In the recent judgment of PI1 and PI2 v. MR¹, the court affirmed the arbitral tribunal‘s decision that it has the jurisdiction to hear a dispute. The case illustrates the court's respect towards parties' autonomy when considering arbitration agreements.

Background

The Plaintiffs and the Defendant entered into a set of transaction agreements, comprising two share subscription agreements and one shareholders' agreement (Transaction Agreements). By the Transaction Agreements, the Defendant held 40% shareholding in the 2nd Plaintiff and the 1st Plaintiff held the remaining shares of the 2nd Plaintiff i.e. 60% shareholding. The Transaction Agreements contain an identical arbitration clause.

On 6 October 2023, the Defendant commenced an arbitration against the Plaintiffs, alleging that as a result of the 2nd Plaintiff's breaches of the Transaction Agreements: (a) there was unfairly oppressive and/or discriminatory conduct on the part of the 2nd Plaintiff (Oppression Claims); and (b) there was loss of trust and confidence in the 2nd Plaintiff's management of the 1st Plaintiff's affairs (Loss of Confidence Claims). After the Statement of Claim, and Defence and Counterclaim, were filed, the Plaintiffs lodged a challenge against the arbitral tribunal's jurisdiction, alleging that: (i) the Oppression Claims are not arbitrable; and (ii) the Loss of Confidence Claims fall outside the scope of arbitration agreements. The arbitral tribunal rejected the challenge and the Plaintiffs applied to the court to set aside the tribunal's decision.

Court's decision

The court confirmed that the arbitral tribunal has jurisdiction to hear the dispute among the parties. Its key reasonings are summarised below:

Ground 1: the Oppression Claims are not arbitrable

The Plaintiffs argued that, while the existence of breaches of the Transaction Agreements is arbitrable, the arbitral tribunal is not allowed to make a finding that there was unfairly oppressive and/or discriminatory conduct, since this forms a statutory basis for winding-up on just and equitable grounds. Therefore, it falls within exclusive jurisdiction of the Cayman Court.

The court rejected the contention of the Plaintiffs. It ruled that, according to Family-Mart China Holding Co Ltd v. Ting Chuan (Cayman Islands) Holding Corp,² a Privy Council ruling on Cayman Islands law, matters which involve disputes between the parties as to whether one party has breached an agreement, or whether equitable rights arising out of the parties' relationship are jeopardised, are matters which can be decided by the tribunal. On the other hand, the Cayman Court has exclusive jurisdiction to decide whether it is just and equitable to wind up a company and what remedy should be made on that ground, including a winding-up order and a buy-out order.

The Plaintiffs also argued that the concepts of "oppressive" and/or "discriminatory" conduct are difficult and complex concepts based on broader principles of Cayman Islands company law, so they cannot be decided by the tribunal. The court found that this does not preclude the tribunal from making factual findings of oppressive conduct and the tribunal can be assisted by expert opinion, if necessary. If the tribunal wrongly applied concepts of Cayman Islands company law, the Cayman Court retains the discretion to refuse to grant the relief to wind up the company.

Applying the above principles, the court noted that the Defendant only asks for factual findings and a declaration based on duties arising out of the Transaction Agreements, and they are restricted to claims as to whether the Plaintiffs acted in an unfairly oppressive and discriminatory manner, so the tribunal has the power to rule on these matters. The court further rejected the Plaintiffs' argument that the finding of oppressive and discriminatory conduct automatically leads to a winding-up order, since it is for the Cayman Court to decide whether to grant a winding-up order, based on the tribunal's ruling and other evidence adduced before it.

Ground 2: the Loss of Confidence Claims fall outside the scope of the arbitration agreement

The Plaintiffs contended that the Loss of Confidence Claims are matters of company law existing independently of the contractual agreements between the parties, relying on Dickson Holdings Enterprise Co Ltd v. Moravia CV.³ The court distinguished the present case from Dickson, observing that, in Dickson, the claims were not based on breaches of the shareholders' agreement, which contains an arbitration clause. Moreover, the arbitration clause in Dickson only covers matters arising out of the shareholders' agreement, but not other affairs of the company. In the present case, the Defendant alleges breaches of the Transaction Agreements, which are the evidence and cause of the loss of trust and confidence. These matters are disputes arising out of the Transaction Agreements and thus are covered by the arbitration agreements.

The Plaintiffs argued that the Loss of Confidence Claims are in substance allegations of misconduct by directors of the 1st Plaintiff, who were not parties to the arbitration agreements, so the tribunal has no jurisdiction over the conduct of the directors. The court rejected this argument and affirmed the tribunal's jurisdiction, noting that the tribunal was not asked to make any findings against the directors.

Outcome

The court affirmed the tribunal's decision on jurisdiction and rejected the Plaintiffs' application to set aside the decision. This case showcases the court's continued efforts in giving effect to parties' arbitration agreements, by allowing parties to decide what matters should be arbitrated to the largest extent possible. Moreover, this case highlights the international element of arbitration, since the court applies a Cayman Island legal precedent to determine whether a dispute is arbitrable under Hong Kong law.

Acknowledgements to Trainee Solicitor Alvin Yeung for research and contribution to this article.

1. [2025] HKCFI 1110
2. [2023] UKPC 33
3. [2019] HKCFI 1424