Eternity Sky Investments Ltd v Mrs Xiaomin Zhang
| Jurisdiction | England & Wales |
| Judge | Mr Justice Bright |
| Judgment Date | 28 July 2023 |
| Neutral Citation | [2023] EWHC 1964 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2022-000545 |
[2023] EWHC 1964 (Comm)
Mr Justice Bright
Case No: CL-2022-000545
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, WC4A 1NL
David Lewis KC and Gemma Morgan (instructed by Clifford Chance LLP) for the Claimant
Philip Marshall KC, Jonathan Kirk KC, Wilson Leung and Lee Finch (instructed by McDermott Will & Emery LLP) for the Defendant
Hearing dates: 18, 19 July 2023
APPROVED JUDGMENT
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
A: Introduction
This judgment concerns a New York Convention arbitration award, its enforcement under s. 101 of the Arbitration Act 1996, and the public policy exception under s. 101(3). The public policy exception was invoked by the losing party on the basis that she is a consumer, resident in the UK. She says that enforcement would infringe her rights under the Consumer Rights Act 2015.
It happens that, very shortly before this hearing, I gave judgment in another case involving some similar points: Payward Inc. v Chechetkin [2023] EWHC 1780 (Comm). That judgment featured prominently in some of the submissions made to me by the parties in this case.
B: Background
B1: Mrs Zhang, Mr Zhang, Chong Sing and Eternity Sky
On 8 May 2016, the Defendant (“Mrs Zhang”) put her signature to the signing-page of a personal guarantee (“the Personal Guarantee”). The beneficiary under the Personal Guarantee was the Claimant (“Eternity Sky”). The subject-matter of the guarantee comprised the obligations of Chong Sing Fin Tech Holdings Group Limited (“Chong Sing”, formerly named Credit China Holdings Limited) in relation to a bond issue.
The relationship between these parties can be summarised as follows:
i) Mrs Zhang was then and is now resident in London.
ii) Her late husband (“Mr Zhang”) was resident in Hong Kong (as she had been, until she moved to London in 2013).
iii) Mr Zhang managed and controlled Chong Sing and owned a significant shareholding.
iv) Mrs Zhang had no managerial involvement in or control over Chong Sing.
v) She held a shareholding in Chong Sing. Her case was that it was a small percentage which she held as a nominee for her husband.
vi) Chong Sing was incorporated in the Cayman Islands but was registered in and run from Hong Kong. It conducted its business in Hong Kong and in the PRC. It was listed on the Stock Exchange of Hong Kong (“SEHK”).
vii) Eternity Sky is incorporated in the BVI but is registered in Hong Kong, where it conducts its business.
viii) Mrs Zhang says that, prior to the 2016 bond issue, Chong Sing was already heavily indebted to the corporate group to which Eternity Sky belongs.
ix) In the course of the bond issue, Chong Sing issued and Eternity Sky subscribed HK$ 500,000,000 of convertible bonds under a subscription agreement dated 8 May 2016 (i.e., the same date as that of the Personal Guarantee) (“the Subscription Agreement”).
B2: The bond issue and the Personal Guarantee
The bond issue was held in Hong Kong, under the aegis of the SEHK and subject to its GEM Listing Rules. Cl. 3 of the Subscription Agreement provided for Chong Sing's performance to be guaranteed by Mrs Zhang's Personal Guarantee, as well as by a further personal guarantee from Mr Zhang. The formal public announcement of the bond issue on the SEHK also referred to both guarantees.
The Subscription Agreement provided for Hong Kong law and arbitration in Hong Kong.
The recitals to the Personal Guarantee referred to the Subscription Agreement, stated that the Personal Guarantee was entered into as security for the obligation of Chong Sing, and noted at (C) that it was a condition precedent to the Eternity Sky completing the transactions contemplated under the Subscription Agreement that Mrs Zhang should execute the Personal Guarantee. This made it clear that the consideration being provided to Mrs Zhang by Eternity Sky for the Personal Guarantee was completion under the Subscription Agreement – i.e., fundamentally, Eternity Sky's payment of HK$ 500,000,000 to Chong Sing in Hong Kong.
The critical provisions of the Personal Guarantee for the purposes of the application before me were Clauses 2 and 17:
“ 2. GUARANTEE
2.1 The Guarantor hereby irrevocably, absolutely and unconditionally:
(a) guarantees to the Subscriber the due and punctual observance and performance by each of the Obligors of all of the obligations of, or expressed to be assumed by, any or all of the Obligors under or pursuant to any or all of the Transaction Documents and agrees to pay to the Subscriber from time to time, upon demand by the Subscriber, any and all sums of money which any and all of the Obligors are at any time liable, or expressed to be liable, to pay to the Subscriber under or pursuant to any or all of the Transaction Documents and which have become, or are expressed to have become, due and payable but have not been paid at the time such demand is made as if she was the principal obligor in respect to that amount;
(b) agrees as a primary obligation to indemnify the Subscriber from time to time, upon demand by the Subscriber, from and against any loss incurred by the Subscriber as a result of any of the obligations of or expressed to be assumed by any or all of the Obligors under or pursuant to any or all of the Transaction Documents being or becoming void, voidable, unenforceable or ineffective as against any or all of the Obligors for any reason whatsoever, whether or not known to the Subscriber or any other person, the amount of such loss being the amount which the Subscriber would otherwise have been entitled to recover from any or all of the Obligors; and
(c) agrees with the Subscriber that if, for any reason, any amount claimed by the Subscriber under this Clause 2 is not recoverable from the Guarantor on the basis of a guarantee then the Guarantor will be liable as a principal debtor and primary obligor to indemnify the Subscriber in respect of any loss it incurs as a result of any Obligor failing to pay any amount expressed to be payable by it under a Transaction Document on the date when it ought to have been paid. The amount payable by the Guarantor under this Guarantee will not exceed the amount she would have had to pay under this Clause 2 had the amount claimed been recoverable on the basis of a guarantee.”
“ 17. GOVERNING LAW AND JURISDICTION
17.1 This Guarantee shall be governed by and construed in accordance with the Laws of Hong Kong without regard to any conflict of laws principles which may exclude the laws of Hong Kong.
17.2 In the event the Parties are unable to settle a dispute among them regarding this Guarantee, such dispute shall be referred to and finally settled by arbitration at Hong Kong International Arbitration Centre (the “HKIAC”) in accordance with the UNCITRAL Arbitration Rules in effect when the notice of arbitration is submitted, which rules are deemed to be incorporated by reference into this subsection.
17.3 The arbitration proceedings must be conducted by one (1) arbitrator.
17.4 The arbitration must be conducted in Hong Kong.
17.5 The arbitration award is final and binding on the parties and the Parties agree to be bound and to act accordingly. Unless the Parties otherwise agree in writing or until the arbitral tribunal hands down an award, the Parties are obliged to continue to fulfil their obligations under this Agreement notwithstanding the commencement of an arbitration hereunder.”
Also of some relevance were the preamble – which described Mrs Zhang as a holder of a passport of the PRC, while giving her address at a residential property in London; cl. 4, which set out a number of representations and warranties given by Mrs Zhang, including that she was a citizen of and domiciled in the PRC, that she fully understood the contents of the Personal Guarantee and had obtained independent legal advice with respect to it and that the choice of Hong Kong law would be recognised and enforced in the jurisdiction of her domicile or nationality; and cl. 18, by which Mrs Zhang again acknowledged that she had been afforded sufficient opportunity to obtain independent legal advice and fully understood all the terms in the Personal Guarantee and the associated documents (including the Subscription Agreement).
B3: Mrs Zhang's signature of the Personal Guarantee
The provisions summarised in the preceding paragraph were materially inaccurate:
i) Mrs Zhang was not domiciled in the PRC in 2016. Her only place of domicile/residence was the address in London, as recorded in the preamble. (It is worth adding that Mrs Zhang was a PRC passport holder in 2016, but renounced Chinese nationality when she became a British national, in 2019.)
ii) Mrs Zhang did not read the Personal Guarantee before signing and she had not obtained any legal advice.
iii) Recognition of the choice of Hong Kong law and arbitration is in issue before me.
The page signed by Mrs Zhang is not numbered (unlike the 17 preceding pages) and appears to be a free-standing signature page. She signed it while on holiday in Spain with a friend, who acted as her witness.
This came about because Mr Zhang's PA sent her this single page and asked her to sign it by a message that said that “… the listed companies is issuing bonds, requires the majority shareholder couple to provide guarantee…”
Mrs Zhang had previously signed several similar documents, invariably doing so at her husband's request and without considering the terms or taking legal advice. She did so understanding that her signature was necessary for the purposes of her husband's business interests.
The signature...
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