Easy come, easy go: The Grand Court determines that an arbitration agreement must be proven to exist by the party seeking to rely upon it
Is this real life? Is this just fantasy? In a landslide victory for the joint official liquidators (JOLs), the Grand Court in Jian Ying Ourgame High Growth Investment Fund (in Liquidation) (the Fund) v Powerful Warrior Limited (PWL) & Ors (FSD 255 of 2021/ 258 of 2021 (RPJ) 21 December 2022) determined that an arbitration agreement had escaped from reality.
The substantive issue in dispute between the parties related to an allegation that 132 million shares were wrongfully transferred away from the Fund by its former directors in highly suspicious circumstances. The shares were transferred to PWL, a BVI entity, and then on to other defendants associated with PWL. The Fund went into liquidation, and the JOLs sought to recover the shares when they became aware of the disposition (the Claim). PWL challenged the jurisdiction of the Court to hear the Claim on the basis that a share purchase agreement (SPA) it said the parties had entered into contained an arbitration clause. Accordingly, PWL said that an order permitting service on it should be set aside and that the proper forum to resolve the Claim was the Hong Kong International Arbitration Centre. The JOLs disputed the authenticity of the SPA and the existence of any genuine agreement to arbitrate and argued that the Cayman Islands were the appropriate forum.
The threshold question for the Court to determine was whether there was an arbitration agreement in existence between the parties. PWL said there was an agreement in place whereas the JOLs raised a number of factors concerning the legitimacy of the SPA which included a lack of explanation by PWL as to the circumstances of its creation, cleansing of metadata from the electronic copy of the SPA that would identify the date of creation, and the fact that the “original” copy of the SPA did not record when it was signed. Additional submissions made by the JOLs that highlighted the inauthenticity of the SPA are summarised in paragraph 39 of the judgment.
The Court determined that it was not appropriate to refer the threshold question to a tribunal in Hong Kong. However, the Court held that such a referral may be appropriate if the Court was satisfied with the existence of an arbitration agreement, but there was a dispute as to its scope. In response to the argument that the Court had to take the arbitration agreement at face value and that it should be deemed by statute to be effective, Justice Parker held that the relevant provision of the Arbitration Act 2012 (the 2012 Act) deals with Cayman-seated arbitrations. In any event, the Court held that the JOLs had clearly denied the existence of the arbitration agreement for the purposes of section 4(4) of the 2012 Act. In doing so, the Court stated that the correct test “Is whether PWL has satisfied the Court on the balance of probabilities that an agreement to arbitrate was made”.
On the evidence available, the Court reached the view that an arbitration agreement was not made and went so far as to note that it was “manifestly incredible that the Jian Ying SPA is genuine”. The Court rejected PWL’s argument that a positive case had to be made by the JOLs and that it was not enough for the JOLs to put PWL to prove or raise suspicions. Rather, the Court observed that when a party challenges the jurisdiction of the Court by reference to an arbitration agreement, that party has the evidential burden of showing the Court that such an agreement exists on the balance of probabilities. Further, the Court rejected the submission that all that was required was an “arguable case” of the existence of an arbitration agreement, as opposed to the proposition that the Court needed to be “virtually certain” that such an agreement was in place.
Once the issue of the existence of an arbitration agreement was decided against PWL, the Court held that Cayman was clearly the most appropriate forum to determine the Claim. The judgment demonstrates that the provenance of arbitration agreements does in fact really matter, anyway the wind blows.