Skip to content

Court confirms one-stop adjudication in joint venture dispute

Author
Image of Justin Tan
Justin Tan

Trainee

London

View profile →

22 August 2022

The English High Court has determined that an arbitration agreement in a shareholders’ agreement (SHA) applied to claims brought under a JV company’s articles of association (AoA), in an application of the Extended Fiona Trust principle.

Multiple proceedings arising from a joint venture dispute

The disputes arose out of a joint venture to operate a Russian coalmine by three investors, including NDK. The relationship between the three investors was regulated by two documents. The SHA was governed by English law and provided for LCIA arbitration. The AoA of the JV company was governed by Cypriot law and did not contain a jurisdiction clause. 

The JV partners fell out and various disputes arose, including in relation to the transfer of shares in the JV company. NDK brought a suit in the Cypriot courts alleging a fraudulent transfer of the shares in violation of its pre-emption rights, in breach of the AoA. The other JV partners commenced various LCIA arbitrations, which resulted in anti-suit relief against NDK being awarded. 

NDK challenged the various arbitral awards that were adverse to it. The primary issue considered by the court in this judgment was whether the arbitration agreement under the SHA applied to claims brought under the AoA.

Arbitration agreement under the SHA did apply to claims under the AoA

Under English law, there is a presumption that where parties have agreed to an arbitration clause, they intend it to apply to all disputes arising from the relationship between them. This is known as the “Fiona Trust principle”. In recent years, it has been found that an arbitration clause in one agreement can, in certain circumstances, apply to claims under other agreements with no (or a different) jurisdiction clause. This has been described as the “Extended Fiona Trust principle”.

NDK contended that the Extended Fiona Trust principle should not apply as between the SHA and AoA. It argued that the obligations under the two documents were of a “fundamentally different legal character”, and that the SHA, being a private contractual document, was “legally subordinate” to the AoA, being a statutory document governed by company law. In support of its view, NDK relied on the Singapore case of BTY v BUA, where the Singapore High Court found that an arbitration clause in a SHA did not apply to disputes under the AoA because the two documents operated on “separate planes”.

NDK’s arguments were firmly rejected by the court. The court found that under English law, the relationship between the SHA and AoA was “complementary”, and that they operated “together rather than on different legal planes”. For example, when construing the AoA, English courts will generally have regard to the terms of the SHA. Furthermore, the court held that, in the context of a private joint venture, it was often the SHA that was more commercially important than the AoA. 

On that basis, the court found that the Extended Fiona Trust principle did apply, and that a rational businessperson would have intended the arbitration agreement in the SHA to apply to disputes under the AoA. The disputes raised in the Cypriot proceedings also fell within the language of the arbitration agreement.

Commentary

This case considers, for the first time, the applicability of the Extended Fiona Trust principle as between a SHA and AoA. The conclusion of the court seeks to prevent JV partners from avoiding an arbitration agreement by reformulating the claim by reference to the AoA, rather than the SHA. It is a notable decision because it is not uncommon for there to be tension between the substantive and dispute resolution provisions of a parallel AoA and SHA. 

Of course, the issue in this case could have been avoided through consistent drafting of the SHA and AoA. Perhaps the key lesson from this case is to give proper consideration to how the SHA and AoA interact. Should parties wish to carve out a certain type of dispute (eg disputes under the AoA) from an arbitration clause, appropriate language must be included. 

Judgment: NDK v HUO and KXF