In the recent case of Investment Agreement Dispute between an Investment Fund Co. and four Respondents, the China International Economic and Trade Arbitration Commission (hereinafter referred to as CIETAC), the Claimant rejected all the arbitration requests of the Claimant against the four Respondents. King&Capital lawyers Liu Ming, Xiong Yanhua and Yang Siyin, as the joint representatives of the four respondents, obtained the award in favor of the arbitration tribunal after their professional and effective representation, which was adopted by the arbitration tribunal.

In recent years, there has been an increase in the number of disputes in the equity investment industry regarding the exit demand of investors and betting agreements. This case is a highly representative arbitration case of betting agreement, as well as a major, difficult and complex case. The target company was established in 2010, mainly engaged in science and technology promotion and application services, and has successfully completed multiple rounds of financing such as Round A, Round B, Round B+ and Round C within 5 years, and successfully obtained strategic investments from “US-funded chip giants” and “global leading ICT technology enterprises”, etc. The target company has many investors. The target company has a large number of investors and involves the competition and rivalry between Chinese and American capitals, and the actual controller of the target company is a talent introduced by a certain program of the Chinese government and a rising star in science and technology. Under the special background of “Sino-US trade war” and “New Crown Epidemic”, the performance of the target company failed to meet the standard, and in order to realize the exit target, an investment fund limited company applied for arbitration to the TDC, requesting the four betting obligors to repurchase the equity shares, pay for the repurchase of the equity shares and the overdue liquidated damages. liquidated damages.

In betting agreement disputes, investors often take advantage of their dominant position in investment negotiations to set up more stringent “performance commitment target”, “performance compensation” and “equity repurchase” clauses in the betting agreement for the betting obligors. “In this case, the lawyer team researched and analyzed the terms and conditions of the betting agreement. In this case, the legal team studied and sorted out the trial logic and decision points of the betting agreement dispute cases in the past years, summarized all the possible defenses from the perspective of the betting obligor, and accurately extracted the substantive legal relationship and focus of the dispute from the complicated legal facts of the case.

In this case, as to whether the applicant enjoys the right of repurchase, it is necessary to firstly clarify the effect and relationship between the investment documents of each round of investment in the target company, and then determine whether the terms of the right of repurchase of the previous round of investors have been replaced by the terms of the right of repurchase of the later round of investors. Both parties had different understanding of the relevant investor repurchase clause, and each party had its own view. King&Capital's counsel represented that the buy-back clauses of each round of investment agreements were binding on the applicant, not a simple substitution relationship as claimed by the applicant, and should be applied in specific cases.

The core point of contention of the award was whether the preconditions for the applicant to exercise the right of repurchase were met, and King&Capital's lawyers argued that the applicant's exercise of the right of repurchase did not satisfy the preconditions stipulated in the latter round of investment documents and the articles of association of the target company. The Arbitration Tribunal recognized this view and, based on the interpretation of the text, the interpretation of the system and the transaction practice, the Tribunal held that the applicant's exercise of the repurchase right was inferior to that of Company Y (a U.S.-funded chip giant) and Company L (a global leading ICT company), and concluded that the applicant's conditions precedent for the exercise of the repurchase right had not been fulfilled. Accordingly, the Arbitration Tribunal rejected all of the Claimant's claims against the four Respondents.

Currently, judicial decisions on “betting agreement” disputes have not yet formed a unified decision and trial discretion, and in practice, there are often major differences in the determination of issues related to equity repurchase, as well as differences in the specific agreement and fulfillment of the betting agreement. The success of this case not only avoided a significant actual loss for the client, but also provided a series of cutting-edge and focus issues of the betting agreement involved in the case, which are worthy of reference and enlightenment.