English Court finds that claims under company articles fall within arbitration clause in a shareholders’ agreement

United KingdomScotland

In NDK Ltd v HUO Holding Ltd [2022] EWHC 1682 (Comm), the Commercial Court reaffirmed the principle that arbitration, as a private contractual method of dispute resolution, should remain free from undue interference by the courts. A commercial, pragmatic approach to interpreting the relationship between a company’s articles of association and the terms of a shareholders’ agreement (a subject which arbitration practitioners are often asked to consider) was taken by applying the Extended Fiona Trust Principle. Once again, the English courts have demonstrated their continued support for arbitration.


NDK, K Co, and KXF were shareholders in a Cyprus-registered special purpose vehicle (the “SPV”). The shareholders entered into an English law governed shareholders agreement (the “SHA”), which provided for disputes to be resolved by arbitration under the London Court of International Arbitration (“LCIA”) rules (the “Arbitration Agreement”).

Following several disputes among the shareholders, an arbitration was commenced in 2015 (the “Original Arbitration”), in which NDK contended that the SHA had been terminated. During the arbitration proceedings, K Co acquired HUO and sold its shares in the SPV to HUO. The SPV board unanimously approved the share transfer. HUO was then sold to a third party (referred to as Mr Pink in the judgment). As part of the same transaction, KXF’s owner also transferred the beneficial ownership of KXF to Mr Pink.

Although NDK initially alleged that these share transfers were in breach of the SHA, it later conceded that the pre-emption rights and transfer restrictions in the SHA applied only to the disposals of shares in the SPV itself, not to the disposal of shares in a shareholder in the SPV. In 2019, the Original Arbitration concluded with an award rejecting NDK’s claim that the SHA had been terminated.

However, in 2020, NDK backtracked on its earlier position and commenced court proceedings against, among others, K Co, KXF, and HUO in Cyprus (the “Cypriot Proceedings”). Relying on the SPV’s articles of association (the “AA”), NDK claimed that:

  1. Mr Pink, while purchasing beneficial ownership of the SPV, was acting for a competitor of the SPV;
  2. The transfers to Mr Pink by K Co and KXF were a fraudulent conspiracy in breach of the AA; and
  3. The representation from K Co’s family trust on the transfer of K Co’s shares to HUO had been fraudulently produced to preclude NDK from exercising its pre-emption rights under the AA.

KXF and HUO commenced another LCIA arbitration against NDK, seeking an anti-suit injunction in restraint of the Cypriot Proceedings. This was granted as a partial final award (the “PFA”).

NDK brought various challenges under sections 67 (substantive jurisdiction) and 68 (serious irregularity) of the Arbitration Act 1996 to the PFA and a subsequent costs and damages award handed down by the arbitral tribunal.

NDK contended that the matters which formed the subject of the Cypriot Proceedings did not fall within the Arbitration Agreement for two reasons:

  1. As a matter of construction, the claims brought under or in respect of the statutory contract constituted by the AA did not fall within the Arbitration Agreement (the “Construction Question”); and
  2. The matters raised in the Cypriot Proceedings were not arbitrable under English law (the “Arbitrability Question”).

The Construction Question

NDK acknowledged that an arbitration clause governed by English law will ordinarily be interpreted on the basis that the parties intend it to apply to all disputes arising from the relationship between the parties represented by the contract containing the arbitration clause (Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40). Furthermore, an arbitration agreement in one contract could extend to disputes arising under another contract with no competing jurisdiction clause between the same parties (described as the “Extended Fiona Trust Principle” in Terre Neuve Sarl v Yewdale Ltd [2020] EWHC 772 (Comm)). However, NDK contended that the cause of action in the Cypriot Proceedings arose out of the AA, as a matter of a statutory contract governed by Cypriot company law, and that the issues in the Cypriot Proceedings did not concern the same matter as the SHA. Therefore, the Extended Fiona Trust Principle did not apply.

HUO and KXF argued that the Arbitration Agreement, which provided for “disputes, differences, controversies or claims between or among the Parties arising out of, relating to or in connection with this Agreement” to be referred to LCIA arbitration, was wide in its ambit. Additionally, HUO and KXF asserted that the substance of the dispute must be considered to determine if the Cypriot Proceedings “arise out of the same relationship” as the SHA.

The Court applied Fiona Trust and the Extended Fiona Trust Principle in finding that matters in the Cypriot Proceedings constituted claims which “relate to” or arise “in connection with” the SHA, so as to fall within the terms of the Arbitration Agreement. This was apparent from various facts including that the AA and SHA concerned the same relationship between the parties as shareholders in the SPV, and in the relevant respects, the same subject-matter. The AA and SHA were clearly intended to operate together based on the supremacy clause. Furthermore, the parties became shareholders on the same date the SHA was entered into, with subsequent shareholders being required to adhere to the SHA as a condition of any transfer of shares to them, which would cause them to become parties to the AA.

The Arbitrability Question

NDK asserted that the Cypriot Proceedings were not arbitrable on public policy grounds for three reasons:

  1. The status of shareholders of the company is not a contractual question;
  2. The Cypriot Proceedings relate to correction of the public register of shareholders, which impacts rights of third parties; and
  3. Only a court can order rectification of the public register of shareholders.

It was established in Riverrock Securities Ltd v International Bank of St Petersburg ([2021] 2 All ER (Comm) 1121) that three categories of shareholder disputes are non-arbitrable:

  1. claims for an order for winding up a company on just and equitable grounds;
  2. claims for relief which impact shareholders who are not parties to the arbitration agreement; and
  3. claims that “represent an attempt to delegate to the arbitrators what is a matter of public interest which cannot be determined within the limitations of a private contractual process” (Fulham Football Club (1976) Ltd v Richards [2012] Bus LR 606).

Further elaboration on the third category of claims was provided in Bridgehouse (Bradford No. 2) Ltd v BAE Systems plc [2020] Bus LR 2025. This referred to claims involving the “status” of the company that potentially affect parties other than those involved in the arbitration. Creditors would be one such example.

Applying Fulham and Bridgehouse, the Commercial Court rejected all three arguments made by NDK. It emphasised that the English courts will not lightly preclude the right to arbitrate on grounds of public policy, unless there are compelling reasons to do so. Issues concerning the transfer of shares and pre-emption rights of a shareholder are essentially private and commercial disputes. Registration is simply a means of giving effect to valid transfers once the relevant entitlement to the shares has been established.

The fact that arbitration tribunal does not itself have power to grant part of the relief sought does not render the underlying dispute non-arbitrable, even if the successful party must bring court proceedings for the purpose of giving effect to the arbitral determination in that context. Moreover, it is open to a court enforcing an arbitral award to refuse enforcement on the grounds that a third-party interest is adversely impacted.


This decision confirms the English courts’ continued pro-arbitration stance. By applying Fiona Trust and the Extended Fiona Trust Principle, the Commercial Court demonstrated its understanding of the practical realities of a joint venture context in which the SHA is often the most commercially significant document. It would therefore make sense that a rational businessperson should intend that the arbitration clause will apply to any dispute between the parties including under the AA, even if the joint venture company is registered in a different jurisdiction. The high threshold established by the English courts in rendering a claim non-arbitrable on the grounds of public policy provides further support for upholding arbitration agreements and gives parties greater certainty in the operationalisation of their jurisdiction clauses.

Article co-authored by Karan Kamath, intern at CMS.