Hong Kong courts defer to arbitrators in dispute involving non-signatories

The Hong Kong Court of First Instance has held that jurisdictional issues arising from fraud claims involving non-signatories should be deferred to SIAC arbitration for determination, in two related decisions handed down by different judges within a 14-day period (Techteryx Ltd v. Legacy Trust Company Limited & Others [2025] HKCFI 665 and Techteryx Ltd v. Legacy Trust Company Limited & Others [2025] HKCFI 787).

The courts found that the requirements for stays of proceedings in favour of arbitration had been satisfied because: (i) in the first case, the non-signatory claimant was arguably bound by the relevant arbitration agreement as a matter of Singapore law because it was advancing a derivative claim on behalf of a signatory; and (ii) in the second case, a non-signatory defendant was prima facie entitled to rely upon different arbitration agreements based upon principles of agency and equitable estoppel under Delaware law.

The decisions provide good examples of circumstances in which non-signatories may be bound by, or entitled to rely upon, arbitration agreements.  They also add to the extensive jurisprudence in which Hong Kong courts have deferred to arbitral tribunals to make final decisions on their own jurisdiction.

Background

The underlying dispute arose out of the sale and purchase of a cryptocurrency business which offered a "stablecoin" product.  The purchaser alleged that it had been induced to acquire the business by a fraudulent misrepresentation that sufficient reserves of USD fiat currency were held in an escrow account to back one-to-one the digital tokens subscribed for by investors.  It also alleged the loss of reserves, including the diversion of US$456 million to the bank account of a Dubai company.     

The seller commenced concurrent SIAC arbitrations (which were subsequently consolidated) under the transaction documents, alleging failure by the purchaser to perform payment obligations.  The purchaser commenced court proceedings in Hong Kong alleging fraud against the seller and numerous other defendants, including a financial adviser and an individual defendant who was an officer and director of the seller. 

The court proceedings as between the purchaser and the seller were later stayed by agreement after the seller obtained an anti-suit injunction from the Singapore courts.  The two recent decisions related to proceedings against the financial adviser and the individual defendant respectively.

Decision 1: non-signatory claimant arguably bound by arbitration clause

In the first decision, the financial adviser argued that the court should decline jurisdiction over the purchaser's claims against it, because they were covered by a SIAC arbitration clause in an investment management agreement which pre-dated the transaction and to which the purchaser was not party.

Deputy High Court Judge Jonathan Wong (applying the test for a stay of proceedings under section 20 of the Hong Kong Arbitration Ordinance, which the parties had agreed would be determinative) found that the purchaser was "arguably" bound by the arbitration agreement as a matter of Singapore law (which "quite plain[ly]" applied, whether as a matter of the governing law of the arbitration agreement, the governing law of the investment management agreement or the law of the seat of arbitration, although the judge noted that there was "unlikely to be a substantive difference with Hong Kong law").

This was because the purchaser was acting in its capacity as the beneficiary of a trust to pursue claims against a party to the arbitration agreement (the financial adviser) on behalf of, and in respect of losses suffered by, a trustee which was also party to the clause (a so-called beneficiary derivative claim).

A separate argument by the purchaser that the arbitration agreement was null and void because it formed part of a deliberate scheme to "fragment" the choice of law and dispute resolution options was described as "rather far-fetched" and deferred for consideration by the arbitral tribunal. 

In so doing, the court rejected an argument by the purchaser that this issue should be finally decided by the court itself.  The purchaser relied in this regard on the Canadian case of Uber Technologies Inc & Ors v. Heller (AG of Ontario and others intervening) [2020] 5 LRD 348, in which the court indicated that it would finally decide the question of whether an arbitration agreement was null and void when referring it to the tribunal would result in a process which was "fundamentally too costly or otherwise inaccessible" for one of the parties.  The Hong Kong court noted that no cases had been cited to show that this "accessibility exception" had been considered in Hong Kong, and no such concern over access to justice arose in the present case given the apparent resources of the purchaser.  It remains to be seen whether such arguments will arise for consideration by the Hong Kong courts in future cases, although such an exception (even if held to exist) would seem unlikely to apply in disputes involving well-resourced commercial parties.

The judge therefore held that he "would have" granted a stay (had this been the primary relief requested by the financial adviser), granted an order declining to exercise any jurisdiction the court might have, and deferred both issues for determination by the arbitral tribunal.

This outcome is consistent with the Hong Kong Court of Appeal's decision in Chu Kong v. Lau Wing Yan [2018] HKCA 1010, in which a derivative action brought by an indirect shareholder on behalf of a company was stayed in favour of arbitration in London pursuant to an arbitration clause which the company had signed but the indirect shareholder had not.

Decision 2: non-signatory defendant prima facie entitled to rely on arbitration clause

In the second decision, the individual defendant applied for a stay of the court proceedings brought by the purchaser against him, arguing that he was entitled to rely upon the arbitration agreements in the transaction documents despite being a non-signatory.

The Honourable Madam Justice Mimmie Chan held that there was a prima facie case (which was all that Hong Kong law required) that the purchaser was bound to arbitrate its claims against the individual defendant as a matter of Delaware law (which the parties agreed was the governing law of the arbitration agreements), and accordingly granted the stay. 

This was because, applying agency principles under Delaware law: (i) the purchaser's claims against the individual defendant were "intimately founded and intertwined with" the contractual obligations of the seller under one of the transaction documents containing an arbitration clause, and there was a "close relationship" between the individual defendant on the one hand, and the seller and the purchaser as parties under that agreement on the other; and (ii) had the transaction documents containing the arbitration clauses not been agreed between the purchaser and the seller, the purchaser would have had no claims against the individual defendant.

In addition, the doctrine of equitable estoppel could apply under Delaware law to allow a non-signatory (the individual defendant) to compel arbitration where a signatory (the purchaser) raised allegations of "substantially interdependent and concerted misconduct" by both the non-signatory and one or more of the signatories, on the basis that the Delaware court would not allow a valid arbitration agreement to be defeated by "artful pleading".  The judge noted that this was "also the general approach" in Hong Kong, citing Linde v. RusChemAlliance [2023] HKCFI 2409 (a case involving an anti-suit injunction on which we reported here). 

The court also rejected as "academic" an allegation by the purchaser that the individual defendant had relied on confidential matters and documents from the arbitrations, and that the court should disregard such evidence.  The individual defendant had argued that, even if he were bound by an obligation of confidentiality despite not being party to the arbitrations, the SIAC rules permitted the disclosure of information for the purpose of pursuing and enforcing a legal right or claim (an equivalent provision is contained in Article 45.3(a) of the HKIAC Rules and section 18(2)(a)(i) of the Hong Kong Arbitration Ordinance, which was applied in Beijing Songxianghu Architectural Decoration Engineering Co., Ltd v. Kitty Kam [2024] HKCFI 1657, as we reported here).  Although the court accepted this in principle, it said there was "simply no need" to refer to any confidential details of the arbitrations, apart from the fact that they existed and were continuing, and stated that it had made no use of the allegedly confidential matters.

Comment

It is striking that, within the same dispute, a single party (the purchaser) was both a non-signatory to one arbitration agreement and a signatory to others (adopting a consistent position that it should not be bound by the former, and non-signatories should not be entitled to rely on the latter).  This reflects the complexity of the disputes which can arise from multi-party, multi-contract transactions, which represent a significant proportion of new arbitrations (as shown by the HKIAC's 2024 statistics, which we recently reported on here).

The decisions helpfully illustrate the different perspectives and arguments which may arise depending upon whether a non-signatory is a claimant or a respondent, and is seeking to avoid or rely upon the relevant arbitration agreement. 

It is perhaps noteworthy that the party seeking to invoke and rely upon the arbitration agreement(s) was in each case in the position of a respondent (and in the second case, an individual respondent) to serious claims of fraud, and in neither case was a non-signatory directed against its will to arbitrate claims against it.

Both judges emphasised that their decision was only preliminary and that it was for the relevant arbitral tribunal to make a final decision as to the scope of the arbitration agreement(s) and its own jurisdiction.  For applicants seeking to have a dispute resolved by arbitration, this underlines that obtaining a stay of proceedings is only the first step, following which they will need to convince the tribunal that it has jurisdiction and, if successful, defend any challenge to the tribunal's positive finding of jurisdiction before the courts.

Parties applying for stays of arbitration should also be mindful of the comments of Mimmie Chan J regarding confidentiality, which (albeit made in the context of a specific case) may suggest that the courts will generally consider it unnecessary for applicants for a stay to adduce material from any underlying arbitration which is already on foot, unless there are specific reasons to do so.