In two related decisions, Eugene Fung J considered whether claims concerning the alleged misappropriation of a company’s assets fell within the ambit of an arbitration clause as contained in a shareholders’ agreement to which the company is also a party. The decisions examine the construction of such clauses and the Court’s approach to identifying the substance of a dispute under section 20(1) of the Arbitration Ordinance (Cap. 609).
In Soremi Investments Ltd v China National Gold Group Hong Kong Limited & Another [2025] HKCFI 4514 (“Arbitration Stay Decision”), the Court refused to stay proceedings in favour of arbitration. It subsequently refused the 1st defendant’s application for leave to appeal in [2025] HKCFI 6417 (“Leave to Appeal Decision”).
Soremi Investments Ltd (“SIL”) was a joint venture between Global Mining Development L.P. (“Global”) and China National Gold Group Hong Kong Limited (“CNG”). In an earlier arbitration, CNG had been ordered to transfer its 65% shareholding in SIL to Global. However, CNG refused to honour the award. SIL claimed that, in September 2023, approximately US$109.2 million was wrongfully transferred from SIL (under the control of SIL’s CEO and directors appointed by CNG) to a bank account in Beijing held by its Congolese subsidiary (the “Wrongful Transfers”). SIL alleged that the Wrongful Transfers formed part of an unlawful campaign to place its assets beyond its reach and to frustrate enforcement of the arbitral award and brought claims against CNG and its parent company in conversion, dishonest assistance, and lawful and unlawful means conspiracy.
CNG applied for a permanent stay under section 20(1) of the Arbitration Ordinance, relying on an arbitration agreement in a shareholders’ agreement (“SHA”) between CNG and Global, to which SIL was also a party. The clause covered disputes “arising out of or relating to” the SHA.
CNG argued that SIL’s claims arose out of the SHA. It argued that the Wrongful Transfers concerned the provisions governing corporate decision-making agreed in the SHA which will be invoked for its defence, and therefore SIL’s claims should be referred to arbitration under the arbitration clause. SIL responded that its claims did not arise out of the SHA. Rather, they concerned the misappropriation of SIL’s assets and breaches of fiduciary and equitable duties owed to SIL by its directors.
The Court first construed the SHA in its commercial context. It held that the SHA principally regulated the relationship between CNG and Global as shareholders of SIL. SIL was included as a party to give effect to aspects of the shareholders’ arrangements, rather than as a transacting party with a substantive contractual relationship with CNG under the SHA (paragraph 23 of the Arbitration Stay Decision).
On whether the disputes in the action fell within the scope of the arbitration agreement, the Court focused on the substance of the dispute, rather than the way in which the claims had been pleaded or the fact that the SHA was referred to in the statement of claim (paragraphs 27 and 28 of the Arbitration Stay Decision). The Court held that the substance of SIL’s claims was the misappropriation of SIL’s assets. The issues included whether the transfers were unauthorised, contrary to SIL’s interests, made for an improper purpose, or unsupported by a legitimate basis or consideration. Those issues concerned breaches of equitable and fiduciary duties owed to SIL. They did not require a determination of whether the SHA had been breached (paragraph 29 of the Arbitration Stay Decision).
On the presumption in Fiona Trust and Holding Corporation v Privalov [2007] Bus LR 1719 (i.e. that rational parties are likely to intend disputes arising from their relationship to be determined by the single agreed forum), the Court adopted a context-based approach, treating the Fiona Trust presumption as a starting point and construing the arbitration clause in the context of the agreement as a whole. On the particular facts, the Court held that the presumption did not assist CNG, as there was no substantive relationship between CNG and SIL under the SHA, and a dispute over the alleged misappropriation of SIL’s assets was not intended to fall within the arbitration clause (paragraph 39 of the Arbitration Stay Decision).
The Court therefore concluded that the dispute fell outside the scope of the arbitration agreement and dismissed the stay application (paragraphs 40 and 43 of the Arbitration Stay Decision).
CNG subsequently sought leave to appeal. It argued that the Court had (i) wrongly focused on whether SIL was a “non-transacting” party to the SHA; (ii) mischaracterised SIL’s claims as independent of the SHA when they concerned an alleged breach of it; and (iii) misapplied the Fiona Trust presumption.
The Court rejected all three grounds. It clarified that its observations regarding SIL’s role under the SHA formed part of the contractual construction exercise, rather than a separate legal concept of a “transacting” or “non-transacting” party (paragraph 4 of the Leave to Appeal Decision). It also reaffirmed that SIL’s claims did not require determination of any alleged breach of the SHA (paragraph 7 of the Leave to Appeal Decision), and that its conclusion in relation to the Fiona Trust presumption followed from the relevant principles and its fact-specific construction of the arbitration agreement (paragraph 10 of the Leave to Appeal Decision).
The Court concluded that the intended appeal had no reasonable prospect of success and leave was refused (paragraph 13 of the Leave to Appeal Decision).
The decisions illustrate that broadly worded arbitration language does not determine the scope of an arbitration agreement in isolation. Hong Kong’s pro-arbitration policy and the Fiona Trust presumption do not prevent the Court from construing an arbitration clause in its contractual context. The Court will closely examine the substance of the dispute, the commercial purpose of the agreement, and whether resolution of the claims genuinely requires consideration of rights and obligations arising under that agreement in determining the scope of an arbitration clause.
Fiona Trust presumption do not prevent the Court from construing an arbitration clause in its contractual context. The Court will closely examine the substance of the dispute, the commercial purpose of the agreement, and whether resolution of the claims genuinely requires consideration of rights and obligations arising under that agreement in determining the scope of an arbitration clause.
For more information, please contact Alex Wong, Partner, Stella Hu, Partner, Thomas Leung, Senior Associate or your usual contact at Karas So LLP or Mishcon de Reya.