between company B and ANV as a condition precedent (the loan agreement).
- The loan agreement identified the licence agreement as being between Company A and the JV only.
Company B also contended that by signing under "Agreed and Acknowledged", Company B had signed only as shareholder of the JV to confirm its agreement but did not sign as a party to or agreed to assume any liability under the licence agreement.
Counsel for Company B also emphasised that as a matter of Dutch law, Company B's signature did not amount to consent to be bound by the arbitration agreement. This was supported by expert evidence on Dutch law that a signature does not necessarily amount to consent, and it is necessary to consider the rationale for the signature. The court considered the position under Dutch law to be largely similar to the common law approach.
Test for adjourning enforcement proceedings
The court applied legal principles for determining an application for adjourning and security as a condition, as set out in in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd's Rep 208, as applied in Dana Shipping and Trading SA v Sino Channel Asia Ltd [2017] 1 HKC 281, as follows (although not cited in the judgment itself):
- If the arbitral award is manifestly invalid, there should be an adjournment and no order for security.
- If the award is manifestly valid, there should either be an order for immediate enforcement, or an order for adjournment and substantial security as a condition.
- For cases falling between the two extremes, where there are various degrees of plausibility in the argument for invalidity, the judge must be guided by their preliminary conclusion on the point.
In applying these principles on the evidence, the court was unable to conclude that the award was "manifestly valid" and considered there was a realistic prospect of success in Company B's setting aside application in the Dutch setting aside proceedings.
However, neither could the court conclude that the award was "manifestly invalid" to justify the immediate setting aside of the award given the licence agreement was governed by Dutch law and the Dutch Courts were obviously the more competent forum to determine the relevant questions under Dutch law.
The court therefore adjourned the enforcement proceedings until the determination of the Dutch setting aside proceedings.
Order for security
As to whether to order security as a condition for an adjournment, the court clarified that this depends on any prejudice to the creditor as a result of the adjournment by comparing the position of immediate enforcement and delayed enforcement.
In this case, the court was not satisfied that there was a need to order security from Company B by noting the following:
- There was no evidence showing B Corp had or had had plans to remove company B's assets out of Hong Kong due to the delisting of B Corp from NASDAQ as company A alleged.
- Company B's assets in Hong Kong (approximately HK$575 million) had increased in value notwithstanding the delisting.
- Company A had already obtained security under a charging order on the shares in a BVI company, the value of which (approximately US$615 million) far exceeded the value of the Award (around US$130 million).
- The delay occasioned by the adjournment of the enforcement proceedings was approximately six to 12 months until the determination of the Dutch setting aside proceedings.
The court remarked that Company A's financial situation was caused by "repercussions of the pandemic on the world economy" and aggravated by Company B's failure to honour the Award, and an order for security would not alleviate Company A's alleged financial difficulty.
No order for security was made by the court as a result.
Conclusion
This judgment clarifies the court's approach to ordering adjournment of enforcement proceedings as well as for security as a condition to adjournment, and once again confirms that the court will be reluctant to find any award "manifestly invalid" if it involves legal issues that should be determined by a more competent forum.
Authored by Tim Hill, Jessie Wong, and Nigel Sharman.
