A US court has dismissed a Chinese asset management group’s bid to enforce a US$145 million HKIAC award against the former chairman of a smart ride technology company, saying it lacks jurisdiction over him.
In an order dated 17 July, Judge Loretta Preska in the Southern District of New York dismissed the action brought by Zhongzhi Hi-Tech Overseas Investment – a Cayman affiliate of China’s Zhongzhi Enterprise Group – against Vincent Wenyong Shi.
Zhongzhi had sought to enforce an award issued in 2019 by Hong Kong-based arbitrator Benny Lo of Des Voeux Chambers. Lo found that Shi had reneged on commitments made to Zhongzhi in relation to its investment in his company NQ Mobile.
NQ, which launched in China nearly 20 years ago as a provider of mobile internet services, was previously listed on the New York Stock Exchange. It suffered a stock price crash in 2013 after short-seller Muddy Waters claimed that its major revenue streams were “fictitious” and its antivirus software might be spyware. NQ denied the allegations.
In 2019, NQ was delisted from the NYSE and changed its name to Link Motion, having shifted its focus to smart ride services. Shi was also removed as chairman and CEO by a US court-appointed receiver in the same year.
Zhongzhi claimed that in 2016 it was approached by Shi to invest in NQ. It entered into two related agreements, in which it agreed to buy a US$220 million note that could be converted into shares in the company, and Shi agreed to pay the pre-maturation interest owed on the note.
In 2018, Zhongzhi launched its HKIAC claim under a restated governing law and arbitration agreement, after it chose not to convert the note into shares. It said Shi owed it US$243 million under an amended agreement.
Shi did not participate in the arbitration, but Lo found he had been made aware of the proceedings. The arbitrator awarded US$145 million, finding that Shi was liable under the amended agreement. Zhongzhi filed for enforcement in New York last year.
In her decision this week, Judge Preska found that the court did not have personal jurisdiction over Shi – ruling that Zhongzhi had not sufficiently shown that he had consented to jurisdiction in New York.
She noted that while the original agreements signed by Zhongzhi and Shi had specified that New York law would govern, they had been replaced by the amendment agreement, which stipulates Hong Kong law.
She also rejected Zhongzhi’s argument that Shi had submitted to New York jurisdiction by defending a separate litigation brought by a Link Motion shareholder in the same court over an alleged “multi-year fraud”. Judge Preska said that Shi’s consent extended to that case alone.
The judge further ruled that the fact that Link Motion’s shares were previously listed on the NYSE was not enough to confer jurisdiction on its CEO.
Zhongzhi was represented in New York by Pillsbury Winthrop Shaw Pittman, and used Beijing-based DaHui lawyers in the HKIAC arbitration. Shi was represented by New York boutique Felicello Law in the enforcement proceedings.
Rosanne Felicello, managing partner at Felicello Law says her client is “pleased with the result”. Felicello partner Michael James Maloney adds, “the court decided this case correctly”.
Zhongzhi Hi-Tech Overseas Investment Ltd v Wenyong Shi
In the US District Court for the Southern District of New York
Bench
Counsel to Zhongzhi
- Pillsbury Winthrop Shaw Pittman
Partners James Catterson and Geoffrey Sant and counsel Carol Lee in New York
Counsel to Wenyong Shi
Partners Michael James Maloney and Rosanne Felicello in New York
In the arbitration
Tribunal
- Benny Lo (UK/Hong Kong) (Sole arbitrator)
Counsel to Zhongzhi
Arthur Ma Zhihua, Xing Wan, Mark Young and Sharon Yang Sijie in Beijing
Counsel to Shi
Did not appear in the arbitration.
