CNA v CNB and another and other matters

• Jurisdiction: Singapore
• Judge: Philip Jeyaretnam J
• Judgment Date: 02 May 2023
• Neutral Citation: [2023] SGHC(I) 6
• Court: International Commercial Court (Singapore)
• Docket Number: Originating Summonses Nos 2, 3, 4 and 5 of 2022
• Hearing Date: 21 November 2022,22 November 2022,23 November 2022
• Citation: [2023] SGHC(I) 6
• Year: 2023
• Plaintiff Counsel: Cavinder Bull SC, Tan Yuan Kheng (Chen Yuanqing), Lea Woon Yee, Tan Jui Yang, Benedict and Kenneth Sean Teo Hao Jin (Drew & Napier LLC), Junwoo Kim (alias Junu Kim) and Han Gil Lee (Bae, Kim & Lee LLC) (Korean law),Toby Landau KC (Duxton Hill Chambers) (instructed), Rachel Low Tze-Lynn (Rachel Low LLC) (instructed), Zhuo Jiaxiang and Alston Yeong (Providence Law LLC), Sunyoung Kim and Yoo Lim Oh (Lee & Ko) (instructed), Ing Loong Yang and Chi Ho Kwan (Akin Gump Strauss Hauer & Feld LLP) (instructing) (Korean law)
• Defendant Counsel: Chan Hock Keng, Chen Chi and Tang Xi-Rui, Charlotte (WongPartnership LLP), Prof Kwon Young Joon (Seoul National University) (instructed), Lee Eun Ngyung (KL Partners) (instructing) (Korean law)
• Published date: 02 May 2023

Philip Jeyaretnam J (delivering the judgment of the court): Introduction

One of two co-owners of a video game licensed its distribution in China to a licensee by a software licencing agreement. Subsequently, the two co-owners and the licensee executed a supplementary agreement by which the second co-owner was added as a co-licensor under the software licensing agreement. The first co-owner thereafter acted on behalf of the second co-owner. In time, the second co-owner had concerns about the licensee’s conduct and commenced an arbitration under the arbitration clause in that agreement. Shortly after it did so, the first co-owner, who by then was a subsidiary of the licensee, entered into an extension agreement to extend the term of the licence with the licensee, purportedly acting under the same source of authority originally granted by the second co-owner so as to bind it. In addition to extending the term of the licence, the extension agreement provided for a different seat and different institution for any arbitration. Both the licensee and the first co-owner thereafter objected to the jurisdiction of the arbitral tribunal on the ground that the parties’ entry into the new arbitration agreement by the extension agreement had put an end to its jurisdiction. The arbitral tribunal rejected this objection on the basis that the new arbitration agreement had been made in breach of the first co-owner’s fiduciary duty to the second co-owner.

Upon challenge of the award to this court, our task is to determine for ourselves whether the arbitral tribunal had jurisdiction. This task involves considering whether the first co-owner’s authority is governed by Korean law or by Singapore law and, depending on the governing law, what duties if any the first co-owner owed to the second co-owner when purportedly agreeing on its behalf to change the arbitral seat and institution after the latter had commenced arbitration against the licensee at the originally agreed seat and institution.

Background

This consolidated set of originating summonses comprises applications to set aside the partial award on liability (the “First Partial Award” and the award on costs arising from the findings made in the First Partial Award, the “Second Partial Award”, collectively with the First Partial Award, the “Partial Awards”) issued by a three-member arbitral tribunal in an arbitration commenced under the International Chamber of Commerce (“ICC”) Arbitration Rules 2017 (“ICC Rules”) and seated in Singapore in ICC Arbitration Case No. 22820/PTA/HTG (the “Present Arbitration”).

The asserted ground for setting aside is that the tribunal in the Present Arbitration (the “Tribunal”) lacked jurisdiction over the entire dispute because the ICC Clause (see [22] below) pursuant to which the Present Arbitration had been commenced was superseded on 30 June 2017 by the Shanghai International Arbitration Centre (“SHIAC”) Clause in the 2017 Extension Agreement (see [43] below), thus terminating the mandate of the Tribunal. The Tribunal rejected this argument on the basis that the entry into the 2017 Extension Agreement by CNA had happened in breach of fiduciary duty.

The parties

In SIC/OS 2/2022 and SIC/OS 5/2022, the plaintiff bringing the setting aside applications against the Partial Awards is CNA. In SIC/OS 3/2022 and SIC/OS 4/2022, the plaintiffs bringing the setting aside applications against the Partial Awards are CND and CNE. For SIC/OS 2 to 5 of 2022, the defendants are CNB and CNC.

CNA is an entity incorporated in the Republic of Korea (“Korea”) and listed on the Korean Securities Dealers Automated Quotations (“KOSDAQ”). CNA’s principal business is the development of PC and mobile games.¹

CND is an entity incorporated in the People’s Republic of China (“PRC”). It is the wholly-owned indirect subsidiary of CNE, an entity incorporated in the Cayman Islands. CNE was formerly known by a different name.² CND and CNE were members of a corporate group (“CNE Group”) which is a leading developer, operator and publisher of online games in the PRC.³

CNB is an entity incorporated in Korea and also listed on the KOSDAQ.⁴ CNB is engaged in the business of developing and providing services related to Massively Multiplayer Online Role Playing Games (“MMORPG”) and mobile game software. CNC is an entity incorporated in Korea and is a wholly-owned subsidiary of CNB. CNC was established on 23 May 2017 by way of a vertical spin-off from CNB.⁵

CNA and CNB are co-owners of the intellectual property rights in the MMORPG game [X] series. As a result of the spin-off (see [8] above), CNC succeeded to CNB’s intellectual property rights to the game [X] series, which thereafter made CNA and CNC co-owners of the intellectual property rights in the game [X] series.

In 2005, CNE, through a related company, became the largest shareholder in CNA, holding 38.1% of its shares. As at the date of commencement of the Present Arbitration, CNE owned 51.09% of CNA through its wholly-owned BVI subsidiary.⁶

Genesis of the game [X2]

In mid-1997, a group of computer club students in a Korean university, led by Mr P, developed the first iteration of the game [X]. Mr P established CNA. The student developers held a 51% stake in CNA, while an investor, Mr H, held the remaining 49% stake.⁷ The game [X] was launched in November 1998. The relationship between Mr P and Mr H broke down in 1999, and Mr P left CNA to establish his own business, CNB, in early 2000. CNA acquired 40% of the shares in CNB, while Mr P held 60% of its shares.

Following the acquisition of shares, CNA and CNB entered into a series of agreements to regulate their relationship as co-owners of the copyright in the products in the game series, which includes the sequel game [X2]. The development of the game [X2] was completed around September 2000.

Agreements governing the relationship between parties

The relevant agreements entered into by parties are summarised in the table below for ease of reference:

Date	Title of agreement	Parties involved
23 February 2000	Agreement on Joint Development of Products and Dealership (the “Domestic Agreement”)8	CNA and CNB
26 February 2001	Agreement on Joint Development of Products and Overseas Dealership (the “Overseas Agreement”)9	CNA and CNB
29 June 2001	Software Licensing Agreement10	CNA, CNE and Third Party (“TP”)
14 July 2002	2002 Supplementary Agreement11	CNA, CNE and CNB
29 April 2004	2004 Settlement Record12	CNA and CNB
22 September 2005	2005 Extension Agreement13	CNA, CNE and TP
26 November 2008	2008 Extension Agreement14	CNA, CNE and TP
4 February 2009	2009 Supplementary Agreement15	CNA, CNB and CNE
30 June 2017	2017 Extension Agreement16	CNA, CND and CNE

It should be noted that the Domestic Agreement and Overseas Agreement were both written in Korean and CNA contests the accuracy of the translation relied upon by the Tribunal. For the Domestic Agreement, CNA’s translation bears the title “Agreement on the Joint Product Development and Entrustment of the Sales Operations of Product” [emphasis added].¹⁷ As for the Overseas Agreement, a similar title appeared in the translation provided by CNA: the “Agreement on Joint Product Development and Entrustment of Overseas Sales and Operation” [emphasis added].¹⁸ We return to the issue of translations below at [120]–[125].

Basic Agreement

On 18 February 2000, CNA and CNB entered into the Basic Agreement (the “Basic Agreement”). Article 2 of the Basic Agreement provided that “[CNA] and [CNB] shall cooperate with each other with regard to the joint development of the ‘[game [X]]’ series and execute a separate joint development agreement”.¹⁹

Domestic Agreement

On 23 February 2000, CNA and CNB entered into the Domestic Agreement to regulate their respective roles in the development and dealership of the game [X].²⁰ The salient terms of the Domestic Agreement were as follows: Article 1 (Purpose): [CNA] shall support upgrading and developing [game [X]] Series, and [CNB] shall make every effort and use all reasonable skill and care. Article 2 (Recognition of Sales Revenues): The sales revenues on [game [X]] Series shall be recognized as [CNA’s] profits. Article 3 (Commission): [CNA] shall pay fifty (50) percent of the sales revenues on [game [X]] Series as the commission to [CNB]. If [CNB] develops [game [X]] Series, and the total number of concurrent users exceed ten thousand (10,000) persons after Beta Service or commercialized pay service, [CNA] shall pay sixty (60) percent of sales revenues on [game [X]] Series as commission to [CNB] to improve the quality of operation service from the following month.

…

Article 9 (Ownership of Developed Products): [CNA] and [CNB] shall own [game [X]] Series products in a ratio of half and half during the term of Agreement, and [CNA] shall assign the ownership to [CNB] from the expiration of the term of Agreement under the other Agreement separately entered into. Article 10 (Operation of Developed Products): [CNB] shall hold all the rights to operate and manage matters related to the developed products. In respect of this, [CNA] shall sincerely cooperate with [CNB], and [CNB] shall abide by the good faith. Overseas Agreement

Subsequently, CNA and CNB entered into the Overseas Agreement dated 26 February 2001. Pursuant to Art 2 of the Overseas Agreement, the applicability of the Domestic Agreement was limited to sales within Korea. The Overseas Agreement set out terms pertaining to the joint development and overseas sales of the game series. It recognised the overseas sales of the game series as the revenue of CNA, and set out the commission structure and the development fee payments for CNB. The key terms of the Overseas Agreement were as follows: Article 3. Purport of...