Hong Kong Court Upholds a Jurisdictional Challenge to an Arbitral Award Based on Newly Introduced Evidence of Market Manipulation

In an important recent decision, the Hong Kong Court of First Instance upheld a jurisdictional challenge to an arbitral award in R v A, B and C [2023] HKCFI 2034. The jurisdictional issues concerned a third party (“Ma”) who sought to replace the claimant (“Rise”) in the arbitration for a surprising purpose: so that she could drop the claimant’s claims and end the arbitration altogether. Ma contended that Rise had entered into the Contract (defined below) as her agent, making her the true party to the arbitration. The Tribunal decided in favour of Ma, a decision which Rise subsequently challenged in Court. The Court agreed with Rise’s challenge based on newly introduced evidence. 

The Parties

Given the complex fraud and multiple actors involved in it, it is helpful at the outset to identify the parties to the Contract, their roles in the underlying arbitration and the subsequent court proceedings (see table below).

The parties’ identities were anonymised in the Hong Kong judgment. However, Global Arbitration Review was able to identify them because of related litigation brought by Ma in California, which disclosed the HKIAC award.

Party	Under the 2nd Amended Limited Partnership Agreement (“Contract”)	Role in the Arbitration	Role in the Court and anonymisation in the judgment
Ma Ka Lam	Non-signatory	Additional Party	3rd Defendant (“C”)
Rise Huge Corporation Limited (Hong Kong)	Signatory	Claimant	Plaintiff (“R”)
Ever Glory Limited (Cayman Islands)	Signatory	1st Respondent	1st Defendant (“A”)
Ever Alpha Fund LP (Cayman Islands)	Non-signatory	2nd Respondent	2nd Defendant (“B”)

Key Takeaways 

First, the Court emphasised that joinder of parties to an arbitration is a jurisdictional question. It stated that the identities of the parties to a contract are fundamental and go to the root of the question of whether a contract exists, and specifically whether there is an agreement to arbitrate. As arbitration is a consensual process, it is only with the parties’ consent that the tribunal may exercise its power to join non-parties.

In this case, a finding that Ma was a proper party to the contract and the arbitration would have the significant consequence of enabling her to end the arbitration. Ma wanted to prevent Rise from seeking certain distributions in kind from the respondents for its own benefit. 

Second, given the importance of party consent to arbitration, the Court emphasised that Ma had the “heavy” burden of establishing that she was the undisclosed principal of the Contract and, thus, the proper party to the arbitration. In other words, “compelling” evidence is required to displace the assumption that the parties to a contract are those who signed it.

Third, given the Court’s finding that the Tribunal’s decision was on jurisdiction and not the merits, the Court could consider it de novo. In other words, it could re-examine the evidence or consider new evidence and was not bound by the Tribunal’s previous findings. The Court could also call witnesses and permit the parties to present new jurisdictional arguments and evidence not presented to the Tribunal. The rationale was that the Court should not be “in a worse position to make an assessment on an issue of fact”. The Court could also evaluate evidence even if it was available during the arbitration but not presented. However, the timing of presenting such evidence would go to its weight (e.g., credibility or reliability) rather than admissibility. 

Here, the newly introduced evidence shed light on a market manipulation scheme that Ma’s parents had been involved in and convicted for in the PRC. The scheme involved a series of transactions contributing to an illegal investment attempting to evade currency controls.

Ma argued that she was the true party to the contract because of a payment her family had made to Rise. She claimed it was a “reimbursement” to Rise for its payment of US dollar funding for the investment (which was the subject of the Contract). The
“reimbursement” was the alleged explanation for why Rise had entered into the contract as Ma’s agent and not as principal.

The Court expressed concerns over the Tribunal’s acceptance of Ma’s evidence that the “reimbursement” was made for the reason she gave, which seemed to be based on an absence of evidence rather than the existence of it. On its review of the newly introduced evidence, the Court considered it more likely than not that the “reimbursement” was actually made for the market manipulation scheme, and not for the specific investment in question. It followed that Ma could not be a true party to the Contract.

The Court therefore determined that Ma had not met her burden of proof and concluded that the Tribunal lacked jurisdiction over her claims. As a result, the Court set aside the claims between Ma and Rise. 

Conclusion

While the Hong Kong courts will usually take a pro-arbitration position, this case was exceptional given the unusual context where a third party sought to join an arbitration only to end it. Exceptionally, the newly introduced evidence also showed that “considerable and important areas of evidence” relied on by the Tribunal were “piecemeal, untrue and at best misleading” and therefore insufficient for Ma’s evidence to be accepted without question. As a result, Ma failed to discharge her burden of proving her case to the balance of probabilities.

Douglas Clark and Elizabeth Chan 

For more information, please contact:

Douglas Clark
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.