tutorial video tutorial video Discover the CiteMap in 3 minutes

Lawyers, other representatives, expert(s), tribunal’s secretary

Final Award (Corrected)

A. THE PARTIES AND THEIR REPRESENTATIVES

The Claimants

1.
There are three Claimants. The first two, Intel Capital (Cayman) Corporation ("Intel Cayman" or "IC") and Intel Capital Corporation ("Intel Delaware" or "ID") are related companies. They are subsidiaries of Intel Corporation of the United States which is a manufacturer of semi-conductors. IC and ID are engaged in the venture capital business - (Hsu/1/7 & 9). In this Award, except where it is necessary to distinguish between them, these Claimants are referred to as "Intel".
2.
IC is incorporated in the Cayman Islands and its registered office is at Caledonian House, 69 Dr. Roy’s Drive, Grand Cayman, Cayman Islands.
3.
ID is incorporated in Delaware and its registered address is at 1209 Orange Street, Wilmington, Delaware, U.S.A.
4.
The third Claimant is Deutsche Telekom AG ("DT"). DT is a German telecommunications company which, in addition to operating as a mobile telephone and internet services provider, engages in strategic investments in the telecommunications industry internationally-(Larsen/1/8).
5.
DT is incorporated in Germany and its registered office is Friedrich-Ebert-Allee 140, 53113 Bonn, Germany Attn: Legal Affairs 2/LLC.
6.
The Claimants have throughout been represented by Mr Desmond Yu and Ms Pena Sy of Reed Smith Richards Butler ("RSRB"), 20/F Alexander House, 18 Chater Road, Central, Hong Kong SAR Tel: (852) 2507 9893; Fax: (852) 2810 1648; and email desmond.yu@reedsmith.com and stella.penasy@reedsmith.com. Mr Charles Manzoni QC, SC and Mr Julian Lam of Counsel represented the Claimants on the instructions of RSRB.

The Respondents

7.
The first Respondent, Airway Communications International Holding Company Limited ("AT’ or "the Company") is incorporated in the Cayman Islands. Its registered address is c/o Offshore Incorporations (Cayman) Limited, Scotia Centre, 4th Floor, P.O.Box 2804, George Town, Grand Cayman, Cayman Islands.
8.
The second to sixth Respondents (collectively the "Founders") are Huang Shuying, PRC Identification Card Number 422223196408180053 ("Mr Huang"), Angie Hsia, US Passport Number 103918558 ("R3"), Austin Weichyi Sun, Taiwan Passport Number 130284421 ("R4"), Edwin Ming-chen Chiu, US Passport Number 055796890 ("R5"), and Yi Shan, Canadian Passport Number BD110469 ("R6").
9.
The seventh and eighth Respondents (collectively the "Guarantors") are: Airway Communications Group Company Limited ("Airway China" or "AC") which is a limited liability domestic capital company incorporated under the laws of the People’s Republic of China ("PRC") with its legal address at No. 6 Jiangxing Rd., Jianghan Economic Development Zone, Wuhan Municipality, PRC; and Airway Communications Systems Company Limited ("Airway Systems" or "AS") which is a Sino-Foreign Equity Joint Venture Enterprise ("EJV") established under the laws of the PRC.
10.
In s.12.7 of the Second Amended and Restated Investors’ Rights, Put Option, and Indemnity Agreement of 8 May 2008 ("2nd IRA"), which is the agreement which gives rise to the dispute in this arbitration, the addresses of all the Respondents for service of any communication in connection with the agreement is 5th Floor, Hubei Provincial Telecommunications Administrative Bureau Building, Special No. 1, Luoyu Road, Donghu Development Zone, Wuhan Municipality, PRC; Fax: +86 27 87568528 (A/3/22).
11.
Until 14 April 2014 the Respondents were represented by Mr Peter Yuen of Peter Yuen & Associates (In Association with Fangda Partners) of Room 3001-2, 30/F One Exchange Square, 8 Connaught Place, Central, Hong Kong SAR; Tel: + 852 3967 8888; Fax: +852 2110 4285; email p eter.yuen@fangdalaw.com.
12.
By letter dated 14 April 2014 Mr Yuen notified the arbitrator and the Claimants that he had ceased to act for the Respondents with immediate effect and requested that all future communications be made to the Respondents at the address given in the 2nd IRA referred to in paragraph 10 above —(I/13/180).
13.
Thereafter the Respondents did not notify the arbitrator or the Claimants of any representative appointed in place of Mr Yuen.

B. THE ARBITRATION AGREEMENT AND THE APPOINTMENT OF THE ARBITRATOR

14.
By a Notice of Arbitration dated 12 November 2012 (A/l), RSRB on behalf of the Claimants notified a dispute between the parties under the 2nd IRA and requested that it be referred to arbitration pursuant to the agreement to arbitrate contained in s. 12.2(a) of the 2nd IRA which provides that:

"Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be finally resolved by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) in force as at the date of this Agreement, as modified by the rest of this Section. The place of arbitration shall be Hong Kong. The appointing authority shall be the Hong Kong International Arbitration Centre ("HKIAC"). The language of the arbitration shall be English and the tribunal shall consist of one arbitrator to be appointed by HKIAC. The sole arbitrator shall preferably have experience in handling China cross border financing disputes and the HKIAC shall take this preference into account when making the appointment"

15.
The UNCITRAL Rules in force on 8 May 2008, the date of the 2nd IRA, were the 1976 Rules.
16.
By the Respondents’ Answer to the Notice of Arbitration (A/8), dated 11 December 2012, they agreed that the dispute be referred to arbitration in Hong Kong, in accordance with the UNCITRAL Rules and that HKIAC should be the appointing authority.
17.
By letters dated 29 April 2013, HKIAC appointed Christopher Moger QC of 4 Pump Court, Temple, London EC4Y 7AN, United Kingdom Tel: +44 207 842 5555; Fax: + 44 207 583 2036 as sole arbitrator in accordance with the arbitration agreement and notified the parties accordingly.
18.
By two emails of 7 May 2013, Ms Pena Sy for the Claimants and Mr Yuen for the Respondents agreed to the arbitrator’s terms of appointment.

C. OUTLINE PROCEDURAL HISTORY

19.
On 31 May 2013 the Claimants served their SC with supporting documents and on 2 July 2013 the Respondents served their D&CCL with supporting documents to a timetable established by Procedural Order No 1 (I/1). The Order provided for service of documents between the parties and the Tribunal to be by email.
20.
For the purpose of explaining the outline of the procedural history of the arbitration it is only necessary to note that, in essence, the Claimants claimed that on 8 August 2011 they had validly exercised their contractual option under s.8.3(a) of the 2nd IRA, as amended, to put their Preferred Shares in AI onto the Founders and AI at prices established by formulae in the 2nd IRA. They claimed that the Founders and AI had not paid what they were bound to pay under the terms of the 2nd IRA. They claimed, in addition, against the Guarantors as a result. The Respondents denied that the purported exercise by the Claimants of the option was in time or that it was validly made. They claimed that the Claimants had repudiated the 2nd IRA, which repudiation had been accepted by the Respondents as terminating that agreement, and they counterclaimed damages for consequential losses caused to them.
21.
Following a hearing in Hong Kong at which both parties were represented, the Claimants by Mr Yu and the Respondents by Mr Yuen, and in which their proposals for the timetable and conduct of the arbitration were discussed, Procedural Order No.2 (I/2) was made. It was dated 10 June 2013. The Order recorded that the IBA Rules on the Taking of Evidence in International Arbitration of May 2010 would be adopted as guidance in the arbitration in relation to matters of evidence.
22.
That Order set out a timetable for the conduct of the Arbitration. It fixed the date for the start of the evidential hearing as 9 June 2014 (I/2/3-6 and I/3). 10 days were allowed for the hearing.
23.
Thereafter, both parties, through their representatives, adhered to the timetable albeit with slight modifications to accommodate unexpected developments during that process. The date for the hearing was never changed. On 5 March 2014, the Claimants reserved the Peak Hearing Room at HKIAC and ancillary accommodation for the dates of the evidential hearing that had been fixed by Procedural Order No.2. On 6 March 2014 Mr Yuen confirmed that the Respondents accepted those arrangements.
24.
The principal steps taken by the parties after Procedural Order No 2 and prior to 14 April 2014, were as follows:

[i] The Statements of Case were developed by the Claimants’ R&DCCL (2 August 2013; I/11), the Respondents’ Particulars of their Counterclaim for Loss and Damage (2 August 2013; I/13), followed on 30 August by the Respondents’ RJ (I/12). The Claimants also issued a Response to the Particulars of Loss and Damage in relation to the Counterclaim on 30 August 2013 (I/14).

[ii] As directed by Procedural Order No. 2, the parties endeavoured to agree a List of Issues. They were partially successful and a provisional list was agreed on 19 September 2013 together with a list of "Facts and Matters Not in Issue". At the same time they agreed that expert evidence should be confined to "accounting evidence" but were unable to agree the issues to be addressed by the experts - (I/13/78-82). On 25 September 2013 both parties put forward individual lists of non-agreed issues (I/13/89-95). After further correspondence on the issues a modified list was put forward by the Claimants cross referred to the Statements of Case. Apart from a direction about the scope of expert evidence expressed in the Tribunal’s email of 27 February 2014 (I/13/171-172), matters were not further advanced by the time that Mr Yuen ceased to act for the Respondents.

[iii] In October 2013 the Claimants and the Respondents each made applications by Redfern Schedule for the discovery of further documentation by the other side. Those applications, in so far as they were contested, were the subject of rulings on 22 November 2013 and the documents ordered to be served were served by each side on 16 December 2013.

[iv] Witness statements of fact for the Claimants from Mr Hsu (F/l) and Mr Lam (F/7) of Intel and Dr Larsen (F/4) formerly of DT dated 29 January 2014, and for the Respondents from Mr Huang (F/9) and R5 (Mr Edwin Ming-Chen Chiu) dated 30 January were served by the parties. A round of supplemental statements for the Claimants from Mr Hsu (F/3) dated 28 February 2014 and Dr Larsen (F/5 and F/6) dated 21 and 26 February 2014, and for the Respondents from Mr Huang (F/10) dated 28 February 2014 was also served.

[v] Meanwhile, in October 2013, the Claimants purported to exercise a different Put Option, provided for in the 2nd IRA at s. 8.3(b), and when the Founders and the Company did not pay for the Preferred Shares purportedly put to them, made consequential calls on the Guarantors. On 31 January 2014 the Claimants made an application to amend their SC to add a claim based on these events. The Respondents by Mr Yuen did not consent to the application but made adverse representations about it on 10 February 2014. On 15 February 2014 the Tribunal ruled on the application and permitted the amendment (I/9). The Tribunal amended the timetable with provisional directions to accommodate the need for further documentary or witness evidence arising out of the amendment. The Amended SC was formally served on 21 February 2014 (A/9) with supporting documents (B2A/1-10). The Respondents served an Amended D&CCL on 7 March 2014 (Al/10). The uncontested facts and the legal nature of the defence to the second Put Notice Claim rendered it unnecessary to serve amended witness statements or for the parties to seek to amend the R&DCCL or the RJ. Nor was further discovery of documents required by any party.

[vi] The Claimants served an expert report from Mr Zirlen dated 11 April 2014 with extensive exhibits.

25.
As already explained, on 14 April 2014 Mr Yuen notified the Claimants and the Tribunal that he was ceasing to act for the Respondents with immediate effect.
26.
From that date, the Respondents took no further part in the arbitration. They did not replace Mr Yuen with another representative. They did not contact the Claimants or the Tribunal after 14 April 2014. They did not serve any expert evidence, notwithstanding references in their witness statements demonstrating their intention at that stage to do so (for example Huang/l/39(iv)). They did not contribute to the deposit on account of the arbitration costs provided for in Procedural Order No 2. Correspondence posted to the address for service in the 2nd IRA could not be successfully delivered and the fax number did not respond to transmissions notwithstanding Mr Yuen’s confirmation that those were the addresses to be used for contacting the Respondents. Letters addressed to AI at its registered address in the Cayman Islands and to R4 at an address previously used were delivered but not acknowledged. Emails sent to Mr Huang and to R5 and R6 at addresses previously used by them did not elicit any response from them.
27.
The evidential hearing began at 10 am on 9 June in the Peak Hearing Room at HKIAC. The Respondents did not appear personally or by any representative at the hearing. As explained above the date of the hearing had been notified to them in Procedural Order No 2, and had never changed, and they had had notice of the venue in early March 2014.
28.
At the outset of the evidential hearing the Tribunal ruled as follows:

[i] That the hearing should proceed in the absence of the Respondents pursuant to the 1976 UNCITRAL RULES Article 28.2 on the basis that the Tribunal was satisfied that the Respondents had been duly notified of the hearing. The inference the Tribunal draws from the events subsequent to 14 April 2014 is that the Respondents deliberately withdrew from their participation in the proceedings. That conclusion does not, however, give rise to any adverse inference against the Respondents in relation to resolving the issues in dispute in the arbitration - (Tr 1/6/19 -1/7/15).

[ii] That in light of the fact that the Respondents’ witnesses of fact had not been expressly required by the Claimants to attend the hearing for cross examination on their statements, and having regard to Article 4.7 and 4.8 of the 2010 IBA Rules, the Tribunal would proceed on the basis that the Respondents’ witness statements and the documents they produced through those statements were admitted as evidence in the arbitration- (Tr 1/7/16- 1/8/15).

29.
In the light of the absence of the Respondents, and with the agreement of the Tribunal, the hearing took the form of a detailed opening oral submission by Mr Manzoni in which he developed the contentions of fact and law advanced in the Claimants’ written Opening Submissions and addressed issues raised by the Respondents.
30.
The Claimants’ witnesses were then called to give evidence in the following order: Dr Larsen (Tr 2/103-122), Mr Hsu (Tr 2/122 -134), Mr Lam (Tr 2/135 -137), and Mr Zirlen (Tr 2/138-142).

D. THE FACTUAL BACKGROUND

Initial Interest

31.
In the summer of 2005, Intel Corporation was actively promoting the development of WiMAX (Worldwide Interoperability for Microwave Access) which was a cutting edge wireless communications standard for broadband and cellular phone services which it hoped, when the technology and networks were developed for it, would provide a market for its semi-conductors - (Cl/2/9). Before and after 2005 Intel Corporation invested billions of dollars in WiMax’s promotion - (Huang/1/8 and Item 12 at I/13/81).
32.
Governments throughout the world at a national or regional level, including in the PRC, licence spectrum to those who wish to develop such a market and establish policies through their regulators for the adoption of wireless communications standards.
33.
It appears that Intel Corporation had made a previous attempt to introduce WiMAX into the PRC market in 2004 (Huang/1/11 and G/24). By 2005, it was anxious to "get WiMAX into" China and, between June and August 2005, IC’s managing director in China at the time, Cadol Cheung, proposed the idea of making an investment in Mr Huang’s group of companies to advance that aim. (G/l to G/6).
34.
As appears from the 6 July 2005 document at G/2, among the attractions of Mr Huang’s companies to Intel was that they had already acquired 1.8GHz spectrum licences in Beijing and Hubei, had similar licences in four other provinces in course of negotiation, and that Mr Huang was a well-connected entrepreneur from a State Owned Enterprise background. The author of that paper said:

"The most valuable asset is their ability to aggregate spectrum. "(G/2/4)

35.
The first version of the proposal put together by the Intel "Deal Team" in August 2005, contemplated Intel’s initial investment being used to acquire extra provincial licences and roll out private network services to generate revenue -(G/25/1190).
36.
Intel described the potential investment as a low cost way for it to "hedge (its) bets on other spectrum ranges" (G/2/2, G/3/7, G/4/12, G/26/1025, G/34). It was recognised that the spectrum which was the subject of the existing licences and potential licences, 1.8GHz, was not a standard spectrum for WiMAX (G/26/1204) but the material available suggests that Intel nevertheless saw it as a possible spectrum for the deployment of WiMAX as an alternative to established spectrums - (G/3/7, G/4/11, G/25/1182).
37.
It is common ground that foreign investment in the wireless internet services is strictly regulated in the PRC. Foreign investors are prevented from owning a controlling interest in operating companies. As a result the structure adopted for their investment in this case was a Variable Interest Entity ("VIE") structure.

VIE

38.
There is no dispute about the way that the VIE structure was put together in this case.
39.
The foreign investors took shares in the Cayman Islands entity, AI. The Founders were their fellow investors in that entity.
40.
AI is the 99.3% shareholder in the PRC based EJV, AS. Al’s fellow investor in AS is a Chinese entity controlled by Mr Huang called Tonghe Investment Holding Company Ltd ("Tonghe").
41.
The VIE is a PRC company, AC. It is wholly owned by PRC shareholders and majority owned by Tonghe. It owns or controls a number of operating subsidiaries, all of them PRC entities.
42.
Funds generated from the foreign investment flow from AI to AC via AS but neither AI nor AS has any control over AC or its operating subsidiaries through any equity interest in AC.
43.
The foreign investors’ rights are catered for by the Investors Rights Agreements of which the last in a series in this case was the 2nd IRA.

The Stages of Investment

Series A Preferred Shares:

44.
By a Series A Preferred Share Purchase Agreement dated 29 October 2005, IC and 1441 Holding Limited, a BVI company called in the agreement "On Capital", purchased from AI 5m Series A Preferred Shares in AI at a price of US$ 1.00 per share. IC’s investment was US$ 3m for 3m shares (Bl/3/26 at s.2.1 on p33). AI also agreed to issue warrants to IC and On Capital to give them the right to purchase a further 4m Series A Preferred Shares in the ratio 2.4m AC/1.6m On Capital (s.2.2 at Bl/3/34)
45.
By s.8 of the Share Purchase Agreement, it was provided that US$ 4.5m of the proceeds of sale were to go via AS to AC to establish four operating subsidiaries, to assist in securing spectrum and service provider licences and as working capital to roll out network services —(Bl/3/49).
46.
On the same date the parties entered into an Investors’ Rights, Put Option, and Indemnity Agreement ("IRA") containing information rights for the foreign investors (s.3 at B1/4/102) and conferring on them Put Options (s.9 at B1/4/113). It is not necessary for present purposes to examine those terms in any detail because this IRA was superseded in the event.
47.
On 30 June 2006 IC exercised its rights under the warrants and purchased a further 2.4m Series A preferred shares in AI at a warrant execution price of US$ 1.25 per share or US$ 3m in all. IC’s holding thereby increased to 5.4m Series A Preferred Shares. It is apparent from the Schedule 4 to the Second Round Series B Preferred Share Subscription Agreement that On Capital also exercised its rights under the warrants at some stage to increase its holding of Series A Preferred Shares to 3.6m -(Bl/14/712).
48.
It is also apparent that Intel and Airway still retained an interest in the possible WiMAX potential of its investment at that time. This appears from the documents produced by the Respondents from May 2006 (El/1 and 2 referred to in RJ 4(b)(i) and (ii)).

Series B Preferred Shares:

49.
In May 2007 Intel (under the name Intel China Ltd) subscribed to a Memorandum of Understanding between itself, the Head of the Department of Information Industry ("DII") of Hubei Province, and Airway Communication Group. In that document Intel recorded that it was "the key promoter of new generation broadband wireless WiMAX" and "committed to the overall development and promotion in the Chinese WiMAX market ". The parties to the Memorandum recorded that they would "cooperate with each other in order to promote the construction and development of the broadband wireless industry base in Wuhan City, Hubei Province, build WiMAX broadband wireless communication network..." and specifically that the DII would support the deployment of a WiMAX digital city network; that Airway would use, perfect, and promote the WiMAX communication system; and that Intel would provide technical support and might consider further investment support for the construction of a national operation platform (El/3/817-8, and El/5). It is clear that Intel and Airway saw WiMAX as, at least, a candidate for use in the development of the broadband wireless industry base in Hubei.
50.
From at least August 2007 Airway and Intel were actively considering a second round of financing (G/32/1294 and 1295). As those documents show, and as is borne out by its November 2007 analysis, Intel, internally, still regarded the 1.8GHz spectrum as of interest in respect of WiMAX but as a "hedge should the efforts on 2.5GHz be delayed" -(G/29/1250 and 1261). At that stage Airway had made progress in acquiring more licences but only in the 1.8 GHz spectrum. The 3.5GHz spectrum had gone elsewhere and the 2.5GHz spectrum had not by then been allocated -(G/29/1252-3).
51.
Apparently in connection with this proposed investment, Intel made a "WiMAX Business Case Summary" presentation to Airway (El/6; RJ 4(b)(vi)). Airway’s own presentation material to potential investors referred to the opportunities offered by the PRC BWA market generally but made specific reference to the use of WiMAX and to the risks associated with it -(El/7).
52.
On 27 December 2007 ID positioned itself for making an investment by agreeing to purchase a convertible promissory note for US$ 10m from AI -(Bl/6 and 7). At the same time ID entered into a side agreement with Mr Huang whereby he agreed to transfer to ID 138,889 ordinary shares in AI on a date which, in the event, was 31 January 2008.
53.
On 30 January 2008 a Series B Preferred Share Subscription Agreement was entered into by ID and other foreign investors who together subscribed for 7,499,999 Series B Preferred Shares in AI at a price of US$ 8.00 per share. The subscription raised US$ 59,999,992. The new shareholders numbered six in all. Daiwa Securities SMBC Principal Investments Co Ltd ("Daiwa") invested US$ 30m. ID and Well Prospering Limited each took 1.25m shares at a price of US$ 10m -(Bl/10/243). The remaining investors took smaller parcels.
54.
On the same date the parties to the Subscription Agreement entered into an Amended and Restated Investors’ Rights, Put Option, and Indemnity Agreement which gave the foreign investors information rights (s.2 at Bl/11/585) and Put Option Rights (s.7 at Bl/11/593). That agreement was also superseded by the 2nd IRA.
55.
On 22 February 2008, ID exercised its rights under its Convertible Promissory Note to invest a further US$ 10m in a further tranche of 1.25m Series B Preferred Shares -(Bl/13).
56.
The financing round using the sale of Series B Preferred Shares was completed with the Second Round Series B Preferred Share Subscription Agreement dated 8 May 2008. This raised a further US$ 34m through the sale of 4.25m Series B Preferred Shares in AI at a price of US$ 8.00 per share. DT made an investment of US$ 30m (3.75m shares) and the balance was taken up in two smaller parcels of 250,000 shares each by JCD Navi VC Fund LLP and NTT DoCoMo Inc.
57.
In all, the Series B financing round raised just under US$ 104 m for use in the development of AC’s business. The shareholding in AI resulting from the whole sequence of investments described above is shown in Schedule 4 to the Subscription Agreement at Bl/14/712. IC and ID together held 35.91% of the Preferred Shares. DT and Daiwa each held 17.05%.
58.
The 8 May 2008 Subscription Agreement was accompanied by the 2nd IRA.

E. THE 2nd IRA (A/3)

Parties and definitions:

59.
AI, the Founders, AC, AS, and the Series A and Series B Preferred Shareholders are parties to the agreement (listed on page 1).
60.
References to AC in the agreement, where the context permits, mean "all the existing investees and subsidiaries of Airway China from time to time and for the time being including but not limited to the entities set forth in Schedule 2 and includes a reference to any other entities established by or invested in by Airway China after the date hereof’. Schedule 2 sets out 13 AC Subsidiaries "as of January 21 2008".
61.
Definitions are contained in s. 1.1. The term "Group Companies" is defined as meaning "the Company, each of its Subsidiaries, and each of their respective Affiliates from time to time and each is a "Group Company". For the purposes of this definition and not by way of limitation, Airway Systems, Airway China and their respective majority owned subsidiaries from time to time, are deemed to be Affiliates of the Company".
62.
The term "Original Subscription Price" as used in the Put Option provisions is defined to mean US$ 1.00 per share in respect of the Series A Preferred Shares (notwithstanding the fact that exercise of the Series A warrant rights cost IC and On Capital US$ 1.25 per share) and US$ 8.00 per share for the Series B Preferred Shares.
63.
The term "Preferred Share Votes", by reference to the definition in the Memorandum and Articles, means the number of Ordinary Shares into which the Preferred Shares could be converted at the then effective Conversion Price. The voting rights of the Preferred Shareholders altered from time to time by reference to the conversion right, whether or not they had been converted - Article 57 Memorandum and Articles (A/4/25). The Conversion Price was established by a formula set out in Article 3(g)(l 1) (A/4/13) by reference to the audited consolidated financial statements of the Group Companies. The effect of that formula was that if the Group Companies’ performance fell below that forecasted for them, the price of Ordinary Shares on conversion would be reduced so that more could be acquired by a converting shareholder, and the shareholding of the shareholders, notably the Founders, would be correspondingly diluted. The Post Closing Capitalization Table at Schedule 4 to the Second Round Series B Subscription Agreement (B1/14/712) sets out the voting and diluted voting rights of all the shareholders in AI.
64.
It is common ground that the term "Series B Initial Closing" used in the agreement refers to 13 February 2008.
65.
The term "Transaction Documents", by reference to the definition in the Memorandum and Articles of AI, includes the Series B Subscription Agreement and the 2nd IRA itself.

Prior IRA

66.
The 30 January 2008 IRA - defined as the Prior Investor Rights Agreement in the Second Round Subscription Agreement (B1/14/655) - is terminated by s. 2.1.

Ongoing Covenants

67.
At s.6.1 Mr Huang and R5 covenanted to serve actively as directors of AI for a fixed period and the Founders as a group made a similar commitment of involvement in the business and operations of the Group Companies. In each case, though, their continuing role was subject to their removal by a decision of the Investors holding more than 66 2/3% of the Preferred Share Votes.
68.
At s.6.2 the Group Companies and the Founders undertook to take all steps and exercise all necessary efforts, to procure and ensure that the Investors "receive and enjoy the rights and benefits contemplated in this Agreement". At s.6.8 it is provided that "the Group Companies shall comply with and the Founders shall procure that the Group Companies comply with the provisions under Article 3(h) of the Memorandum and Articles and the provisions on powers and duties of directors under Article 72...".

Information Rights

69.
So far as relevant to this dispute, these are set out in s. 3.1(a) which is introduced with the following words:

"The Company and each Founder covenants and agrees that it shall in itself, and shall procure that each Group Company shall, commencing on the date of this Agreement, and for so long as any Investor holds any Series A Preferred Shares, Series B Preferred Shares or Conversion Shares deliver the following to such Investor with respect to the Group Companies".

70.
There follow eight categories of information that are to be delivered. They are set out in elaborate detail in s. 3.1(a) (i) - (viii) of the agreement. The first five are relevant to this dispute. Their full terms may be collected from the agreement but, in summary, they are as follows:

s.3.1(a)(i): Annually, and not later than 90 days after the end of each fiscal year (in fact the year end was 31 December),

annual audited consolidated financial statements for the Group Companies, in English, audited by a "Big 4" accounting firm in accordance with accounting standards approved by the Board of AI;

and

annual unaudited financial statements for each Group Company individually.

s.3.1(a)(ii): Quarterly, and not later than 25 days after the end of each fiscal quarter,

unaudited consolidated quarterly financial statements of the Group Companies

and

unaudited quarterly financial statements for each Group Company individually

in both cases with a comparison to the operating plan and budget, in English or translated into English, and in accordance with the approved accounting standard.

s.3.1(a)(iii): Monthly, and not later than 15 days after the end of each month,

unaudited consolidated monthly financial statements and management accounts of the Group Companies

and

unaudited monthly financial statements and management accounts for each Group Company individually

in both cases in English (or translated into English) and in accordance with the approved accounting standard.

s.3.1(a)(iv): Monthly, not later than 15 days after the end of each month

an itemized statement of all transactions regardless of monetary value within the category of transactions subject to the approval of the board of any Group Company, including lending, borrowing, purchases, capital expenditure, release or waiver of contractual rights, or related party transactions referred to in Article 72(b) of the Memorandum and Articles.

s.3.1(a)(v): Not later than 90 days prior to the end of each fiscal year

an annual budget and strategic plan for the following year for each Group Company and/or the Group Companies as a whole, in English.

Memorandum and Articles

71.
The hearing bundles contain the Memorandum and Articles of Al - (A/4)
72.
Article 3(h), which is referred to in s.6.8 of the agreement, provides that the prior written consent of those holding more than 66 2/3% of the Preferred Share Votes is required for a wide range of actions by Group Companies. These include, at (13) "any transfer... or disposal...of any economic interest in any... Subsidiary, assets... including the sale or other disposal of equity interest in any Subsidiary of the relevant Group Company...".
73.
Article 72(b), which is referred to in s.6.8. and s.3.1(a)(iv), provides that the affirmative votes of at least one Series A Director and the Series B Director are required for any decision by AI in respect of any Group Company in respect of a wide range of transactions. These include

[i] at Article 72(b)(2): any purchase or sale by any Group Company of any assets cither not in the ordinary course of business or not in the most recent business plan or whose value exceeds US$ lm in a single transaction or US$ 5m in the aggregate in any fiscal quarter,

[ii] at Article 72(b)(6): any transaction or series involving any Group Company and any "Connected Individual" (a defined term which included Mr Huang as a director of Group Companies and Tonghe as an entity controlled by him) either not in the ordinary course of business or in the most recent business plan or in which value given or received exceeded US$10,000 in a single transaction or US$ 50,000 in aggregate during any fiscal quarter;

[in] at Article 72(b)(10): establishing any new subsidiary or branch of any Group Company; and

[iv] at Article 72(b)(l5): any changes in the registered capital or total investment amount of a PRC Subsidiary or Group Company or the transfer of any equity interests in such a company.

74.
In addition to the references to these Articles in the sections dealt with above, s.10.1 of the 2nd IRA provides, so far as relevant to this dispute, that Articles 3 and 72 "shall be enforceable as if such provisions were part of this Agreement."

The Boards of Al, AC, and AS

75.
The investors in the Preferred Shares were entitled to representation on the Boards of all three companies. For AI they were entitled together to 4 out of 8 directors; for AC to 3 out of 7 directors; and for AS to 3 out of 4 directors (s.9.1(a-c)). Board meetings of AI were required to be held at least quarterly (Article 82 at A/4/31).
76.
In addition, IC was entitled to an observer on the AI Board so long as it remained a Series A Preferred Shareholder (s.3.5).
77.
Dr Larsen was a director of AI pursuant to these arrangements from May 2008 until he left DT in July 2012 -(Larsen/1/35). I believe that Mr Cadol Cheung was IC’s observer on the Board of AI until he left his position as IC’s Managing Director for China in July 2009 (Hsu/1/6), whereupon Mr Hsu took over his role.

The Put Option

78.
By s. 8.1 each holder of Preferred Shares (an "Investor") is granted the right "to require the Founders and the Company, jointly and severally, to purchase all but not less than all of the Series A Preferred Shares and/or the Series B Preferred Shares held by such Investor at the price and on the terms set forth below in this Section 8 (such right being referred to as the "Put Option")".
79.
S. 8.2 provides, to the extent relevant, that exercise of the Put Option shall be "by service of written notice... at any time set forth in Section 8.3 below." There is no dispute that the Notices with which this arbitration is concerned met the limited requirements as to their form which the rest of s. 8.2 is concerned with. It is to be noted that neither in this section nor in s8.3(a) is it a requirement of a valid notice exercising the put on the ground of material breach, that the breach be identified. The Notice is merely required to cite section 8 itself.
80.
S. 8.3 sets out the conditions for exercise of the Put Option. With the agreed date for the Series B Initial Closing inserted by the Tribunal in bold font for clarity, it provides as follows:

"8.3 Conditions for Exercise of Put Option. The Put Option may be exercised:

(a) starting on the date one (1) year after 13 February 2008 for a period of one (1) year, if a Group Company is in material breach (as determined by the Investors holding more than sixty-six and two-third percent (66 2/3%) of all Preferred Share Votes) of any provision under any of the Structure Documents or Transaction Documents"; or

(b) otherwise, starting on the date five (5) years after 13 February 2008 for a period of one (1) year."

A material breach of the 2nd IRA is capable of giving rise to a Put under s.8.3(a) because the 2nd IRA is a "Transaction Document".

81.
So far as is relevant to this dispute, s.8.4 performs 3 functions. It defines the "Put Option Price" as the "Original Subscription Price" (which, it will be recalled, is defined as US$ 1.00 per share for the Series A and US$ 8.00 per share for the Series B Preferred Shares) "increased at a compounded annual growth rate of fifteen percent (15%), from 4 November 2005 in the case of the Series A Preferred Shares, or from 13 February 2008 in the case of the Series B Preferred Shares, to the date of full payment of the Put Option Price".
82.
It imposes different payment obligations on the Founders and on AI. The Founders are "jointly and severally liable for the entire amount of the Put Option price". AI is only liable for the Original Subscription Price.
83.
Lastly, s.8.4 provides for a guarantee. It goes on "The Group Companies shall unconditionally guarantee the obligations of the Company and the Founders under the Put Option, up to the Original Subscription Price of the relevant Preferred Shares...

Other relevant provisions

84.
By s.12.1 it is provided that the agreement shall be governed in all respects by the laws of Hong Kong without regard to any conflicts of law principles.
85.
By s. 12.8 it is provided that delay in exercising a right accruing upon the breach of a party shall not operate as a waiver or acquiescence in that or any similar breach. Any waiver or approval of any kind of any breach is required to be in writing.
86.
By s.12.9 it is agreed that "in the event of any... arbitration proceedings in relation to this Agreement or the rights conferred hereunder, the prevailing Party or parties shall be entitled to an award of reasonable attorney's fees and out-of-pocket expenses from the losing Party".

F. THREE PUT OPTION EXERCISE NOTICES

No. 1: February 2010

87.
By letter to AI dated 13 January 2010 (B2/29) Intel, Daiwa, and DT requested AI and the Founders to amend the Put Option in the second IRA such that the period for exercise of the Option in s.8.3(a) and (b) was extended to 30 months after the starting dates of 1 year and 5 years after 13 February 2008. In the letter they said "the undersigned acknowledge that the Company is actually in material breach of the provisions under the Transaction Documents" and went on "unless the IRA is amended to the satisfaction of the undersigned on or before February 5, the undersigned will not hesitate to formally determine that the Company is in material breach... and exercise the Put Option..." (B2/29/843). In Schedule 2 to the letter they identified the "Events of Breach" as "Failure to provide consolidated financials for the Group Companies " and "Sale of shares in a subsidiary of Airway, Beijing Airway Tong without prior approval of investors and suitably constituted Board of Directors". (B2/29/845)
88.
AI responded positively to the Investors and an amendment incorporating the extension to the Put Option Notice exercise period was circulated by Ms Zhang of AC on 5 February 2010 for signature (DI/10). There was cooperation on both sides to try to procure the amendment in time and Mr Huang put Peng Yang, one of the independent directors of AI, forward to handle the matter with the shareholders on behalf of the group (G/8/65-68).
89.
However, time was pressing because the unamended Put Option expired not later than 13 February 2010 and it did not prove possible to execute the amendment in time.
90.
The qualifying investors therefore exercised their Put Option by a Notice dated 11 February 2010 (B2/31) based on their determination of material breaches in the same terms as those identified in the letter of 13 January 2010 (B2/31). The validity of that exercise of their Put Option rights is not disputed by the Respondents -(I/13/80 item 2(a)).
91.
The Claimants say, and there is no evidence to the contrary, that they explained to Mr Huang and Peng Yang that they were exercising the Put Option to preserve their rights. The Claimants say that, on the basis that AI would use the extension granted to change its behaviour and meet its obligations under the 2nd IRA, it was agreed that, if and when AI and the Founders executed the amendment they sought, the Put Option would be revoked -(Hsu/1/77-78; Larsen/1/101-102; Dr Larsen’s evidence Tr/2/106/14- 107/9D1/11 and 12).
92.
That evidence is consistent with what then occurred. On 3 March 2010 at an Extraordinary General Meeting of AI it was resolved that it was in the interests of AI to enter into the amendment (B2/34/877). The amendment was executed on 3 March (I/13/80 item 2(b)) but backdated to 8 February 2010 (B2/30). It is expressed to be made "in consideration of the mutual covenants contained herein and other good and valuable consideration". The section was amended in two respects: the period for exercise of the Put Option was extended to 30 months in s.8.3(a) and (b); and the text was also altered to make it clear that a new determination would be required for its future exercise by adopting the words "...material breach (as determined on or after February 13, 2010...".
93.
On 5 March 2010 the Put Notice and the determination of breach were revoked. The notice of revocation continued "the revocation herein shall not prejudice any future determination by the undersigned of a material breach... based on the facts set forth in the Put Notice and nothing herein shall constitute a general waiver of the undersigned’s rights under the IRA...". It invited AI and the Founders to indicate their acceptance of the revocation by countersigning the notice. This they did. (B2/35 and I/13/80 items 2 (c) and (d)).

No 2: 8 August 2011

94.
The 30 month period for exercise of a Notice under s.8.3(a) expired on about 13 August 2011.
95.
In circumstances and for reasons which are examined below, by Notice dated 8 August 2011 a group of Preferred Share Holders gave notice of the exercise of the Put Option under s.8.3(a) (B2/61). There is no dispute that the Notice was served on 8 August 2011 -(I/13/80 item 4). The Notice said "The undersigned...hereby (i) determine that the Company is in material breach...and (ii)pursuant to Section 8 of the IRA, by way of service, give notice to exercise the Investors’ Put Option...".
96.
There is no issue taken with the form of the Notice which complies with the requirements of s. 8.2 of the agreement. There is no issue taken with the fact that those investors signing the Notice constituted a qualifying majority of 66 2/3% of the Preferred Share Votes (I/13/80 item 3). The Claimants were among those who did and they did so, in conformity with the requirements of the Put Option, in respect of their entire holdings (B2/61/1135). Their Shareholdings and the Original Subscription Price and the formula for calculating the Put Option Prices are all among the facts and matters not in issue (I/13/81 items 9,10,11).
97.
There were a greater number of signatories to the Notice than there had been in February 2010, not least because since that date Daiwa had reduced its holding of Series B Preferred Shares from 3.75m to 114,450 by selling over 3.5m of them. In order to reach a qualifying majority it was therefore necessary for others to be involved and, in the event, there were seven signatories in all.
98.
But the Notice did identify the "Events of Breach" the subject of their determination of material breach as "Failure to provide all relevant information regarding the Company and/or the Group Companies as required under the IRA, including, but not limit to, consolidated financial statements for the Group Companies" (B2/61/1134).
99.
Following service of the Notice Mr Huang made various proposals to delay execution of the Put (B2/62 and 63) and that prompted RSRB to write on 2 November 2011 (B2/64) demanding compliance with the Put Option Notice by 16 November and, absent that, threatening enforcement of the Claimants* rights by, among things, arbitration proceedings.
100.
It is not in dispute that neither AI nor the Founders made any payment for the put shares (I/13/80-81 items 5 and 6). The Respondents accept that a demand under the guarantee contained in s.8.4 of the 2nd IRA was made upon R7 and R8 on 20 July 2012 and that neither paid the Original Subscription Price as required by the guarantee (I/13/81 items 7 and 8).

No 3: 22 October 2013

101.
The starting date for the exercise of a Put Option under s.8.3 (b) of the 2nd IRA was 13 February 2013. The period specified for exercise of that option under the 2nd IRA in its original form expired in February 2014. The extension of that period to 30 months specified in the amendment on February/March 2010 would expire only in July 2015.
102.
On 22 October 2013, the Claimants gave notice to the Founders and AI of the exercise of their Put Option in respect of all their Preferred Shares under s. 8.3(b) (B2A/1). There is, of course, no determination of breach and no qualifying number of Preferred Shareholder Votes required for the exercise of that option.
103.
No issue is taken in the Amended D&CCL with the form of notice or its service. It was served on Mr Yuen after he confirmed he had authority to accept service (B2A/2-4). There is, and could be, no dispute that it was served in the time prescribed by the 2nd IRA. The Respondents’ quarrel with the timing of the 8 August 2011 exercise of the Put Option is that it depended, for its timeliness, on the effectiveness of the amendment of February/March 2010. The October 2013 Put Option Notice was in time under either version of s.8.3(b).
104.
No payments were made for the shares put. A demand was made against R7 and R8 as guarantors on 20 January 2014 and served on Mr Yuen who was authorised by those Respondents to accept service (B2A/6-10).
105.
No issue is taken with the demand or its service in the Amended D&CCL and nor is it suggested that any payment has been made by the guarantors against that demand.
106.
I accept the evidence of the Claimants witnesses that no payments have been made in relation to this exercise of the Put Option by the Founders, AI, or the Guarantors (Hsu/1/106 and 109; Larsen/2/4-5).

G. THE ISSUES PRESENTED FOR DECISION

107.
As described in Part C of this Award, there was partial agreement reached in September 2013 between the parties about the issues for determination (I/13/78-83). The parties were unable to agree all the matters that needed to be determined and subsequently submitted additional lists of issues. The Respondents’ is at I/13/93. The Claimants’ is at I/13/89 but was modified in the light of the Tribunal’s comments such that the final iteration is that of 17 October 2013 found at I/13/124. None of these Lists take account of the issues raised by the Put Option of October 2013. These must be discovered in the Amended SC, Amended D&CCL and R&DCCL.
108.
The Agreed Issues: (I/13/78-83)

1. Were there breaches of Sections 3.1 (a)(i), (ii), (iii), (iv), and/or (v) of the 2nd IRA?

2. Was the Claimants’ exercise on 8 August 2011 of the Put Option effective. Specifically,

[a] Was the amendment to the 2nd IRA extending the expiry date of the original exercise period valid?

[b] If there were breaches of Sections 3.1 (a)(i), (ii), (iii), (iv) and/or (v), whether such breaches were "material" for the purposes of Section 8.3(a) of the 2nd IRA?

3. What is the proper interpretation of "material" breach?

4. Did the Respondents provide the Claimants with sufficient information and documents so that there were no "material breaches" of Sections 3.1 (a)(i), (ii), (iii), (iv) and/or (v) of the 2nd IRA?

5. Was the exercise of the Put Option (or the determination that there was a material breach) unreasonable and mala fide or made for an improper or collateral purpose?

6. Whether the Claimants have acquiesced to the form of provision of financial information provided by the Group Companies so as to bar their exercise of the Put Option on 8 August 2011?

7. Did the Respondents make any clear or unequivocal representation regarding the validity and/or their acceptance of the Notice?

8. If so, did the Claimants suffer any detriment and/or prejudice by acting in reliance on the representations after the exercise of the Put Option?

9. If so, are the Respondents estopped from claiming that the Put Option Notice was invalid?

10. Whether the Claimants can rely on estoppel to create a new right to exercise the Put Option?

11. Are the Respondents liable jointly and severally as follows:-

[a] As to AI to pay the Original Subscription Price under the Put Option;

[b] As to (the Founders), to pay the Put Option Price under the Put Option; and

[c] as to the (Guarantors), to pay the Original Subscription Price under the Guarantee?

12. Did the Claimants commit a repudiatory breach of the 2nd IRA by reason of a mala fide determination of "material breach" of the 2nd IRA and an exercise of the Put Option for an improper purpose?

13. Have the Respondents suffered loss in relation to the value and benefit of the network equipment listed in the Particulars of Counterclaim for Loss and Damage, as a result of the Samsung Arbitral Award and/or loss of profits generated from the 2nd IRA and, if so, was such loss as is established caused by the matters complained of?

14. Is such loss recoverable as a matter of law?

109.
The Claimants’ Further Issues (I/13/124-126)

1. Did the Majority Investors determine that there was a "material breach" for the purposes of Section 8.3(a) of the 2nd IRA, and did such decision permit them to exercise the Put Option?

110.
The list set out (in paragraphs 2 to 6) matters which are not free standing issues for determination as such in the arbitration but, as is shown by the words "Issues for Expert Evidence " are, rather, evidential issue which arise or may arise along the way to concluding whether there were breaches (2 and 3); whether any breaches were material (4 and 5); what the evidence shows about the claimed loss in relation to network equipment (6).
111.
The Respondents’ Additional Issues: (I/13/93-94)

ISSUES IN THE ARBITRATION

1. Whether the Claimants’ investment into the Company is a strategic investment (as opposed to financial investment which is exclusively for earning return on investment and the operational profits generated by the Company) with the goal of seeding the WiMAX technology in China in the long run in order to generate long term and steady return?

2. Whether the primary objectives of the Claimants are to acquire basic telecommunication service licences in China and to set up a network platform so as to pave the way for the deployment of WiMAX across different provinces in China?

112.
The Respondents, correctly, distinguished between what they wanted to have decided as "Issues in the Arbitration" and "Draft Issues for Expert Evidence". Eight of the latter form the remainder of their List. As with the Claimants’ list, though, they are only evidential issues proposed for the experts.
113.
The 22 October Exercise of the Put Option:

As explained in paragraphs 101-106 above no issues arise about the nature, timing, form, and service of the Put Option Notice, the Founders and Al’s non-payment, the service of the demand on the Guarantors and their non-payment of the sums demanded. The shareholdings of the Claimants, the Original Subscription Price and the formula for calculation the Put Option Price are all admitted facts - (I/13/81 items 9-11) - and apply equally to an exercise of the option under s.8.3(b) as to one under (a). Subject to the issues described in paragraph 114 below the Claimants are therefore entitled to recover the Put Option Price and the Original Subscription Price from the Respondents under s.8.3(b) of the 2nd IRA.

114.
The issues that arise in relation to the second Put are confined to these:

If the Claimants did commit a repudiatory breach of the 2nd IRA by reason of a mala fide determination of "material breach" of the 2nd IRA and or an exercise of the Put Option for an improper purpose (paragraph 108 above at issue 12):

1. Did the Respondents accept that repudiatory breach such that the 2nd IRA was brought to an end on 2 July 2013? (Amended D&CCL 75C, 85 & R&DCCL 66);

2. If the answer to 1. is YES, does that fact render the October 2013 exercise of the Put Option ineffective or invalid? (Amended D&CCL 75 A, 75 D, 87A & R&DCCL 66).

H. CONSIDERATION OF THE ISSUES

115.
It is necessary, first, to address and resolve some contentious issues of fact and law which underlie some of the specific issues identified by the parties for determination.

WiMAX - construction of the 2nd IRA

116.
In explanation of the Respondents’ "Additional List of Issues" which are set out in paragraphs 111 above it was said: "Reasons for inclusion: the relevant investment background and factual matrix concerning the WiMAX technology are of paramount importance to the Respondents’ defence. It is the Respondents' pleaded case that unlike the typical Sino-foreign financial or private equity investment situation where the foreign investors would be eager to understand the financial situation of the Company to ensure their investment would yield rapid return from the outset of the investment, the Investors’ investment in this case is a strategic investment with the primary objectives to acquire basic telecommunication service licences in China and to set up a network platform with the goal of seeding the WiMAX technology in China in the long run in order to generate long term and steady return. The nature of the Claimants’ investment is thus relevant to the extent of the Respondents’ obligations under Section 3.1 of the 2nd IRA and the question whether there was a material breach of the same." (I/13/93)
117.
The Respondents say1 that Intel’s interest in promoting WiMAX technology in the PRC at the time of their first investment in 2005 and up to and including the 2nd IRA is part of the factual matrix which may be used to identify the purpose of the investment agreements and to assist in the proper construction of the information rights under the 2nd IRA. They argue that Intel’s strategy for the promotion of WiMAX technology was shared by all the Investors (RJ 4(b)). They say that the primary focus of the Investors was not on the financial condition of or projections for the Company (RJ 6). They say that the Investors’ longer term interest in establishing WiMAX technology in China meant that they were not "eager to understand the financial situation of the Company" (D&CCL 14). The Respondents’ witness evidence is to the same effect -(Huang/l/Part III and, especially paragraphs 15-17, 20-27, 30-32; Ming-Chen/1/19). Doing the best the Tribunal can to understand this argument in the absence of the Respondents, the relevance of this factual background to their case appears to be that they contend that it leads to the conclusion that the contractual information rights in section 3 of the 2nd IRA, and any breach of those provisions by the Respondents, were not of real importance to the Investors. Any such breaches were not "material" within the meaning of s. 8.3(a).
118.
The Claimants’ response (Part B R&DCCL) is that construction of an agreement may only be by reference to the objective background shared by all parties; that Intel’s intentions and purposes cannot be imputed to other investors and matters which concern Intel alone are irrelevant; and that the VIE structure was a crucial part of the objective background. It is contended that the purpose of the terms of the 2nd IRA was to enable investors to safeguard their investments which were made by all investors, including Intel, with a view to profit. The Claimants say that the development of WiMAX was not in fact the purpose of the Investors’ investment.

Findings:

119.
The Tribunal accepts the submission by the Claimants that the exercise of construing an agreement between businessmen involves ascertaining the business sense of the document which is that meaning which businessmen, in the course of their ordinary dealings, would give to it (Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 per Lord Hoffman at paragraph 10).
120.
It is also quite clear that evidence of the subjective intentions of the parties to an agreement is inadmissible in ascertaining the aim or purpose of the transaction. Only evidence of the factual background known to the parties at the time of the contract is admissible evidence for that purpose (Prenn v Simmonds [1971] 1WLR 1381 at 1385H per Lord Wilberforce.
121.
The evidence suggests that, even if Intel’s private motivation in relation to the possibility of using Mr Huang’s companies as an entrée into the PRC market for WiMAX technology was not appreciated by all the parties at the time of the Series A Preferred Share Sale Agreement in October 2005, at least by the time of the initial Series B investment, the possibility of using WiMAX technology, and Intel’s support for that possibility, was known to all the parties involved -(see, for example, the material identified in paragraphs 49 and 51 above). That all were aware of that possible prospect is, so far as it goes, admissible evidence for consideration of the true construction of the 2nd IRA.
122.
However, WiMAX was, and was seen to be, no more than a possible route for the development of Airway’s business and one which was hedged about with the risks described by Mr Huang in his evidence (Huang/1/22 and 23) at the time of the Series B financing.
123.
The Tribunal accepts that some of the investors are likely to have taken a longer term view of their investment than others and that all are likely to have been aware that there would probably be an interval before the acquisition of licences led to the generation of revenue for the Group Companies.
124.
But the private motivations of some investors are not admissible as an aid to construction. In any event not all the investors are likely to have shared the same objectives and the possible IPO (contemplated by s3.2) and the 5 year Put Option offered those who did not take a longer term view of the investment an opportunity to step aside in the relatively short term.
125.
But, in the Tribunal's view, neither an understanding that development of a profitable network might take time, nor the recognition that WiMAX was a possible but as yet untested technology for such a network is inconsistent with, still less necessarily displaces, the ordinary inference to be drawn from the nature and structure of the investment transaction. The investments were made by a group of investors which contained financial institutions without any direct connection with the promotion of particular technology that IC and ID had as the venture capital arms of Intel, or that DT had in telecommunications more generally.
126.
The Tribunal accepts the submission that an important purpose of the 2nd IRA was the protection of the investors’ investments. Board representation and the requirement for their affirmative votes on important issues offered them one sort of protection. The information covenants offered another. The Put Option offered yet another. Given the nature of the VIE structure, which provided no direct or indirect control through the route of shareholdings in the operating entities in the PRC, those protections were, obviously, of additional importance to the foreign investors.
127.
Two indications of their importance in this transaction, as a matter of construction, are (i) that the information covenants are so elaborate and hold out the opportunity of monthly, quarterly and annual monitoring of the financial situation and performance of the group as a whole, and of the individual entities in it, as well as the monthly monitoring of any transaction which would have necessitated special approval of the Preferred Shareholders on the Board of the Company; and (ii) that the Put Option offers a 15% compound return on an investor’s investment, in the event of a breach within 2 years of the agreement, and in any event after 5 years. In relation to breach, the 2nd IRA is designed to provide a powerful incentive to AI and to Mr Huang and the other Founders to procure compliance with the information covenants and their other obligations. In relation to the 5 year option, the return emphasised the importance attached to their financial return by the investors.
128.
Nor does the Tribunal consider that the fact that all or some of the Investors might have been more focussed on a longer term and steady investment return from a successful development of a telecommunications network in the PRC (with or without WiMAX) is inconsistent with the importance to them of the information covenants. The Series B investment alone raised over US$ 100m and it is consistent with ordinary business sense to conclude that monitoring the proper use of those funds and accurate accounting of the entities controlling them were matters of importance to the parties.
129.
In the light of the way that the Respondents developed this and other arguments, the Claimants gave evidence, through Mr Hsu and Dr Larsen, of the investment strategy and motivation of the Claimants. Mr Hsu said that the investment met IC and ID’s criteria of holding out the prospect of achieving an acceptable rate of return and of advancing the technologies of tomorrow (Hsu/1/8 and 10). He drew attention to internal documents of Intel forecasting a possible 10X return for the investment.
130.
Dr Larsen, who was personally involved in the due diligence exercise for DT’s investment, explained that it was seen as risky but justified in the light of future revenue growth. (Larsen 1/29). For DT, moreover, it was not WiMAX that they viewed as important More important to them was the spectrum licences which offered room for growth into a competitor of WiMAX technology, called LTE. DT saw that as "a more interesting strategy in the longer term". (Larsen/1/28). Dr Larsen said that DT’s interest was a strategic investor with a long term interest and it was not simply investing with a view to a return at an IPO -(Tr/2/105/25 -106/13).
131.
But that evidence is of the private motivation and policies of the Claimants as three of a larger group of investors. It is not admissible on the issue of construction.
132.
The Tribunal concludes that, as a matter of construction, the information covenants in s.3 of the 2nd IRA were of real importance to the investors as affording them a mechanism to monitor the performance of the group, the application of funds they had invested, and as giving them an opportunity to raise matters of concern to them on a timely basis.

The Put Option - s.8.3(a) construction:

133.
The Respondents argue that the power in s.8.3(a) is subject to implied restrictions.

(i) They rely on a series of cases culminating in the decision of the Court of Appeal in England in Socimer International Bank Limited v Standard Bank London Ltd [2008] EWCA Civ 116 per Rix LJ at paragraph 66, for the proposition that the determination of a material breach must be made reasonably and in good faith - (D&CCL 33). It is not clear whether the Respondents accept that "reasonably" in that context means something other than objectively reasonable. The way the matter is expressed at the conclusion in D&CCL 62 is ambiguous.

(ii) They rely on the case of Equitable Life Assurance Society v Hyman [2002] 1 AC 408 at 460 for the proposition, in the speech of Lord Cooke, that "no legal discretion however widely worded...can be exercised for purposes contrary to those of the instrument by which it is conferred".

134.
They contend that "material breach" means a breach which is substantial - a serious matter rather than a matter of little consequence (D&CCL 35). Those words are taken from the judgment of Lord Justice Jackson in the case of Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200 at paragraph 126 where he defines the phrase in the context of the contract in that case.
135.
The Respondents link that definition to the serious consequences for the Group Companies of an exercise of the Put Option which, they say, would frustrate and destroy the "joint cooperative project" -(D&CCL 35 (a) - (d)).
136.
Relying on the Australian decision in Automasters Australia Pty Ltd v Bruness Pty Ltd [2002] WASC 286 per Hasluck J at paragraph 357, they advance the proposition that "good faith " in the context of this case requires of a party that he have due regard to the legitimate interests of both parties in the enjoyment of the fruits of the contract -(D&CCL 36).
137.
Drawing those threads together they suggest that the Put Option can only be exercised where there is a breach of comparable destructive effect to the project as the withdrawal of their funding by the investors (D&CCL 37).
138.
The Claimants contend that s.8.3(a) conferred on the qualifying majority of Preferred Share Holders an absolute and unfettered discretion to determine a material breach and exercise the Put Option.
139.
They accept that the determination that there is a material breach must be honest Tr/2/14-24. It would not be a valid determination if those making it did not honestly believe that there had been a material breach. But they submit that there is no scope for implying any term that the discretion to make that determination or, in consequence, to exercise the Put Option is subject to any other limitation.
140.
If they are wrong about that, their argument is that there are two stages; the first - the determination - can be subject to no more than a requirement that it is made rationally; the second - the discretion to exercise the Put Option - which is a matter for the unfettered discretion of the shareholders. They do not need to weigh the interests of others in taking that decision - Tr/2/76/13 -77/11.
141.
The Claimants argue that there is no scope for implying any limitation to the right to make a determination or the decision because the parties to the 2nd IRA have chosen their own mechanism for the protection of the Company and the Founders against an arbitrary exercise of the Investors powers - namely the fetter that the determination must command the support of 66 2/3% Majority Shareholders.
142.
The nature of the decision is a simple one, they say, and, combined with the fetter means that the determination is not subject to the decision-maker’s "uninhibited whim " so that implicit limitations are not needed. This, they say, is the rationale of the decisions in the authorities summarised by Jackson LJ and Lewison LJ in the Mid Essex NHS Trust case at paragraphs 82-3 and 136 respectively. They rely upon the 1st Supplement to the 5th Ed (2013) of The Interpretation of Contracts by Sir Kim Lewison at paragraph 14.11 where the author opines that no need for any implied limitation arises where the contract contains an express control mechanism.
143.
If the determination has to be arrived at rationally, then the Claimants argue that that test is not to be equated with objective reasonableness. Were that latter standard to be the test, it would remove the discretion from the hands of the shareholders and put it in the hands of the arbitrator. That would be wrong, the Claimants say, and, for this proposition, they rely on the same passage from the judgment of Rix U in the Socimer’s case at paragraph 66 as is relied upon by the Respondents. The test of rationality leads to the conclusion that the determination can only be impugned if no reasonable shareholder could have come to the conclusion that a material breach had occurred.
144.
The Claimants also say that, following a determination that is honest, or honest and rational as the case may require, it may be acted on in what the shareholders decide is their own commercial interests. There is no requirement, in deciding to exercise the Put, to consider the effect of exercising the contractual remedy on the other side. This argument is based on authorities where, as here, there is an inherent conflict of interest between the side exercising a contractual power and the side on the receiving end of its exercise. The Claimants drew attention to dicta about the mortgagee’s power to appoint a receiver (in the case of Shamji v Johnson Matthey Bankers Ltd [1986] BCLC 278 at 274 per Hoffman J) and a debenture holder’s exercise of his power of sale (in the case of re Potter’s Oils Ltd [1986] 1 WLR 201 per Hoffman J at 206B).
145.
As to the meaning of "material breach" the Claimants adopt the passage in the Mid Essex NHS Trust c ase referred to by the Respondents. They also argue that the nature of the breach, the circumstances in which it arises, and any explanation given or apparent about it are factors to be taken into account in reliance upon a judgment of Christopher Clarke J in the decision of Dalkia Utilities services Plc v Celtech International Ltd [2006] 1 Lloyds Reports 599 at paragraph 102.

Findings:

146.
It is clear, and the Claimants accept, that a determination that there has occurred a material breach must be arrived at honestly.
147.
The Tribunal finds that a material breach must be something that is more than trivial and that is substantial in the context of the contractual relationship and commercial arrangements between the parties. The Tribunal accepts the approach implicit in the words of Clarke J in the Dalkia case. It is relevant to a consideration of their materiality whether breaches are deliberate or accidental; repeated or isolated; explained or unexplained; curable or not.
148.
But "material" is an adjective applying to and describing the nature of the "breach" that is relevant. It does not have any other effect than that. It does not imply that the materiality of the breach is related in any way to the adverse consequences for the contract breaker of the other party exercising the Put. A breach is or is not material on the basis of its own character whether or not any action is taken upon it. The Tribunal therefore rejects the Respondents argument in D&CCL 37.
149.
An honest determination of material breach is not a simple "shall we?" "shan’t we?" decision. It is the fact that it requires a judgment of materiality that leads to the implication that the determination of material breach has to be rational - see Jackson LJ in the Mid Essex NHS Trust case. But, as is made clear in Socimer’s case, rational is not the same as objectively reasonable. A determination cannot be impugned unless it is a determination that no reasonable investor could have made. It does not have to be correct. It is not for the Tribunal to substitute its own judgment for that of the party to whom the contract gave the right to make a determination.
150.
Once the determination has been made, a decision to execute the Put Option or not to do so is, however, a simple decision of the "shall we?", "shan’t we?" type.
151.
There is no basis for implying a fetter on the decision-maker at that stage beyond the requirement of the agreement that it must be the view of a qualifying majority. The Tribunal does not accept that it is necessary for the decision-maker to weigh in the balance the effect of a decision to exercise the Put Option. As the cases in relation to mortgagees show, the decision-maker is entitled to decide by reference to his own commercial interests alone. In the words of Hoffman J at p284 in the Shamji case "That power (the power to appoint a receiver) is granted to a mortgagee by the security documents in completely unqualified terms. It seems to me that a decision to exercise the power cannot be challenged except perhaps on the grounds of bad faith. There is no room for the implication of a term that the mortgagee shall be under a duty to the mortgagor to 'consider all relevant matters’ before exercising the power".
152.
The Automasters Australia case does not lead to the conclusion that in this case that the decision-maker cannot exercise the Put Option in the light of his own commercial interests as he sees them. In that case there was an express term requiring the decision-maker to deal with his franchisee in "absolute good faith" (judgment paragraph 14). The decision was that capricious conduct amounted to a breach of the good faith duty in that case (paragraphs 391 and 392). In the context of a positive contractual duty of good faith and a long term commercial franchise agreement the Judge did say that "The term 'good faith' imports a duty to have due regard to the legitimate interests of both parties in the enjoyment of the fruits of the contract. In some cases a cynical resort to the black letter or literal meaning of a contractual provision may be taken into account in determining whether there has been a lack of good faith" - (paragraph 391). It may be the case that a decision which is merely ‘dressed up’ as contractually compliant is invalid, but that is not the same as saying that there is implied a duty to balance the commercial interests of the decision-maker with the opposed interests of the other side when the former decides to operate an unqualified contractual power that the parties have conferred on him. In the context of this agreement the Tribunal prefers the description of "good faith" of Cooke J in the case of SNCB Holding v UBS AG referred to in the supplement to Lewison on Interpretation of Contracts. He said "A duty to exercise ‘good faith’ in doing something is one which is usually to be contrasted with a duty to exercise reasonable care. It connotes subjective honesty, genuineness, and integrity, not an objective standard of any kind, whether reasonableness, care, or objective fair dealing". The Respondents’ argument is an appeal to a standard of care or of fair dealing. It goes too far, in the Tribunal’s opinion. The decision maker is not required to do more than make an honest decision and is perfectly entitled to consult only his own interests in doing so.
153.
The Tribunal concludes therefore that an exercise of the Put Option under s8.3(a) of the 2nd IRA will be valid so long as an honest and rational determination of a serious breach has been made by the qualifying majority. In making the consequent decision to exercise the Put Option the members of the qualifying majority may act in then-own interests and are not required to take into account the balancing counter-interests of the Company or the Founders.

The Agreed Issues:

154.
Against the background of those conclusions about construction of the 2nd IRA, the Tribunal now turns to the issues identified by the parties for resolution.

1. Were there breaches of Sections 3.1(a)(i), (ii), (iii), (iv), and/or (v) of the 2nd IRA?

155.
There are, broadly, 3 categories of information in question, namely financial statements (s. 3.1 (a) (i) - (iii)), transaction information (s.3.1 (a) (iv)), and an annual budget (s. 3.1 (a) (v). The material actually supplied to the investors is set out in paragraph 48 (a) to (o) of the D&CCL. It is not in dispute that that material was supplied to them (I/13/81 item 13). The issue is whether that information complied with the covenants in the 2nd IRA.
156.
Financial Statements (s.3.1 (a)(i)-(iii). It is quite clear that the information supplied did not conform to the requirements of s.3.1 (a)(i) to (iii). Even such financial statements as were disclosed were usually delivered late. The matter is illustrated by Schedule 1 to Mr Hsu’s first witness statement. It can be deduced from the terms of the agreement and the purpose served by the financial information covenants - discussed at paragraphs 119-132 above - that the time period for delivery was specified in the agreement because financial information that was not timely was not as useful as information that was. But late delivery of the information, while a breach, was not the only or the principal complaint of the Claimants.
157.
In relation to each of the Annual, quarterly, and monthly periods financial statements required to be provided were "consolidated financial statements for the Group Companies" and financial statements for "each Group Company individually".
158.
By reference to the definition of "Group Companies" it is clear that what was required was consolidated financial statements of a group comprising AI, AS, AC, and all AC’s majority owned subsidiaries and that each one of those entities is an individual Group Company.
159.
It is quite clear on the evidence that AI and the Founders never procured the delivery to investors of Consolidated financial statements, let alone consolidated annual statements audited by a Big Four accounting form. Nor did they deliver the financial statements of all individual Group Companies.
160.
The Respondents do not claim to have done so. Their case is that the information they did supply was adequate for the investors’ purposes and that the breaches were not material (D&CCL 38-40; 49 - 53). In the case of the financial statements of a significant number of individual companies, the Respondents say that the reports they provided of the operating companies under the control of AC were not provided as "they hardly operated any businesses" and retained cash which was "often, if not always, of a limited amount" (D&CCL 53). They refer to the relevant information as being that of AC and the "6+1" subsidiaries. However that information was itself mostly aggregated and, as will be seen later, difficult to understand.
161.
There is one other matter which possibly arises under this heading. In D&CCL paragraph 40, reference is made to use by the Group Companies, from October 2010, of financial reporting templates designed for them by DT.
162.
These were produced after a meeting held on 19 and 20 January 2010 between DT and AI at which Dr Larsen and Mr Huang and others were present. At that stage the letter of 13 January 2010 threatening exercise of the Put Option (in part for breaches of the requirement for consolidated financial statements) had been issued. Accounting methods were discussed at the meeting - (Cl/10/178-9; Larsen/1/90). As a result of that meeting, when the Put Option Notice was withdrawn, DT produced a "template" that it proposed AI should use for financial reporting. As can be seen from DT’s covering email of 15 March (DI/16) and as confirmed by Dr Larsen in his oral evidence (Tr/2/118/5-119/10), DT’s proposal was that use of the template would meet the contractual accounting requirements of s. 3.1 (a) (ii) - (v): at least as a matter of substance in relation to the monthly and quarterly financial statements, the monthly transactions reports, and the annual budget plan requirement of the 2nd IRA.
163.
Mr Hsu’s evidence was that Intel themselves did not approve the templates or agree that their use would meet any of the contractual requirements of s.3.1(a) -(Hsu/1/295). Dr Larsen’s evidence was that the other investors were aware of the proposal to use the templates and he could not remember any disagreement about their use -(Tr/2/119/111 -120/21).
164.
In the event, however, DT’s template was not used at all until late October 2010 (B3/32) and was never used properly to disclose the financial information required or the undisclosed transactions (Hsu/1/296; Dr Larsen Tr/2/121/7-11).
165.
The Tribunal does not understand the Respondents to assert that the 2nd IRA was amended by the arrangement to use the DT templates. Rather they pray the templates in aid on the issue of materiality of any breach and acquiescence in them. But, in any event, the Tribunal would not have been prepared to find that these arrangements, undertaken by DT with a view to helping AI and the Founders to provide useful financial information after the withdrawal of the 2010 Put Option Notice, amounted to an amendment which bound all parties to the 2nd IRA. There is nothing to suggest that DT was authorised by the other investors to agree to an amendment and Dr Larsen’s evidence suggests that DT was taking an individual line to attempt to rescue the project when other investors were much readier to adopt a stronger line about the breaches that they perceived had occurred -(Larsen/1/87-91)
166.
The Tribunal has no hesitation in finding that AI and the Founders were, throughout, in breach of s. 3.1 (a) (i) - (iii) in respect of the provision of consolidated financial statements for the Group Companies and financial statements for the individual Group Companies.
167.
Transaction Reports (s.3.1 (a)(iv)): The Claimants allege breaches of the requirement to make a monthly itemized statement of all transactions which required approval of the Board of AI by reference to Article 72(b) of the Memorandum and Articles of AI.
168.
Four transactions are the subject of this complaint. They concern dealings relating to Beijing Airwaytong ("BAT"); Chutian Digital; Sinosky; and Airway Holding Shanghai ("AHS"). None was the subject of a monthly transaction report
169.
BAT: This transaction involved a transfer, in September 2009, of 51% of the shares in BAT (a Group subsidiary) to a third party for RMB 32m (B2/26/834; D1/8). Such a transaction required the consent of the Board of AI and of the Preferred Shareholder Directors by virtue of, at least, Article 72(b)(15).
170.
Chutian Digital: This company was a joint venture between Tonghe and Chutian Broadcast Television Information Network Ltd (Hsu/1/126). In December 2009, a subsidiary of AC, Airway Hubei, purchased 30 million shares of Chutian Digital at a cost of RMB 84m. Tonghe is a "Connected Individual" and Chutian Digital is another "Person" within the meaning the Al’s Articles. The transaction required relevant consents under Articles 72(b)(6) and (2) accordingly.
171.
Sinosky: In December 2009, Airway Shanghai purchased 19m shares of Sinosky from Tonghe (Hsu/1/141). For the same reasons as apply to the Chutian Digital transaction, this required relevant consents under Articles 72(b)(2) and (6).
172.
AHS: This company was incorporated in January 2010 as a subsidiary of AC -(Hsu/1/156). This required approval under Article 72(b)(10).
173.
Because each of these transactions required consent under provisions of Article 72(b) they were each required to be included in itemized monthly transaction reports.
174.
The Respondents do not challenge the fundamental facts of each transaction. They do not claim that these transactions fell outside the reporting requirements of the agreement. They do not claim that they were reported. Their case is that "sufficient information and notice of these transactions" was given to investors in other ways -(D&CCL 54).
175.
In the circumstances, the Tribunal has no doubt that there were breaches of the monthly transaction report requirements of the 2nd IRA in respect of each of these transactions.
176.
Budget (s.3.1(a(v)): The obligation is to provide an annual budget for each Group Company "and/or" the Group Companies as a whole.
177.
No Budget for the 2011 year was produced on time. As shown by B3/35/654 a budget for the 2011 year for AI and AS combined was produced on 28 January 2011 rather than at least 90 days prior to 31 December 2010. On 2 April 2011 a budget was produced for AC described as "including all the entities " about 6 months late (B4/36/679).
178.
The Respondents never produced a consolidated budget for the Group Companies as a whole. Nor did they produce budgets for the individual Group Companies. In fact, the AC aggregated budget for 2011 described above related to only three of its many subsidiaries -(Hsu/1/213). In her email of 22 February 2011, Ms Xu, the Chief Financial Officer of AI and the group, referred to 34 subsidiaries and branches of which it appears, from DT’s email on the same day, at least 23 were subsidiaries (DI/33). In the financial report for June 2011 24 subsidiaries are identified -(B4/41/889).
179.
The Respondents do not claim to have provided budgets complying with the agreement The Tribunal has no doubt that AI and the Founders were in breach of this obligation of the 2nd IRA in respect of the 2011 year.
180.
The answer to the question posed by the 1st Agreed Issue is "Yes".

2. Was the Claimants' exercise on 8 August 2011 of the Put Option effective. Specifically, [a] Was the amendment to the 2nd IRA extending the expiry date of the original exercise period valid?

181.
The Respondents argue that there must be strict compliance with the terms of the option if it is to be exercised effectively. Service of the Put Option Notice under s.8.3(a) was therefore required to be strictly within the time prescribed the agreement -(D&CCL 29). The proposition of law is not challenged by the Claimants in their R&DCCL and was not the subject of any challenge at the hearing. In foe Triunal’s view foe Respondents are plainly correct in law. Any failure to serve a notice strictly compliant with foe conditions for exercise under foe agreement would be invalid and ineffective. In this case foe only respect in which foe requirement of strict compliance is in issue is that of foe timeliness of the Notice of 8 August 2011.
182.
Obviously, foe Notice of 8 August 2011 was out of time under foe terms of the original 2nd IRA. That time expired in February 2010. Equally obviously, if the amendment of the 2nd IRA apparently adopted by the parties to the agreement in March 2010 applies, the Notice was within time.
183.
The Respondents challenge the amendment on the grounds that it was not binding on them because the investors gave no consideration for the promise of the extension of time. It is said that that promise was given gratuitously by the Respondents (D&CCL 22 & 26). The Respondents say that there was no promise to forbear from exercising the Put Option right in the future which amounted to consideration because the terms of revocation of the February 2010 Put Option Notice left the investors’ rights in relation to existing breaches of the agreement intact (D&CCL 23; RJ 8(b)). The Respondents also argue that there was no consideration in the form of actual forbearance from pursuing the February 2010 Put Option Notice because, given the terms of the letter of 13 January 2010 and Mr Hsu’s email of 11 February 2010 (DI/12), forbearance was offered unilaterally by the investors rather than requested by the Respondents as the price of the extension (D&CCL 24; RJ 8(c)(i) and (ii)). The Respondents say that the reference in the Amendment itself to mutual covenants and other good and valuable consideration are mere words and do not supply good consideration where in fact none exists (D&CCL 25).
184.
The Claimants contend that the investors provided consideration by a promise to revoke what is admitted to have been a valid Put Option Notice at the express or implied request of AI (by Peng Yang) if the amendment were adopted and by their revocation in performance of that promise -(R&DCCL 23). They argue that the suggestion that the promise was made voluntarily by AI and the Founders lacks any credibility and point out that the Respondents have tendered no evidence on the matter from either of their witnesses.

Findings:

185.
The Tribunal has concluded from the evidence of Mr Hsu about his conversations with Peng Yang and Mr Huang (Hsu/1/77-78) and that of Dr Larsen (Larsen/1/101) and from the evidence in the contemporaneous documents the most important of which are referred to in paragraphs 87 -93 above, that what happened was that AI and Mr Huang were concerned to avoid the threatened Put Option Notice before it was issued. Mr Huang appointed Peng Yang to deal with the matter on behalf of AI and the Founders. The investors sought and were given assurances that AI and Mr Huang would rectify their failings if the threat of default were to be lifted. AI and Mr Huang were, effectively, being given a chance to mend their ways and they knew it. When the Put Option Notice was issued - based as it was on a determination of breach by the failure to deliver consolidated financial statements and the unauthorised BAT transaction - it was agreed that it would be revoked if and when the amendment was adopted but on the basis that the 2nd IRA would be observed properly in the future.
186.
The agreement was for a package. AI and Mr Huang promised through Peng Yang to extend the time for service of the Put Notice in the 2nd IRA and in consideration forthat the investors promised to revoke the Put Option Notice when the amendment had been delivered. The agreement was performed by both sides.
187.
The Tribunal agrees with the Claimants that to put an interpretation on those events to the effect that AI and Mr Huang’s agreement to extend the time for exercise of the Put Option was gratuitous or voluntary is artificial and unrealistic. In the EGM of AI at which it was resolved to execute the amendment, it was resolved that to do so "was in the interests of (AI)". And so it was. The amendment was given in exchange for a promise by investors to withdraw what is now admitted to have been a valid Put Option Notice which would have had the effect that AI suffered the withdrawal of at least a very substantial part of the overseas investment. The benefit to the Founders of agreeing to the amendment was also substantial because they were exposed to the obligation to pay the full Put Option Price had the Notice not been withdrawn.
188.
The answer given to the specific Issue 2(a) is "Yes".

2. Was the Claimants* exercise on 8 August 2011 of the Put Option effective. Specifically, [b] If there were breaches of Sections 3.1(a)(i), (ii), (iii), (iv) and/or (v), whether such breaches were "material" for the purposes of Section 8.3(a) of the 2nd IRA?

3. What is the proper interpretation of "material" breach?

4. Did the Respondents provide the Claimants with sufficient information and documents so that there were no "material breaches" of Sections 3.1 (a)(i), (ii), (iii), (iv) and/or (v) of the 2nd IRA?

189.
It is convenient to take these issues together. In the Tribunal’s view Issue 3 comes first and Issue 4 is part of the enquiry required to answer Issue 2(b), which is the end point and the crucial question.
190.
But the Tribunal makes the preliminary observation that if Issue 2(b) is read as requiring the Tribunal to make its own judgment of materiality the test of whether the Claimants’ exercise of the Put Option was effective, then it poses the wrong question. For the reasons given above in the analysis of the proper construction of s.8.3(a), the right question is "If there were breaches of Sections 3.1(a)(i), (ii), (iii), (iv) and/or (v), were they breaches that no reasonable investor could have determined to be "material" for the purposes of Section 8.3(a) of the 2nd IRA?".
191.
The answer given to Issue 3 is that arrived at in paragraphsl47 - 148 above. Judged by its own lights a material breach must be something that is more than trivial and that is substantial in the context of contractual relationship and commercial arrangements between the parties. Factors relevant to a consideration of its materiality include matters such as whether a breach is deliberate or accidental; repeated or isolated; explained or unexplained; curable or not.

Materiality:

192.
The issue is whether the breaches considered as a whole were breaches that rational investors could have considered material. The breaches complained of covered different aspects of the information covenant obligations of the Respondents. It is necessary to see them in the round when reaching a conclusion about this issue but to understand the parties’ respective positions it is first necessary to look at them separately.

Materiality - financial statements:

193.
The Claimants say that the consolidated financial statements were essential to understand the overall picture about their investments by eliminating the distortion to the overall picture in unconsolidated statements caused by inter-group company transactions. The individual entities financial statements were essential to understand where cash was invested in the Group, whether anticipated revenues were being realised and to identify inter-group company transactions. The Claimants complain that the lack of an audit of the Group Companies by a Big Four accounting firm deprived the investors of the confirmation that the financial information being provided to them was accurate. They point to inexplicable discrepancies in the financial information that was supplied which rendered it impossible to understand let alone to check or compare it with other information supplied. They say that they were unaware even, of the complete list of the AC subsidiaries in which their funds were being invested. They say that it is because this information, and the monitoring of it, was so important, that s.3.1(a) of the 2nd IRA was designed as it was.
194.
The Respondents argue that the breaches could not have been regarded as material for four principal reasons.
195.
First, they say that financial information was not important to the investors given their motivation in entering the agreement.
196.
Second, the Respondents say that the investors acquiesced in the way financial information was provided by the Respondents (D&CCL 41-44). The Respondents rely on this, as the Tribunal understands it, as indicating a lack of materiality in their breaches as well as a free standing defence.

(i) They point out that, over the whole period of the 2nd IRA, financial statements were never provided in fully consolidated form but were always presented in a way which reflected the fact that there were two separate groups in Airway; AI and AS on one hand and AC and its subsidiaries on the other. There was no common accounting standard adopted across the whole group and they explain the lack of consolidated accounting by the fact that AI and AS had no direct control over the VIE.

(ii) They rely upon the investors’ delay in exercising the Put and argue that, had the lack of information led to real prejudice to the investors, they would have exercised the Put Option earlier.

(iii) They point out that in May 2009 the investors agreed to forego any audited consolidated financial statements for the Group for the 2008 year, whether prepared by a "Big Four" accounting firm or not.

(iv) They refer to the 19/20 January meeting with DT and the discussion at that meeting about the separate accounting systems. They refer to DT templates "tailored for the Group" which they used from October 2010.

(v) Mr Huang’s evidence at Huang/1/39 deals with this topic.

[a] He says that financial statements were always provided in unconsolidated form and, in light of the fact that the group had grown significantly and was expending most of its funds on equipment and securing licences it was unrealistic for it to engage a Big Four accounting firm to prepare another set of financial statements for the group as a whole. The investors, he said, accepted that between May 2008 and at least October 2010 as pointed out in the D&CCL.

[b] He refers to a Board meeting in September 2007 - i.e. prior to the Series B investment and the 2nd IRA - at which the separate auditing, by PRC based firms, of AC and AS was approved.

[c] He refers to the use, with the approval of investors, of the DT templates.

(vi) At section IV of Mr Huang’s second statement he says that the change to a PRC auditor for AI and AS for the 2011 year was explained to investors on many occasions and was justified by the PRC firm’s lower audit fee and their relatively speedy delivery of audited accounts. He says that in March 2009 enquiries of Big Four accounting firms by the chairman of Airway’s audit committee resulted in advice that it was impractical to consolidated financial statements of the whole Group because of the lack of shareholding control over AC on the part of Al and AS. And Mr Huang says that before the departure of Cadol Cheung - i.e. before the summer of 2009 -the latter told Mr Huang that Intel had many companies in their portfolio which did not perform their information obligations and that Intel’s response to them would be to try to compromise.

197.
Third, the Respondents say that the financial information actually supplied was adequate (D&CCL 45-53).

(i) They contend that the financial information they supplied (which is listed at D&CCL 48 and is agreed (I/13/81 item 13)) was sufficient to give to the investors "a fair and informed view of the financial performance and position of the Group Companies" (D&CCL 47).

(ii) They rely upon the fact that the information they supplied in the form of the DT templates was information tailored by the investors (D&CCL 48 (d) and (g)).

(iii) As to the problem that the lack of consolidated financial statements for the Group obscured the performance of the Group by making it impossible to identify true third party transactions from inter-group company transactions, they say that the audited financial statements that were provided identified such transactions as "Related Party" transactions and enabled the true position to be ascertained in a simple way by deduction of the related party transactions from the total (D&CCL 49 &50).

(iv) The Respondents say that it is misleading and inaccurate for the Claimants to say that they were unclear which operating entities were included in the financial statements of AC and to complain that its various subsidiaries results were aggregated together because it was known that most of the operating entities were set up to hold licences "with only limited business activities, if any". Only the major six entities in Beijing, Shanghai, Wuhan, Shandong, Guangdong, and Hainan were engaged in more business activities. The remainder hardly operated any businesses" and the cash in their accounts "were often, if not always, of a limited amount". (D&CCL 52 & 53).

198.
Fourth, the Respondents refer to the investors’ "eyes and ears in the management of (AI)" through the directors that they appointed to the Board and the observer who attended it for Intel (D&CCL 58-60). The result of that arrangement, and the fact that Ms Xu was appointed as CFO of AI "on the recommendation and nomination of the Investors " is said to be that "it cannot be fairly said that (the investors) did not have a fair and informed view of (Al's) financial position and the Claimants could not have reasonably determined that the Respondents had committed a material breach of the 2nd IRA in failing to provide each and every financial documents required by section 3.1(a)" (D&CCL 62)
199.
Mr Huang’s evidence is that Intel realised that it was dealing with a 'small local private Chinese company" which was "not so sophisticated with the western idea of corporate governance" where it was "perfectly natural that there would be gaps and difference in expectation in terms of standard of reporting and documentation" (Huang/1/36). He and R5 attribute the investors’ requests for further information after the departure of Cadol Cheung to their development of a "passive and evasive" approach following their decision to give up on WiMAX technology (Huang/1/38; Ming-Chen/1/31) rather than to the intrinsic importance of the information they were seeking.
200.
In their R&DCCL the Claimants responded to the D&CCL.

(i) As to acquiescence: They denied that they acquiesced in the provision of financial information in a form different to that required by the 2nd IRA. They contend that neither the lack of an approved accounting standard nor a lack of control by AI and AS over the VIE justified a failure to provide consolidated financial information. They rely upon the February 2010 exercise of the Put Option as demonstrating that no inference of acquiescence can be drawn from the Claimants reaction to the inadequate financial information. They say that even if non-consolidated audited financial statements for AI and AS on one hand and AC and its subsidiaries on the other were accepted for the 2008 year, that did not apply to subsequent years. They rely upon exchanges between the investors and AI in 2010 as showing that provision of financial information in the form of the DT templates was not accepted as sufficient for the investors purposes (R&DCCL 35-39).

[ii] As to adequate information: The Claimants say that the materiality of the financial information required was enhanced by the fact that there were a large number of intercompany transactions which were atypical for a VIE structure; that such transactions increased the potential for misallocation or misuse of funds; and that cash in the group was diminishing but could not be accurately traced -(R&DCCL 31). They say that the financial information was confusing such that the investors could not determine how much money was being spent or earned as a whole. They said they were compelled to make enquiries about matters which should have been reported to them and could not get proper answers to questions even when they asked. Unconsolidated audited reports were inadequate but none of the audited reports for AC, even taken as a separate group, was carried out by a Big Four accounting firm. Use of the "related party" in the audited reports they were supplied with did not enable the true position on consolidated accounts to be determined. As to AC and its subsidiaries, the Claimants say that they never agreed to the limited information provided by the Respondents in respect of some but not all the subsidiaries and argue that it is not appropriate for the management, who are the very people whose actions are to be monitored, to be deciding that some entities should be excluded from the financial statements. The risk of misappropriation existed wherever the investors’ funds were to be found. (R&DCCL 39-47).

Findings:

201.
For the reasons explained in paragraphs 119-130 above the Tribunal rejects the argument that the financial information covenants and compliance with them were not important to the investors.
202.
Consolidated accounts: The lack of consolidated financial statements for the Group Companies had caused problems for the investors during 2009. The lack of those financial statements was one of the two breaches relied upon by the investors in their February 2010 Put Option Notice. It is admitted that that was a valid notice - (I/13/80 item 2).
203.
In the course of the parties’ discussions about the revocation of that Put Option Notice, the Respondents recognised and accepted that consolidate financial statements needed to be provided. The Tribunal accepts the evidence of the Claimants’ witnesses about that discussion and, in respect of consolidated statements, it is borne out by the exchange between Daiwa and Peng Yang on 17 February 2010 (DI/13/68).
204.
The Tribunal accepts the evidence of the Claimants that the lack of consolidated statements made assessment of the overall position of the Group very difficult (Hsu/1/196 & 203; Larsen/1/53-56) and that is also supported by contemporaneous evidence of the difficulties caused to the investors in relation to understanding the position of the Group. Mr Hsu’s attempts to produce his own "rough" consolidated balance sheet in August 2010 is an illustration of the problem -(Dl/26-28).
205.
Mr Zirlen, the expert witness for the Claimants, was a witness with direct experience of accounting issues related to the use of the VIE model in the PRC. His opinion, explained in detail at section 5 of his report, was that consolidated financial statements for the Group as a whole were reasonably necessary to provide to investors with a fair and informed view of its true financial position. As well as eliminating gains and losses on transactions among the Group Companies the advantage of consolidation is that its use of a single accounting standard eliminates the inconsistencies which are sometimes the result of applying different accounting standards to different parts of the Group -(Zirlen/1/52.6-5.2.7).
206.
Eventually, in May 2011, the Respondents through their CFO, Ms Xu, advanced the theory (as put forward in the D&CCL) that consolidation was not possible where there was no control through equity by AI and AS of AC and its subsidiaries -(B2/59). That was challenged by Mr Hsu for Intel but never resolved in subsequent discussions -(Tr/2/330).
207.
The Tribunal accepts the Claimants’ evidence that consolidation of accounts across the whole group was perfectly possible. Mr Hsu’s evidence was that this is a standard requirement in investments of this type (Hsu/1/39). At paragraph 4.4 of his report, Mr Zirlen confirms that consolidated financial statements for the specific use of the investors and under a Special Purpose Framework which were fit for purpose could have been prepared in accordance with the requirements of s.3.1(a).
208.
Audited Consolidated Annual statements: It is clear that the some of the investors expressly, and the rest implicitly, agreed to forego these statements in relation to the 2008 year. But it is equally clear from the contemporaneous documents that they did not do so for the 2009 year or the 2010 year. JCD Navi and NTT DoCoMo, in agreeing about the 2008 year, expressly reiterated the need to have complying audited accounts for the 2009 year-(B2/20 & Dl/1).
209.
The Tribunal accepts that Audited Financial Statements were required as a check on the accuracy of the financial information provided to investors and, just as importantly, as offering some control over unauthorised transactions (Hsu/1/35 and 1/113(m) to (o)). In addition, auditing by a Big Four Accounting firm was expressly required by the 2nd IRA and there is no basis for thinking that it was not important to investors. In fact Dr Larsen’s evidence is that it was a mandatory DT requirement (Larsen/1/56).
210.
Individual accounts: These were not provided in respect of all the subsidiaries. Even though significant sums of the investors funds had been invested in them (Hsu/1/182(c)-(e)) the results of these subsidiaries did not apparently feature in the reported information in any way.
211.
Even the statements provided in relation to the so called "6+1" subsidiaries - which the Respondents’ say were the subsidiaries of AC which operated businesses properly so called - were aggregated and not individual statements. The "6+1" group itself fluctuated. In October 2008 the members were identified as the subsidiaries set out in the D&CCL "plus the Changjiang project...namely Digital Yangtze River" (B3/5/44). But in April 2010, a new entity, Airway Hubei, had been added to the list (B/26/454). Moreover, whereas in April 2010 the presentation followed previous reports and appeared to consolidate AC and the subsidiaries (B3/26/451-3), the next report, in June 2010 adopted a new format whereby, without explanation, AC’s statements appeared to be distinguished from those of the 6+1 subsidiaries (B3/27/465-467 and 469-471).
212.
The Tribunal accepts Mr Hsu’s evidence about the continuing difficulty faced by the investors after 2010 in understanding or reconciling the financial information found in them (Hsu/1/187-191). Mr Zirlen’s report, at section 6, credibly explains, in detail, the deficiencies in the financial information provided from the standpoint of identifying third party income for the group.
213.
The result was that the financial information provided by the Respondents left the investors unable to monitor their investments as had been intended by the 2nd IRA. Mr Hsu, who advised the senior management of IC and ID in relation to the Put Option, said that his advice that there was a material breach was based on his view that "the financial statements made no sense basically" (Tr/2/127/8-11). Dr Larsen said, that there was "no transparency about where is the shareholder money" (Tr/2/107/24 -108/3). DT’s templates did not solve the problem. In DT’s finance and controlling department’s view, they raised even more questions (Tr/2/121/7-11).
214.
The Tribunal does not accept that the investors’ role in management in the Group is an answer to the materiality of the Respondents’ failure to supply the financial information that they agreed to supply. A principal purpose of the information covenants was that the Respondents were to supply regular and orderly financial information which enabled the investors to study the position of the Group Companies and compare it to previous periods and to the budget. The involvement of investors’ representatives in Shareholder and Board meetings offered some measure of protection to investors but was no substitute for the financial information they should have received from the Respondents.
215.
Had these breaches stood alone, the Tribunal would have had no hesitation in finding that a reasonable investor could have reached a determination of material breach by the Respondents based upon them. They were recurrent. The Respondents had been given a further opportunity to comply with their obligations in February and March 2010 and had promised to do so but had not. The breaches adversely affected the investors understanding of the financial performance of the group and the whereabouts of its assets. It was by no means the case that the investors had sufficient information to give them a fair view of the financial position of the Group or the Group Companies. The reasons for the breaches were not explained adequately or at all. They were not accidental but were the result of the Respondents adopting an approach to the provision of financial information which paid no real attention to the terms of the 2nd IRA.

Materiality - the itemized transaction statements:

216.
BAT:

(i) This is the first transaction which was not disclosed as it should have been. It came to light because, in November 2009, Daiwa "heard" that 51% of a subsidiary of AC had been sold for 32m RMB. It was thought, mistakenly, that the subsidiary concerned was Beijing Airway. The investors devised a strategy to ask questions about figures in the accounts which would discover information about the transaction but avoid compromising Daiwa’s source in the company. (B2/24/826-7; Hsu/1/119; Larsen/1/81).

(ii) In response to their enquiry they were initially told that in September 2009 51% of a subsidiary had been transferred to a third party for 32m RMB -(B2/26). Later, at the end of December after further enquiry, the subsidiary was named as BAT. Intel were prompted to ask where BAT fitted into the Group (Dl/8). This was the first occasion on which BAT’s involvement was revealed to the investors -(Hsu/1/121-122). Intel’s enquiry about the identity of the third party purchaser was not answered.

(iii) Daiwa’s investment adviser, Mr Zou of BDA, met Mr Huang to discuss this transaction on about 29 December 2009. Mr Huang gave him an explanation about that the transaction involved an asset swap but was not very forthcoming about it. Mr Zou concluded "I have to say this is monkey business" -(B2/28/842).

(iv) The BAT transaction was referred to in the investors’ letter of 13 January 2010 which threatened a determination of material breach (B2/29).

(v) At the meeting with DT on 19/20 January 2010, an explanation was given to DT about this transaction (Cl/10/184-5; Cl/17/373) which appears to be essentially the same as that contained in Mr Huang’s witness statement (Huang/2/17). It is not easy to understand. It appears to be the case, however, that BAT’s shares were transferred to a third party Wuhan Century Jincheng Company in the course of the transaction.

217.
The evidence shows that Mr Huang and AI did not disclose this transaction before it was entered into, whether by discussion in the Board, or itemized monthly transaction statement under s.3.1(a), or informally. The investors discovered it from a source of Daiwa and were forced to ask a series of questions to elicit any information about it. The explanation, when given, was not complete as is shown by the fact that Daiwa was still seeking materials explaining the transaction in March 2010 (DI/17). It seems, from the evidence in the arbitration, that they have never been provided.
218.
This transaction was, evidently, a matter of concern to the investors. Dr Larsen described it as a tipping point that called into question the trust DT could have for Al’s intentions and actions - (Larsen/1/86).
219.
The Respondents cannot have been in any doubt about the Claimants’ and Daiwa’s views about its materiality following the January 2010 letter and the February Put Option Notice, both of which referred to it as a material breach.
220.
Chutian Digital & Sinosky:

(i) In late February 2010 Daiwa told Intel that it had "got information" that Airway had invested the equivalent of about US$23m in two PRC companies in December 2009 (B2/32-33). Daiwa’s information was that 84m RMB had been invested into a digital television company and 76m RMB in an airport related project

(ii) On 8 March 2010, a few days after the revocation of the February 2010 Put Option Notice, Daiwa raised the matter with Peng Yang as a failure by AI to follow due process in getting approvals for important business activities. Daiwa described it as a serious matter. Peng Yang agreed (B2/36).

(iii) In March Daiwa and Intel requested information about the transactions from management-(D1/17; Hsu/1/133(a)).

(iv) At the April Board meeting of AI, management "introduced" the investments as Chutian TV and Sinosky. The Board materials described the former as an investment which "aims to control the area digital TV network resource" (Cl/8/148) and the latter as leading Airway "into the air wireless communications industry" (Cl/8/149-150). It was agreed at the meeting that the new CFO would submit materials and analysis about the investments to the board and preferred shareholders (B2/39/905).

(vi) Ms Xu was not appointed as CFO until later in the year and, in the meantime, no information about these investments was provided to investors.

Chutian:

(vii) DT’s senior business analyst, Bin Xi, came across information on the internet referring to Mr Huang in an article about the arrest of other officers from Chutian Digital allegedly involved in insider trading. The article named Mr Huang as Vice-President of Chutian Digital. DT was concerned, carried out research into publically available information, and produced their analysis on 4 July 2007. This showed that a subsidiary of AC, then described as Airway Wuhan but actually Airway Hubei, had bought 30m shares in Chutian Digital at a cost of 2.8RMB per share in February 2010 which it then sold in April 2010 at a price of 1.72RMB per share booking a loss equivalent to about US$ 3m. At the same time Tonghe, also under the control of Mr Huang, sold shares in Chutian Digital booking a profit of 188,767m RMB (though not by sale to Airway Hubei) (B2.40; Larsen/1/121,122, and 125).

(viii) Further questions were asked of management in July about Chutian Digital and some incomplete information was received from Peng Yang about it (Larsen/1/123-124; B2/41, B2/42, B2/43).

(ix) In July Daiwa "heard" that Mr Huang was thinking of cancelling the investment (DI/26) and DT confirmed that Mr Huang had committed to cover the loss sustained "since overall with his investments into Chutian he made a profit". This caused further concern to DT since it demonstrated Mr Huang’s "portfolio view and the limits of control all shareholders have" (B2/44). In the documents supplied by Peng Yang this portfolio approach had been confirmed (B2/42/924-925).

(x) At the 27 September 2010 Board meeting of AI the agenda referred to Chutian Digital thus: "Try our best to take back the assignment funds ASAP" (B2/46/966) and the minutes provided that the CFO would follow up with a report.

(xi) On 1 November 2011 Ms Xu said that 51.6m RMB of the investment had been returned. On 20 January 2011 she said that 84m RMB had now been recovered. This information is difficult to understand and to reconcile with the original transaction where Airway Hubei sold the shares for a total of 51.6m RMB in April 2010 (Hsu/1/140).

(x) The Respondents say that the transaction was "already disclosed" in the 2009 Audited consolidated financial statements for AC (D&CCL 55(b). However those statements are dated 16 May 2010 (Cl/14/349(iii) and so, far from providing prior disclosure to investors, came only after the whole transaction was unwound. They refer to the investment in Chutian Digital (which they say followed an agreement in December 2009) but not to the disposal of the shares at a loss because that occurred in the following accounting period (Cl/14/349(xviii).

(xi) In relation to prior notice of the Chutian Digital transaction, the Respondents rely upon a reference to Chutian Digital in the Board materials prepared for the 27 October 2009 AI Board Meeting - (Cl/7/82). That information does not refer to the actual investment proposal. The draft minutes of that meeting put in evidence by the Respondents do not record any discussion about the proposal let alone a Board resolution about it (Cl/18/380-382).

(xii) Mr Huang’s evidence about Chutian Digital does not suggest that the investors were given any prior notice, let alone that they approved this transaction. He does, however, focus on rebutting the suggestion that he made a secret profit in the transaction (Huang/l/39(viii); Huang/2/21-22). He refers to an agreement between Tonghe and Airway Hubei which was produced, for the first time so far as the investors are concerned, with the D&CCL. It is dated 30 April 2010 and makes Tonghe responsible to reimburse Airway Hubei’s loss on the transaction within 30 days of the agreement. The transaction is described as if the investments made and losses sustained were in "dollars" such that the loss to be reimbursed is $32.4m. That appears to be a mistake for RMB (CI/15/352). With Mr Huang’s statement he also produced a bank transfer receipt evidencing Tonghe’s reimbursement of Airway Hubei’s losses. This document, apparently a bank record of payment, shows a payment by Tonghe to Airway Hubei of 32.4m RMB on 30 December 2010. The Tribunal does not base its decision on this issue on any finding about a secret profit in this or the other undisclosed transaction. The question it is concerned with relates to the gravity of the breach of the information about transactions which should have been, but were not, reported to investors. But it is to be observed that the agreement with Tonghe and this record of payment does not seem to bear much relationship to what the investors were told was happening in the September 2010 Board agenda or the subsequent reports by Ms Xu.

Sinosky:

(xiii) This investment was also followed up by investors with questions after the April 2010 Board meeting. They had no information about the investment at all. It now appears that it occurred in December 2009 and involved a purchase by an AC company of 19m shares from Tonghe (Cl/14/349(xviii). As soon as the investors probed the transaction, Daiwa heard that Mr Huang was intending to cancel this investment. At the September Board meeting the agenda item for Sinosky also referred to exiting the investment. It said "Drop out and reallocate the main investment resources on the Yangzi River" (B2/ 46/966).

(xiv) Ms Xu was not able to give any helpful information thereafter. In September she said she could not, herself, answer the questions asked but would refer to Mr Huang (B2/49/1022); in October she said that Mr Huang had promised that it would be "settled down " by the end of the year (DI/30/157; in late December she promised to follow up and report (B2/51/1028); and in January 2011 she repeated that offer (B2/52). No further information was forthcoming.

(xv) The D&CCL refers only to the 13 April 2010 Board meeting. Mr Huang does not offer any evidence about it.

221.
The evidence shows that Mr Huang and AI did not disclose these transactions before they were entered into, whether by discussion in the Board, or itemized monthly transaction statement under s.3.1(a), or informally. The investors discovered them on their own. They had been given no opportunity to consider them in advance and, so far as the information covenant is concerned no information about them at the time they occurred or subsequently.
222.
The investors were, essentially, never given information about either transaction which enabled them to judge the merits of the investments or the wisdom of disposing of them. Rather than provide them with the information enabling them to judge the investments Mr Huang appears to have decided to disinvest. '
223.
AHS:

(i) From at least March 2009 there was discussion in the Board of AI about management’s proposal to establish the company that became AHS when ultimately incorporated in January 2010 (G/43/1347; Huang/l/39(vi)).

(ii) In the Board Meeting of 27 October 2009 the Board discussed the agenda item "The necessity for establishing China Airway" (Cl/7/107). This meeting is relied upon by the Respondents as evidencing the Claimants prior knowledge of the intention to set up AHS (D&CCL 56 (a) and (b); Huang/l/39(vi)).

(iii) The draft minutes produced by the Respondents record the following discussion: "The management team introduced the planning of establish China Airway and analyzed the significant and necessity for China Airway establishment. Directors have great difference on whether to establish China Airway and how to establish it, they suggested employing professional organisation to give law opinion on this issue and discuss it later" (CI/18/382).

(iv) On 13 December 2009 Dr Larsen wrote to Mr Huang in relation to this item in the minutes of the company: "re Establishment of Airway China: Airway management got the task to present a concept paper to the shareholders for their assessment since the structure and proposed set-up may impact both the shareholdings and rights of all shareholders. The board cannot decide on this important matter without a prior assessment by the shareholder companies' lawyers " (original emphasis) (Dl/6).

(v) It was as a result of enquiries in May (DI/22, Dl/14/114, DI/24/121) and July 2010 (DI/26) that investors discovered that AHS had been set up and that AC had transferred about 160m RMB to it. Daiwa’s email of 14 July 2010 (DI/26) continued "I think (AHS) is a vehicle to restructure Airway group.. I asked Ethabell (of Airway) what this is for, but she does not know anything about it. I have no idea what Mr Huang is planning to do

(vi) In the Board materials for the 27 September 2010 AI Board meeting given to the investors AHS was shown in the structure and alongside it was a reference to "Prime Asset injection "(B2/46/967). This appears to be a reference to the designated "Core Companies" identified in the agenda as part of the "Development Strategy Introduction "(B2/46/959).

(vii) There is no reference to the matter being discussed in the draft minutes of the meeting (B2/45). After the meeting, on 30 September, Ethabell Zhang sent the directors an attachment to the Board meeting power point. The corporate structure attached showed AHS as the 100% owner of the "Core Companies" and that Tonghe had acquired a 49% interest in AHS (B2/48/997). This was not previously known to the investors. Daiwa commented that Mr Huang had been restructuring without a board resolution or shareholders approval "to make the shareholder’s share limited up to 51% of only Beijing, Shanghai, and Hubei businesses ". Mr Hsu said "this just shows that Mr Huang does not differentiate between Airway and Tonghe which is very troubling" (B2/47).

(ix) In the D&CCL it is suggested that Tonghe held part of AHS "to fulfil a statutory requirement in China... to have two directors" (D&CCL 56(c)). That is not an explanation that is supported by any evidence. It is not admitted by the Claimants (R&DCCL 50(e)(ii)) but it is not obvious, in any event, how it justifies a 49% holding in Airways key businesses by Tonghe.

224.
In relation to AHS it is apparent from the evidence that Mr Huang proceeded to incorporate the company without reference to and despite the objections of the investors. He employed AHS, again without reference to the investors, in a restructuring of the Group which had the effect that the entities in which they had an "interest" through the medium of the VIE structure, disposed of 49% of the Core Companies to a company he controlled.
225.
Dr Larsen’s evidence is that the repeated unauthorised transactions caused DT to lose all trust in the management of Airway and that the business plan was in jeopardy and the situation irreversible (Larsen/1/135-139). As with the financial statements so with the failures of the Respondents to report these transactions to the investors; the Respondents paid no apparent regard to their obligation to make monthly reports about these transactions. They were not excused for their failure to do so by having given proper information about them in the Board meetings or at Shareholders meetings. In fact the Respondents by-passed the safeguards in the Memorandum and Articles of AI entirely. They did not give the investors informal details of these transactions either. The details of them were left to the investors to discover and to try, often unsuccessfully, to prize out of AI and Mr Huang by enquiry.
226.
These were large transactions involving significant sums of money. The Respondents breaches were not accidental or occasional. In the Tribunal’s view, a reasonable investor could have regarded the failure to comply with the reporting requirements about them as material for the purposes of s.8.3(a) of the 2nd IRA.
227.
The evidence of both Mr Hsu and Dr Larsen at the hearing was to the effect that it had become apparent to them by the summer of 2010 that consideration of the Put Option was justified. It is apparent that Daiwa was of the same mind because Koji Kasai of that company expressed his concern in December 2010 about allowing further delay before exercising the Put Option (G/l1).
228.
The delay that elapsed before the Put Option Notice was served is, the Tribunal accepts from their evidence at the hearing, to be explained by the fact that Intel and DT are large organisations whose decision makers only acted after deliberate consideration of the advice that they received from Mr Hsu and Dr Larsen. The exercise of the option required selection of legal adviser to represent all the investors and in the light of the sale of the bulk of Daiwa’s shares and the diminution of its voting rights, it was also necessary to bring together a constituency of shareholders willing to arrive at a determination of material breach. The delay, which took the investors close to the deadline of 30 months for the exercise of the Put Option is not an indication, the Tribunal finds, that the investors did not regard the breaches as sufficiently serious to qualify as material breaches under the 2nd IRA.

Findings:

229.
For the reasons given, Issue 4 must be answered No. In relation to issue 2(b) recast as it should be, the Tribunal finds that the breaches of Sections 3.l(a)(i), (ii), (iii), (iv) and/or (v), were breaches that a reasonable investor could have determined to be "material" for the purposes of Section 8.3(a) of the 2nd IRA.

5. Was the exercise of the Put Option (or the determination that there was a material breach) unreasonable and mala fide or made for an improper or collateral purpose?

230.
The Respondents say that the true explanation for the exercise of the Put Option was not breaches of the information provisions in the 2nd IRA but was the failure of WiMAX technology in the PRC market place where, as elsewhere in the world, it lost out to LTE technology. It is said "the Majority Investors purportedly exercised the Put Option mala fide with cynical purpose of finding an excuse to exit from their investment in the Company by relying on insubstantial breaches by the Company and the Founders" (D&CCL 63). It is alleged that "Intel had placed the wrong bet on the future development of mobile wireless technology by developing and investing in WiMAX. Intel wished to correct its mistake by pulling out of WiMAX and turning its investment to LTE" (D&CCL 66) and "In view of the downfall of the WiMAX technology, Intel sought to unilaterally withdraw all of its investment in WiMAX technology in the PRC, including its investment in the Company. In order to secure the greatest financial advantage to themselves, IC and ID sought to find an excuse to recoup its investment in the Company by gathering the Majority Investors to purportedly exercise the Put Option on 8 August 2011" (D&CCL 67).
231.
As is noticed above, the Respondents rely on the Equitable Life case for the proposition that a legal discretion can never be exercised for a purpose contrary to that for which it is granted.
232.
Mr Huang’s evidence is that since late 2009 "after Cadol's departure from Intel and Intel having decided to give up WiMAX technology, communications between Airway and the investors began to deteriorate. Intel started adopting a passive and evasive approach towards Airway by neither agreeing nor disagreeing with any matters concerning Airway...they asked Airway for further information as an excuse to delay the matters" (Huang/1/38).
233.
The Claimants argue that the burden is on the Respondents to prove an allegation of bad faith or an improper purpose with cogent evidence. They rely on the decision about the exercise of unfettered powers in relation to membership by a committee of the Stock Exchange that, where no reasons are given, it is to be presumed that the power was exercised bona fide and honestly (Weinberger v Inglist [l919] AC 606 per Lord Atkinson at 626). In reliance on the decision about the exercise of a mortgagee’s power of sale in the case of Meretz Investments NV v ACP [2007] Ch 197 per Lewison J at paragraph 314, they argue that where a power is conferred upon the investors for their own benefit they are not obliged to show a "purity of purpose" in exercising it. It is sufficient if they have a mixed motive providing that one of them is the purpose for which the power was granted.
234.
The Claimants argue that the evidence shows that the determination was made on genuine grounds of material breach which concerned the Investors; that there is no evidence to impute Intel’s motives (not themselves admitted) to other investors; and that the chronology of events gives the lie to what the Claimants’ call the Respondents’ "conspiracy theory".

Findings:

235.
As explained above, the Tribunal finds that the determination of material breach is required to be made honestly. If the determination were made dishonestly, and that is what the Respondents’ allegation amounts to, it would not be validly made. As to improper purpose, were the power of determination to be exercised for a purpose contrary to the purpose for which it was granted, similarly it would not be valid. In the present case there is no real distinction to be made between these two propositions when applying them to the facts of this case. The determination would only be made contrary to the purpose for which the power had been granted if it were dishonestly made as alleged by the Respondents.
236.
The Tribunal finds that the burden is on the Respondents to prove this allegation. As with any allegation of dishonesty it should not be lightly made, and it requires cogent evidence if it is to succeed.
237.
The Tribunal has seen Mr Hsu and Dr Larsen give evidence. It has absolutely no hesitation in rejecting the allegation that their evidence about the advice they gave to those charged in Intel and DT with making a decision about the material breaches was dishonest. There is no evidence at all to support the serious allegation that the Respondents have made.
238.
There is no basis for a finding that Intel’s determination was driven by a desire to abandon WiMAX. The investment was not wholly dependant on WiMax in any event.
239.
Still less is there any evidence to suggest that Intel’s commercial interests in WiMAX operated to drive the other investors into a dishonest determination of material breach. The Tribunal accepts Dr Larsen’s evidence that DT, whose interests in making its investment had never been tied to WiMAX, took a decision that was "not instigated or procured by Intel" (Larsen/1/141). The other investors, many or all of them financial institutions, cannot simply be presumed to have followed Intel’s lead to make a dishonest determination. Daiwa’s email in December 2010 (G/l1) would have to be a remarkably devious message if part of a conspiracy where the investors were doing no more than manoeuvring for a way out of their investment. The Tribunal is not prepared to find that there was any such conspiracy.
240.
Nor is the suggestion that the investors were obstructive and evasive one that can be accepted. The documents are full of their taking the initiative to try to understand the transactions and the financial statements and meeting with less than wholly helpful responses from AI and Mr Huang.
241.
Nor does the chronology of events make sense of the Respondents’ allegation. If the Claimants had a determination to escape from their investment for an improper and dishonest reason in late 2009, they had a perfect opportunity to do so in the shape of the February 2010 Put Option Notice - (which is, incidentally, admitted to have been validly issued). Instead the investors gave AI and Mr Huang another chance and withdrew their Notice.
242.
Issue 5 also raises the question whether the determination was reasonable. As explained the Tribunal has found that a challenge to the determination can only be made on the ground that no reasonable investor could have determined there was a material breach of the 2nd IRA and has given its reasons above for finding that the Respondents have not persuaded it of that.
243.
The answer given to Issue 5 is No.

6. Whether the Claimants have acquiesced to the form of provision of financial information provided by the Group Companies so as to bar their exercise of the Put Option on 8 August 2011?

244.
At paragraph 196 and 200 above are set out the parties’ submissions about acquiescence to the form of financial information provided by the Group Companies.
245.
In addition the Claimants say that mere delay cannot amount to acquiescence and rely upon s.12.8 of the 2nd IRA for that proposition.

Findings:

246.
The Tribunal accepts the proposition that mere delay cannot amount to acquiescence so as to disentitle to the Claimants to rely upon breaches of the financial information covenants.
247.
But, as a matter of fact, the Tribunal finds that there was no acceptance on the part of the investors after the withdrawal of the February Put Option Notice as to the form of the financial information provided to the Claimants and no conduct on their part which could reasonable have been understood by the Respondents as such acceptance. Nor does it find any evidence that the Respondents acted on such an understanding so as to give rise to a defence of acquiescence. The evidence of Mr Hsu on this topic -(Hsu/1/272-294) - is accepted.
248.
As already found, the Respondents were given a fresh opportunity to conform to their contractual obligations after March 2010 and gave assurances at the time that they would do so. They did not do so in relation to their financial covenants but it would be unjust to hold against the Claimants the fact that they gave the Respondents a real opportunity to mend their ways and offered them assistance through the DT templates and the selection of a CFO for AI and to deny the Claimants the right to complain about the Respondents continuing breaches.
249.
The answer supplied to Issue 6 is No.

7. Did the Respondents make any clear or unequivocal representation regarding the validity and/or their acceptance of the Notice?

8. If so, did the Claimants suffer any detriment and/or prejudice by acting in reliance on the representations after the exercise of the Put Option?

9. If so, are the Respondents estopped from claiming that the Put Option Notice was invalid?

250.
The Claimants sought to argue that the Respondents were estopped from challenging the validity of the 8 August 2011 Put Option Notice because of their subsequent acceptance of it (SC 98-100).
251.
Since the Tribunal finds that the Put Option was validly exercised these issues no longer arise for decision.

10. Whether the Claimants can rely on estoppel to create a new right to exercise the Put Option?

252.
The Claimants sought to argue that, even if there were no consideration to support the amendment in March 2010 to s. 8.3(a) and (b) of the 2nd IRA, the Respondents were estopped from denying that the amendment was legally effective (R&DCCL 24).
253.
In the light of the finding that the amendment was supported by good consideration and was legally binding on the Respondents, this issue no longer arises for decision.
254.
Issue 11: In the Tribunal’s view determination of this issue should follow its decisions on the other issues since its answer depends on the answers to them.

12. Did the Claimants commit a repudiatory breach of the 2nd IRA by reason of a mala fide determination of "material breach" of the 2nd IRA and an exercise of the Put Option for an improper purpose?

255.
The Tribunal has decided that there was no mala fide determination and no exercise of the Put Option for an improper purpose. It follows that there was no repudiatory breach of the 2nd IRA of the sort alleged by the Respondents.

13. Have the Respondents suffered loss in relation to the value and benefit of the network equipment listed in the Particulars of Counterclaim for Loss and Damage, as a result of the Samsung Arbitral Award and/or loss of profits generated from the 2nd IRA and, if so, was such loss as is established caused by the matters complained of?

14. Is such loss recoverable as a matter of law?

256.
These issues do not arise because the Respondents’ Counterclaim is based upon the alleged repudiatory breach of the Claimants and no such breach has been proved (Issue 12).
257.
There was, in fact, no satisfactory evidence put forward by the Respondents about the counterclaim either as a matter of causation or of quantum of damage. Even had the Tribunal found there to have been a repudiatory breach by the Claimants of the 2nd IRA, it would not have been able to make any award in favour of the Respondents on their counterclaim for that reason.

The Claimants’ Further Issues (I/13/124-126)

1. Did the Majority Investors determine that there was a "material breach" for the purposes of Section 8.3(a) of the 2nd IRA, and did such decision permit them to exercise the Put Option?

258.
For the reasons given above, the answer to both parts of this Issue is Yes.

The Respondents’ Additional Issues: (I/13/93-94)

1. Whether the Claimants* investment into the Company is a strategic investment (as opposed to financial investment which is exclusively for earning return on investment and the operational profits generated by the Company) with the goal of seeding the WiMAX technology in China in the long run in order to generate long term and steady return?

2. Whether the primary objectives of the Claimants are to acquire basic telecommunication service licences in China and to set up a network platform so as to pave the wav for the deployment of WiMAX across different provinces in China?

259.
As discussed in Section D and paragraphs 119 to 130 above there is evidence to suggest that the introduction of WiMAX technology to the PRC and development of a licensed telecommunications network with that possibility in mind was in the minds of all parties at least by the time of the Series B Preferred Shares investment and the 2nd IRA.
260.
So far as the Claimants are concerned, Dr Larsen makes no secret of DT’s long term view of its investment, albeit not especially favouring WiMAX technology itself. Intel plainly had an interest in introducing WiMAX technology to the PRC at the time they made their investment but, the Tribunal has no reason to doubt, were also open to taking a long term view of their investment were it to generate a steady return with or without WiMAX.
261.
But, as already explained, the investment objectives or strategies of these three investors (out of eleven investors in all) are not a reason for construing the 2nd IRA in such a way as to deprive the financial information covenants of their full contractual force. Nor do they lead to the conclusion that the investors’ determination was mala fide or made for an improper purpose.
262.
In the circumstances they do not affect the outcome of this dispute.

The validity of the October 2013 Put Option Notice: If the Claimants did commit a repudiatorv breach of the 2nd IRA by reason of a mala fide determination of "material breach" of the 2nd IRA and or an exercise of the Put Option for an improper purpose (paragraph 108 above at issue 12):

1. Did the Respondents accept that repudiatorv breach such that the 2nd IRA was brought to an end on 2 July 2013? (Amended D&CCL 75C. 85 & R&DCCL 66):

2. If the answer to 1. is YES, does that fact render the October 2013 exercise of the Put Option ineffective or invalid? (Amended D&CCL 75 A. 75 D, 87A & R&DCCL 66).

263.
The Claimants did not commit a repudiatory breach of the 2nd IRA as alleged by the Respondents. Neither question therefore arises.
264.
There being no other challenge to the exercise of the October 2013 Put Option, and in the light of the evidence that the Notice followed the contractual form, was served properly on the Respondents and was in time, the Tribunal’s finding is that it was validly exercised and the Claimants are entitled to recover under it in any event.

11. Are the Respondents liable jointly and severally as follows:-

[a] As to AI to pay the Original Subscription Price under the Put Option:

[b] As to (the Founders), to pay the Put Option Price under the Put Option: and

[c] As to the (Guarantors), to pay the Original Subscription Price under the Guarantee?

265.
In the light of the answers given to the other issues decided above, there can only be one answer to these questions. In the events that have happened, s. 8.4 of the 2nd IRA imposes upon

(i) AI and R7 and R8 a joint and several liability to pay the Original Subscription Price to the Claimants as follows: US$ 5,400,000 to IC; US$ 20,000,000 to ID; and US$ 30,000,000 to DT (Issue 11 (a) and (c)); and

(b) The Founders (Mr Huang and R3, R4, R5, and R6) a joint and several liability to pay the Put Option Price to the Claimants (Issue 11(b)).

266.
The Put Option Price is calculated as provided for by s. 8.4. It is the Original Subscription Price increased at a compounded annual rate of 15% with effect from 4 November 2005 in the case of IC and its Series A Preferred Shares, and at the same compound rate with effect from 13 February 2008 in the case of ID and DT in respect of their Series B Preferred Shares - in each case "to the date of full payment of the Put Option Price".
267.
As at the date of the hearing, 9 June 2014, the Put Option Price payable by these Respondents to the Claimants was as follows:

(i) for IC, US$ 17,963,674.90 (US$5,400,000 + 15% annually compounded from 4 November 2005);

(ii) for ID, US$ 48,399,391.47 (US$ 20,000,000 +15% annually compounded from 13 February 2008)

(iii) for DT, US$ 72,599,087.20 (US$ 30,000,000 +15% annually compounded from 13 February 2008).

I. INTEREST

AI, R7, R8:

268.
The Claimants seek an award of simple interest on the money awarded against these Respondents from the date of the Award until the date of payment pursuant to Arbitration Ordinance (Cap 609) ("the Ordinance") S.80(1). That subsection provides:

"Interest is payable on money awarded by an arbitral tribunal from the date of the award at the judgment rate, except when the award otherwise provides."

269.
The "judgment rate" is, by virtue of s.80(3) of the Ordinance, "the rate of interest determined by the Chief Justice under section 49(1)(b) (Interest on judgments) of the High Court Ordinance (Cap 4) ". That rate is currently 8%.
270.
There is no reason to depart from the judgment rate in this case and none has been put forward by the Respondents. The daily rates accruing on the principal sums due to each Claimant from the date of the Award are currently as follows:

(i) IC: Principal - US$ 5,400,000: daily rate of interest - US$ 1,183.56

(ii) ID: Principal - US$ 20,000,000: daily rate of interest - US$ 4,383.56

(iii) DT: Principal - US$ 30,000,000: daily rate of interest - US$ 6,575.34.

The Founders:

271.
The Claimants seek an award of interest under s.79 of the Arbitration Ordinance against these Respondents. S. 79(1) provides (so far as relevant):

"Unless otherwise agreed by the parties, an arbitral tribunal may, in the arbitral proceedings before it, award simple or compound interest from the dates, at the rates, and with the rests that the tribunal considers appropriate, subject to section 80, for any period ending not later than the date of payment -

(a) On money awarded by the tribunal in the arbitral proceedings..".

272.
The Claimants seek an award of interest which reflects the contractual rate agreed in s.8.4 of the 2nd IRA for the calculation of the Put Option Price. That calculation is expressed in the agreement to run "to the date of full payment".
273.
The Tribunal sonsiders that it is appropriate to award the Claimants interest at a rate which compensates them fully for the failure of these Respondents to pay the Put Option Price. That can be achieved by adopting the compounding formula in the 2nd IRA as a rate of interest on the sum awarded until the date of payment pursuant to s. 79 of the Ordinance.

J. COSTS

274.
The total amount of the costs of the arbitration paid to the date of this Award (other than the legal or other costs of the parties) has been:

HKIAC’S administrative charges: HKD 8,000.00

Arbitrator’s fees and expenses HKD 1,753,866.46

Total Costs paid to date HKD 1,761,866.46

275.
For the purposes of Article 39 of the UNCITRAL Rules the Tribunal is satisfied that the fees so far incurred and paid are reasonable in amount. The fees and expenses of the Tribunal have been charged in accordance with the terms of my appointment which were agreed by the parties and reflect the time taken in and about the arbitration. Further costs, as yet unascertained, have been incurred in relation to issues arising about communication of the Award to the Respondents (see section K below) and will be incurred after the date of the award in effecting communication of it to the Respondents.
276.
For the same reasons as are given below in relation to recovery of the Claimants legal costs, it is right that the Respondents should pay these costs and reimburse the Claimants accordingly but taking credit for the contribution of HK$ 154,000 made by the Respondents to the first deposit they made on account of costs pursuant to paragraph 5[i] of Procedural Order No 2.
277.
By s.12.9 of the 2nd IRA the parties agreed that the "prevailing Party or parties" in an arbitration pursuant to the arbitration agreement in s. 12.2(a) "shall be entitled to an award of reasonable attorney's fees and out-of-pocket expenses from the losing Party".
278.
By s. 74.8 of the Ordinance it is provided that

"a provision in an arbitration agreement to the effect that the parties, or any of the parties, must pay their own costs of the arbitral proceedings under the agreement is void".

279.
The Tribunal has not heard argument about the validity of s.12.9 and is not to be taken as deciding either that the provision is valid or that it is void on the footing that it is part of the arbitration agreement and necessarily results in the losing party bearing its own costs of the arbitral proceedings. In this case the Tribunal has decided (see below) that the Claimants, as successful parties, are entitled to their reasonable costs in any event. If s.12.9 is valid it therefore adds nothing of substance to the other provisions of s.74 of the Ordinance in this particular case; and if it is void I am thrown back on those other provisions in any event.
280.
By virtue of s. 74(2) of the Ordinance and Article 40.2 UNCITRAL Rules it falls to the Tribunal to decide, in the light of all the relevant circumstances, to whom and by whom the costs, including the fees and expenses of the tribunal, are to be paid. By s.74(5) it must assess the amount of costs to be awarded (other than the fees and expenses of the Tribunal). By s.74(6) it is not obliged to follow the scales and practices of the court on a taxation in making that assessment. No invitation to do so has been made. But by s.74 (7) of the Ordinance and Article 40(1) UNCITRAL Rules the Tribunal is required to allow only those costs that are reasonable in all the circumstances. S.74(7) of the Ordinance provides that, in the absence of an agreement by the parties to the contrary, the award may include costs incurred in the preparation of the arbitral proceedings prior to commencement of the arbitration. There is no agreement precluding an award of those costs in this case.
281.
The Claimants seek an award of their legal costs and disbursements in the amount of HK$ 17,283,090.34. Their claim includes costs incurred in preparation of the arbitral proceedings but before their commencement. At the conclusion of the hearing a direction was made that the Claimants should take steps to notify the Respondents of their application and the sum in legal costs and expenses that the Claimants were seeking in the event that they were successful -(Tr/2/145/6 - 146/6). The Tribunal was informed by the Claimants’ counsel that their letter claiming costs and their costs bundle were delivered to AI at its registered office on 19 June 2014; and were delivered to R4’s Californian address on 18 June 2014. Their letter was sent by post to remaining Respondents at the address for service specified in the 2nd IRA. No response to the Claimants’ claim for costs from any Respondent at the date of this Award has been received.
282.
The Tribunal considers that the Claimants are entitled to recover their costs, including all reserved costs, from the Respondents because they are the successful party. The parties have chosen to have their arbitration governed by the UNCITRAL Rules 1976 and by Article 40.1 those rules provide that the "costs of arbitration" - a phrase that, by Article 38 includes the legal costs of the successfill party - shall in principle be borne by the unsuccessful party. There is nothing in the circumstances of this case that provides a sufficient reason to depart from that principle. The Respondents do not advance any reason why the principle should not be followed. On the contrary, they sought a similar order in the event that they were successful in the arbitration -(D&CCL 88).
283.
In considering what reasonable sum to award for the Claimants costs, the Tribunal has taken account of a number of factors. The sums at stake in this arbitration are substantial. Both sides thought it appropriate to instruct Hong Kong solicitors specialising in international arbitration and the charges made by the Claimants solicitors are not out of the ordinary for the level of expertise that the issues in the arbitration demanded. The issues raised by the Respondents involved a number of not entirely straightforward issues of law and required examination of a number of years’ of accounting material between the parties and the history of the four "undisclosed transactions". The length of the Claimants’ witness statements and the voluminous documentation and citation of authority in the arbitration bear out the relative complexity of the issues raised. Expert accounting evidence was required as well. As far as the procedural history of the arbitration is concerned, the Tribunal sees nothing in the material before it to suggest that the costs of the Claimants were increased by any unreasonable conduct of theirs. Until the withdrawal of Mr Yuen on the Respondents side both parties appeared to the Tribunal to conduct the arbitration with efficiency and in a reasonable way. Nor does the Tribunal think that Claimants can sensibly be criticised for exercising the Put Option twice. Their original exercise was reasonable and, as found, valid and effective. They could not delay its exercise beyond mid-August 2011 and they were entitled to pursue their remedy by arbitration in what they saw as their own commercial interests thereafter. The exercise of their Put Option in October 2013 was a sensible step in the light of the defences offered to validity and effectiveness of the first Put Option. Once allowed to be brought into issue in this arbitration, as it was allowed to be, it added only marginally and not unreasonably to the costs of the arbitration.
284.
The Tribunal has carefully considered the material on the issue of costs submitted by the Claimants. It consists, without any statement of explanation, of billed and estimated costs and disbursements. The Tribunal is not in a position to judge to what extent the estimated figures are accurate although it notes that at least what is described as "estimated" Counsel’s fees are the subject of fee invoices from Mr Manzoni and Mr Lam. In the circumstances, it is reasonable to make a deduction to cater for the margin of error in any estimate but otherwise see no basis for reducing the claim which appears to me to be reasonable in all the circumstances.
285.
Accordingly the Claimants’ costs are assessed at HK$ 16,750,000.
286.
During the proceedings costs issues related to interlocutory orders were reserved for decision at the hearing. All such costs will follow the result of the arbitration and be paid by the Respondents.

K. ISSUES RELATING TO THE DELIVERY OF THE AWARD

287.
Following preparation of the final draft of this Award, the Tribunal was required to give consideration to its delivery to the Respondents.
288.
The parties chose to have their arbitration governed by the UNCITRAL Rules. These provide, at Article 32.6, that "Copies of the award signed by the arbitrators shall be communicated to the parties by the arbitral tribunal." S.67 of the Ordinance gives effect to Article 31 of the UNCITRAL Model Law which, by Art.31.4 is to the same effect.
289.
Article 2.1 of the UNCITRAL Rules dictates the terms on which communications under the Rules shall be made: "For the purposes of these Rules, any... communication... is deemed to have been received if it is physically delivered to the addressee or if it is delivered at his habitual residence, place of business or mailing address, or if none of these can be found after making reasonable inquiry, then at the addressee’s last-known residence or place of business."
290.
The history of the proceedings after 14 April 2014 demonstrated that communication of the Award to the Respondents required reasonable enquiry in the case of all Respondents other than AI and R4 at whose known addresses communications were received without rejection.
291.
In the light of the size of the sums involved in the Award the Tribunal decided that it was reasonable to retain the services of FTI Consulting (Hong Kong office) to trace the other Respondents. By a final report dated 17 September 2014, FTI Consulting identified addresses for the Respondents as follows:

[i] R2 (Mr Huang) - Place of Business: 6/F, 981 Pudong Avenue, Pudong, Shanghai, PRC;

[ii] R3 - Residence: 3420 Fay Ave, Culver City, CA 90232, USA;

[iii] R5 - Residence: 2654 Gayley Place, San Jose, CA 95135, USA;

[iv] R6 - no current information but last known Business address: 5/F, Hubei Provincial Communications Authority Complex, No 789 Luoyu Road, Donghu Development Zone, Wuhan, Hubei Province, PRC;

[v] R7 (AC) - now dissolved but last known Business address: 5/F, Hubei Provincial Communications Authority Complex, No 789 Luoyu Road, Donghu Development Zone, Wuhan, Hubei Province, PRC;

[vi] R8 (AS) - Business address: Room 17,16/F Block A, Guanggu International Building, No 456 Luoyu Road, Donghu Development Zone, Wuhan, Hubei Province, PRC.

292.
It will be observed that the last known addresses for R6 and R7 appear to be the same (even if not identical to) the address referred to in s. 12.7 of the 2nd IRA (paragraph 10 above).
293.
The cost of employing FTI Consulting for that purpose is included in the costs of the arbitration referred to in paragraph 274 above.
294.
Delivery of the Award upon those Respondents located in the PRC, necessitated the taking of advice from King & Wood Mallesons ("KWM") of Shanghai. Two options for delivery were suggested. The first involved delivery to each Respondent in the PRC by a representative of KWM accompanied by a notary. This option involved translation of the award for the benefit of the notary, travel costs, accommodation costs, and fees of the notary and KWM, amounting in all to an estimated RMB 267,000. The second involved communication of the untranslated award via a local courier service employing KWM and appropriately notarized at an estimated cost equivalent to RMB 80,200.
295.
In the light of the Tribunal’s duty to avoid unnecessary expense (s. 46(2)(c) of the Ordinance) and to conduct all aspects of the arbitration with the interests of all parties in mind, the Tribunal has decided that the quicker, cheaper, but equally effective communication of the award to the recently identified places of business of R2 and R8 in the PRC together with delivery by the same means of the award to R6 and R7 at their last known business addresses will constitute effective communication of the award to those Respondents for the purposes of the UNCITRAL Rules and the Ordinance. The award will be delivered by courier to the known addresses Rl, R3, R4, and R5 by courier to achieve the same result. Out of an abundance of caution a copy of the award will be addressed to Rl, R2, R3, R4, R5, and R8 at the same address as identified for R6 and R7 in light of the fact that the inference is that it the same as that required under s 12.7 of the 2nd IRA and is the last known business address for Rl, R3, R4, and R5 in any event.
296.
The costs of delivery to the Respondents at their various addresses will form part of the total costs of the arbitration together with the costs associated with the Tribunal’s work in this regard and the Tribunal has concluded that they were reasonably incurred and they should be borne by the Respondents since it is their conduct which has caused these costs to be incurred.

L. DISPOSITION

297.
For the reasons stated above, the Tribunal hereby Awards and Orders

(i) That the First Respondent (AI) and the Seventh and Eighth Respondents are jointly and severally liable to and do pay

(a) to the First Claimant (IC) the sum of US$ 5,400,000 together with simple interest from the date of this Award until payment at the Judgment Rate from time to time: currently 8% and accruing at a daily rate of US$ 1,183.56;

(b) to the Second Claimant (ID) the sum of US$ 20,000,000 together with simple interest from the date of this Award until payment at the Judgment Rate from time to time: currently 8% and accruing at a daily rate of US$ 4,383.56;

(c) to the Third Claimant (DT) the sum of US$ 30,000,000 together with simple interest from the date of this Award until payment at the Judgment Rate from time to time: currently 8% and accruing at a daily rate of US$ 6,575.34:

(ii) That the Second (Mr Huang), the Third, Fourth, Fifth, and Sixth Respondents are jointly and severally liable to and do pay

(a) to the First Claimant (IC) the sum of US$ 17, 963,674.90 together with compound interest at the rate of 15% per annum with annual rests first compounded at 4 November 2014 and annually thereafter until the date of payment;

(b) to the Second Claimant (ID) the sum of US$ 48,399,391.47 together with compound interest at the rate of 15% per annum with annual rests first compounded at 13 February 2015 and annually thereafter until the date of payment;

(c) to the Third Claimant (DT) the sum of US$ 72,599,087.20 together with compound interest at the rate of 15% per annum with annual rests first compounded at 13 February 2015 and annually thereafter until the date of payment:

(iii) Provided always that the Claimants do not receive in total more than the sums respectively due to each of them in paragraph 297 (ii) (a), (b), and (c) above.

(iv) That the Respondents’ Counterclaims are dismissed.

(v) That the Respondents are jointly and severally liable to pay within 28 days from the date of this Award the legal costs and expenses of the Claimants in the sum of HK$ 16,750,000.

[vi] That the Respondents are jointly and severally liable to reimburse to the Claimants, within 28 days from the date of final payment of the costs of the delivery of the award to the Respondents, the whole costs of the arbitration after taking credit for their contribution to the deposit of HKD 154,000 referred to in paragraph 276 above.

298.
This Award is Final in respect of all issues.
Whole document
para.
Click on the text to select an element Click elsewhere to unselect an element
Select a key word :
1 /