Hong Kong court confirms arbitrability of issues precursory to Cayman winding up decision

The Hong Kong Court of First Instance has dismissed a challenge to the jurisdiction of an HKIAC tribunal over matters which were relevant to a potential application to the Cayman Islands courts for the winding up of a joint venture company on the just and equitable ground (PI 1 and PI 2 v. MR [2025] HKCFI 1110).

The court applied the reasoning of the Privy Council in FamilyMart China Holdings Co v. Ting Chuan (Cayman Islands) Holding Corporation [2023] UKPC 33, to the effect that: (i) it will be for the Cayman Islands court to decide whether it is just and equitable to wind up a company and whether a winding up order or alternative relief should be made on that ground, and those issues will not be arbitrable; but (ii) disputes on legal and factual issues which are "essential precursors" to a decision by the Cayman court on those questions (such as whether a party has breached its contractual obligations) will be arbitrable and fall within the tribunal's jurisdiction.

The outcome is consistent with previous cases on the interaction between arbitration and petitions for the winding up of Hong Kong companies on the just and equitable ground, and it is reasonable to expect that the same or similar reasoning would be applied to questions of arbitrability and jurisdiction arising in that context in the future (see the comment section below for further details).

Background

The underlying dispute related to a Cayman Islands joint venture company which carried on a business of acquiring land and developing and leasing science and industrial parks in the Mainland PRC.

The majority shareholder (a British Virgin Islands company) held 60% of the shares in the joint venture company, while the minority shareholder (a Cayman Islands company) held the remaining 40%.

The parties concluded a suite of transaction agreements (comprising a shareholders' agreement and two share subscription agreements), each of which contained an identical arbitration agreement in favour of HKIAC arbitration. The governing law of the transaction agreements and the arbitration agreements was Hong Kong law.

The minority shareholder commenced HKIAC arbitration against the majority shareholder and the joint venture company. The minority shareholder's claims:

• Were made with a view to deploying the tribunal's findings in potential applications to the Cayman courts to wind up the joint venture company on the just and equitable ground, or grant buy-out relief in the alternative.
• Alleged numerous breaches of the transaction agreements (including unauthorised remuneration and related-party transactions, and failures to remit funds, provide financial and business information, allow the minority shareholder to inspect books of account, appoint the minority shareholder’s nominated non-voting observer, and allow the minority shareholder’s appointed directors to attend certain board meetings). 
• Were framed in terms of (i) "unfairly oppressive and/or discriminatory conduct" on the part of the majority shareholder (the oppression claims) and (ii) "loss of trust and confidence" in the majority shareholder's management of the joint venture's affairs (the loss of confidence claims). 
• Initially included a claim that the majority shareholder and the joint venture company had acted in a manner which entitled the minority shareholder to relief under section 95(3) of the Cayman Islands Companies Act (which sets out the relief which may be granted by the Cayman court as an alternative to a winding up order on the just and equitable ground).

The majority shareholder and the joint venture company challenged the tribunal's jurisdiction on the basis that the minority shareholder's claims did not fall within the scope of the submission to arbitration under the arbitration agreement, and the minority shareholder's claims under section 95(3) of the Cayman Islands Companies were within the exclusive jurisdiction of the Cayman court. 

The minority shareholder then sought to amend its statement of claim in the arbitration by removing all references to section 95 of the Cayman Islands Companies Act, whilst maintaining the substance of its claims that there had been "unfairly oppressive and/or discriminatory conduct" as well as "loss of trust and confidence" between the parties. 

The tribunal dismissed the jurisdictional challenge and allowed the minority shareholder's amendments to its statement of claim.

Jurisdictional challenge before Hong Kong court

The majority shareholder and the joint venture company applied to the Hong Kong Court of First Instance to set aside the tribunal's decision on jurisdiction under section 34 of the Hong Kong Arbitration Ordinance, which gives effect to Article 16(3) of the UNCITRAL Model Law (and pursuant to which the court determines the tribunal's jurisdiction on a de novo basis).

The majority shareholder and the joint venture company argued that: (i) the oppression claims were not arbitrable because they fell within the exclusive jurisdiction of the Cayman court; and (ii) the loss of confidence claims fell outside the scope of the arbitration agreement and so exceeded the contractual jurisdiction of the tribunal.

Mimmie Chan J dismissed the jurisdictional challenge and awarded costs to the minority shareholder on the indemnity basis, holding that (i) the oppression claims were arbitrable and (ii) the loss of confidence claims fell within the scope of the arbitration agreement.

Oppression claims were arbitrable

In upholding the arbitrability of the oppression claims, the court:

• Noted that this issue had been "carefully considered and explained" by the Privy Council in FamilyMart, which both sides had relied upon and which also arose out of a dispute in relation to a Cayman Islands joint venture company.  In that case, the minority shareholder applied to the Cayman court to wind up the company on the just and equitable ground, and the majority shareholder applied successfully to strike out or stay the petition in favour of arbitration (in contrast to the present case, in which the minority shareholder was seeking to rely upon the arbitration agreements).
• Applied the Privy Council's finding that disputes as to whether a party has breached its obligations under an agreement, or equitable rights arising out of the relationship between the parties had been disregarded, were arbitrable, even in the context of an application to wind up a company on just and equitable grounds, and even if those questions could be said to be "precursors" to the decisions (which were for the court rather than the arbitral tribunal to make) as to whether it was just and equitable to wind up the company, and whether a winding up order should be made on that ground.
• Rejected an argument by the majority shareholder and joint venture company that, because an arbitral tribunal could not determine whether it was just and equitable to wind up a company, the tribunal was precluded from deciding matters (such as disputed questions of fact, that there were breaches of agreement, or that there was oppressive or discriminatory conduct) which might in due course establish and support the just and equitable ground. There was nothing in the Privy Council judgment to support that argument, and the tribunal could determine such issues (assisted by expert evidence on Cayman law, if appropriate) even if they involved mixed questions of fact and law. 
• Dismissed an argument that the tribunal's findings would effectively determine whether a winding up order would be made, because the latter would follow from and be the “automatic consequence” of a finding by the tribunal of oppressive and discriminatory conduct. The Cayman court would still have undisputed discretion and jurisdiction to decide whether it would be just and equitable to wind up the company in light of the evidence adduced before it and the findings of the tribunal.
• Noted that the claims and declarations sought by the minority shareholder from the tribunal were based on duties said to arise under the transaction agreements and confined to questions as to whether the majority shareholder and joint venture company had acted in a manner which was unfairly oppressive and discriminatory, or constituting in law a repudiation of the contracts. Those questions did not fall within the subjects held in FamilyMart to be outside the jurisdiction of the tribunal.
• Also noted that the declarations of "unfair oppression" or "discrimination" requested by the minority shareholder were not remedies, and in seeking them the minority shareholder was not seeking any remedy under section 95 of the Companies Act which only the Cayman court was empowered to grant.

Loss of confidence claims fell within scope of arbitration agreement

The court also held that the tribunal had jurisdiction over the loss of confidence claims because they fell within the scope of the arbitration agreement.

First, the court distinguished the present case from certain cases (relied upon by the majority shareholder and joint venture company) in which the relevant rights and obligations existed independently of any agreement between the parties:

• The key example was the decision in Dickson Holdings Enterprise Co Ltd. v. Moravia CV [2019] HKCLC 397, which concerned an unfair prejudice petition involving "special features of company law" (namely, the requirement for notice of meetings and how shares could be forfeited) which were not provided for in the relevant shareholders agreement (which was not even relied upon in the claim) and did not fall within the scope of the arbitration clause (which was limited to disputes arising out of or relating to the agreement, and did not extend to disputes relating to affairs of the company).
• In contrast, the claims in the present case related to the alleged breach of obligations under the transaction agreements (and the arbitration agreement covered tortious claims and any other non-contractual obligations arising out of or relating to the transaction agreements). It did not matter that the arbitration clause did not refer to disputes as to the "affairs of the company", because the claims made arose out of or related to the obligations in the transaction agreements, and therefore fell within the scope of the arbitration agreement and the tribunal's jurisdiction.

Second, the court rejected an argument that the loss of confidence claims amounted in essence to serious allegations of misconduct against the directors of the joint venture company, who were strangers to the arbitration agreement. The court noted that: (i) claims of breach of directors' duties were raised in FamilyMart, but the Privy Council did not suggest they could not be decided by the tribunal; and (ii) the minority shareholder was in any event only seeking relief against the majority shareholder and joint venture company, and not against the directors of the joint venture company.

Comment

Although the decision relates to a potential application to the Cayman courts to wind up a Cayman company on the just and equitable ground, the outcome is consistent with previous cases which addressed the interaction between arbitration and applications to the Hong Kong courts for winding up of Hong Kong companies on the just and equitable ground.

In Quiksilver Greater China Limited v. Quiksilver Glorious Sun JV Limited & Another [2014] 4 HKLRD 759 and China Europe International Business School v. Chengwei Evergreen Capital LP and Others [2021] HKCFI 3513 (reported here), for example, petitions to wind up Hong Kong companies on the just and equitable ground were stayed so that the substance of the underlying issues (which were held to be arbitrable) could be decided by arbitration. Both decisions were cited and discussed by the Privy Council in FamilyMart.

It is reasonable to expect that the same or similar reasoning to that in the present case would be applied in the context of an application (whether potential or actual) to the Hong Kong courts for the winding up of a Hong Kong company on the just and equitable ground. 

It would follow from this that disputes on legal and factual issues which are "precursors" to a decision by the Hong Kong court as to whether it is just and equitable to wind up a company should generally be arbitrable.