Eternity Sky Investments Ltd v Xiaomin Zhang

A personal guarantor may be a consumer under the Consumer Rights Act 2015 even where the guarantee supports a company in which the guarantor holds shares. The relevant question is whether the guarantee was given for purposes outside the guarantor’s business or because of a functional link with the company. A small shareholding without involvement in the company’s operation did not create such a link.

For the Act’s choice-of-law protection, residence in the UK is not automatically a close connection. The court must consider all the circumstances, including competing connections with other countries. A guarantee forming an integral part of a Hong Kong transaction had no close connection with the UK. The court nevertheless held that the impugned terms would not have been unfair, and enforcement of the arbitral award was not contrary to public policy.

Eternity Sky sought enforcement under section 101 of the Arbitration Act 1996 of a Hong Kong-seated New York Convention award requiring Mrs Zhang to pay HK$500 million plus interest and costs under a personal guarantee.

Mrs Zhang applied to set aside the enforcement order. She argued that the guarantee’s Hong Kong law and arbitration clauses, and its substantive guarantee provisions, were unfair under the Consumer Rights Act 2015, and that enforcement would therefore contravene English public policy under section 103(3) of the 1996 Act. She also sought an adjournment, disclosure and further evidence to investigate alleged underlying illegality.

The central issues were whether Mrs Zhang was a consumer, whether the guarantee had a close connection with the UK, whether its terms were unfair, and whether the applications should be adjourned.

1. Consumer status. Mrs Zhang acted predominantly for private reasons connected with her marriage, rather than because of a functional link with Chong Sing. Her approximately 0.4% shareholding did not create such a link, particularly as she had no involvement in the company’s functioning. Wealth and the amount guaranteed were irrelevant to consumer status. She was therefore a consumer under sections 2(3), 61 and 76(2) of the Consumer Rights Act 2015.
2. Close connection. Section 74 required an assessment of all the circumstances. UK residence was a connection, but not automatically a close connection. The guarantee was overwhelmingly connected with Hong Kong: the underlying transaction, parties, performance, regulation, consideration, governing law and arbitration were centred there. The UK connection was incidental. The Act therefore did not apply despite the choice of Hong Kong law.
3. Substantive fairness. The court nevertheless considered the alternative case. Clause 2 was a core term, but it was transparent and prominent. The relevant average consumer was one likely to enter into this unusual type of corporate guarantee, and would be expected to understand guarantees and bonds issues and to seek legal advice. Clauses 17.1 and 17.2–17.4 were not unfair. Hong Kong law made no material difference to the outcome, and Hong Kong arbitration was commercially coherent and caused no substantial injustice.
4. Public policy and enforcement. Consumer protections may constitute public policy under section 103(3) of the Arbitration Act 1996. There is no general hierarchy making arbitration-enforcement policy superior to consumer protection policy. However, Mrs Zhang had not established any infringement of consumer rights. The enforcement order was therefore not set aside.
5. Alternative applications. The request for disclosure and further evidence was unnecessary. No pleadable illegality case had emerged, the investigation had begun too late, and there was no good reason why the points could not have been raised in the arbitration. The applications for an adjournment, disclosure and further evidence were dismissed.

First-instance decision. No appellate history was stated in the judgment.