Another One Bites The Dust: The Fiona Trust Principle Again Sees Off NDK's Case Before The English Commercial Court

• Published date: 23 November 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution, Shareholders
• Law Firm: Herbert Smith Freehills
• Author: Mr Craig Tevendale and Jake Savile-Tucker

In NDK Ltd v HUO Holding (No 2) [2022] EWHC 2580 (Comm), the English Commercial Court dismissed NDK's section 67 challenge brought against an LCIA award, finding that a proposed shareholder was covered by the arbitration clause in the shareholders agreement.

The case stems from the same dispute as NDK's previous s. 67 challenge (covered here) but the judgment is noteworthy in its own right for its pragmatic analysis of the core joint venture documents and its robust application of pro-arbitration principles to an arbitration clause.

What was the background?

NDK was one of the three shareholders in a Cypriot-incorporated SPV, established for a Russian joint venture in the mining sector. The investors were party to a Shareholders' Agreement (the "SHA"), which contained an LCIA arbitration clause. HUO bought shares from K Co (another shareholder of the SPV). As part of this process, HUO signed and delivered a Deed of Adherence (the "DoA"), which was necessary to become party to the SHA. NDK alleged that the SHA was terminated due to a breach of pre-emption rights.

In response, HUO brought a claim under the arbitration clause and obtained an LCIA award declaring the SHA to be valid and binding. NDK lodged several challenges, most of which were decided in the previous judgment. In this proceeding, NDK applied to set aside the award under s. 67 of the Arbitration Act 1996 (the "AA") for want of substantive jurisdiction. The challenge was based on the contention that HUO was not party to the arbitration clause.

For the overall context of the dispute, see our previous blog.

Did HUO become party to the SHA?

NDK argued that HUO was not a party to the SHA because it never became a shareholder in the SPV, a fact the Court assumed as accurate for the purposes of this challenge. NDK contended that HUO's position that it acceded to the SHA was not possible given that it was only open to shareholders to accede to the SHA by signing it. This prevented HUO from ever validly delivering the DoA necessary to become party to the SHA. As a consequence, HUO did not become party to the arbitration clause contained in the SHA, which it was said justified a set aside ruling under s. 67 of the AA for lack of substantive jurisdiction.

The Commercial Court rejected this submission. Foxton J paid close attention to when the obligations under the SHA could arise. The proposed shareholder was required to make certain warranties under the SHA and the DoA upon the delivery of the DoA...