Introduction
Article 8(1) of the UNCITRAL Model Law, adopted in Hong Kong under section 20(1) of the Arbitration Ordinance (Cap. 609), provides that where a plaintiff brings a court action which is the subject of an arbitration agreement, the court must refer the parties to arbitration, if a party so requests, unless the court finds that the agreement is null and void, inoperative or incapable of being performed.
An applicant seeking a stay under section 20(1) must demonstrate that there is a prima facie or plainly arguable case that the action has been brought in the same matter which is the subject of the arbitration agreement. Unless the point is clear, the court will stay the matter and refer the parties to arbitration, so that the tribunal can decide whether or not it has jurisdiction.
But can an applicant also seek a stay in favour of arbitration where either the plaintiff or the applicant itself is not a party to the arbitration agreement? The Court of First Instance recently addressed this question in two decisions in Techteryx Ltd v Legacy Trust Company Ltd and Others [2025] HKCFI 665 and [2025] HKCFI 787.
The Hong Kong court proceedings are between the Plaintiff (P), a BVI company, and five defendants: (1) a public Hong Kong company in the trustee business (Trust), (2) a Singaporean investment and advisory services company (Crossbridge), (3) an offshore commodity fund (Fund), (4) a Delaware company in the business of developing digital currency products (TrueCoin), and (5) one of TrueCoin’s directors (Director).
TrueCoin is a developer of various digital currency products, including the TrueUSD digital token and other stablecoins. TrueCoin marketed that it had sufficient reserves in cash and cash equivalent assets to back each token so that token holders could rest assured that their tokens would not be irredeemable or become worthless. It had engaged the Trust under an Escrow Services Agreement to hold the backing reserves for the benefit of TrueUSD holders.
In March 2020, the Trust entered into an Account Investment Management Mandate with Crossbridge, appointing Crossbridge to manage the reserves in a custody account held by the Trust. The Mandate provided for SIAC arbitration.
In December 2020, P purchased the TrueUSD business from TrueCoin, including the reserves backing the tokens. The purchase was formalized through a Strategic Alliance Agreement and a Master Services Agreement (Agreements). Each contained an arbitration clause providing for the settlement of disputes “arising out of, relating to, or having any connection” with the agreement by SIAC arbitration.
When P acquired the business, the Trust transferred the reserves to an affiliate in Hong Kong. P agreed to appoint that affiliate and another company to provide investment services in respect of the reserves. In March 2021, TrueCoin’s Director was appointed, with P’s agreement, as P’s authorized person to give instructions and directions to TrueCoin’s operation team and to communicate on P’s behalf with the investment and fiduciary partners of the business.
P claimed it subsequently became aware that the reserves, which were to be held by the Trust under the Escrow Agreement, were instead invested in the Fund. Between June 2021 and March 2022, the Director had authorized transfers totalling USD 456 million to a bank in Dubai. P claimed that the Director had authorized the transfers in his capacity as P’s authorized representative, without P’s knowledge, approval or authorization.
When the Fund defaulted on P’s redemptions of investment sums, P discovered the loss of the reserves purportedly invested in the Fund. TrueCoin in turn claimed that P failed to pay the Fund under the Agreements.
In November 2023, TrueCoin commenced two concurrent SIAC arbitrations against P for the outstanding payments under the Agreements.
Shortly thereafter, P commenced court proceedings in Hong Kong against the Trust. Crossbridge and the Fund were joined as defendants in January 2024, and TrueCoin and the Director were joined in February 2024. P alleged it was induced into purchasing the business based on certain representations made by TrueCoin. These included assurances that the tokens were backed sufficiently and held in escrow accounts with independent licensed banks or trust companies. P’s action centred on the alleged misrepresentations and the subsequent investments of the reserves, which P claimed led to significant financial losses.
Crossbridge and the Director each applied to the court for a stay of the proceedings in favour of arbitration under section 20(1) of the Arbitration Ordinance. Crossbridge sought to invoke the Delaware law governed arbitration clause in the Mandate, whereas the Director sought to invoke the Singapore law governed arbitration clauses in the Agreements.
Each application involved the key issue of whether there was an arbitration agreement between the parties when (i) P was not a party to the Mandate, and (ii) the Director was not a party to the Agreements.
The CFI granted both stay applications.
Stay in favour of Crossbridge[2]
P’s claims against Crossbridge were “anchored” in a breach of the express and implied terms of the Mandate, with a further or alternative tortious claim based on a breach of duty akin to the contractual duties under the Mandate. However, the loss and damage claimed was suffered by the Trust, not P.
The court reiterated the well-established principles governing a stay in favour of arbitration:[3]
- On a stay application under section 20 AO, the court will consider whether (i) there is an arbitration agreement between the parties, (ii) the clause in question is null and void, inoperative or incapable of being performed, (iii) there is in reality a dispute or difference between the parties, and (iv) the dispute or difference between the parties is within the ambit of the arbitration agreement.
- The applicant is only required to demonstrate a prima facie case that the parties are bound by an arbitration clause. Unless the point is clear, the court should not attempt to resolve the issue and the matter should be stayed in favour of arbitration, as it is for the tribunal to decide first on its jurisdiction.
The issues were whether P was bound by the arbitration clause in the Mandate and, if so, whether the clause was null and void, inoperative or incapable of being performed.
Was P bound by the arbitration clause in the Mandate?
The court only had to determine whether there was a prima facie or plainly arguable case that P was bound by the arbitration clause in the Mandate. This test is satisfied where the evidence in support of the contention is “cogent and arguable, and not dubious or fanciful”.
The court held that there was a prima facie case:
- P’s claims were in substance claims brought on behalf of the Trust to enforce the Mandate between the Trust and Crossbridge. In stepping into the shoes of the Trust, P was bound to accept that its claims were subject to the arbitration clause in the Mandate.
- In the context of a beneficiary derivative claim, a beneficiary (P) can sue a third party (Crossbridge) for damages on behalf of a trustee (the Trust), but the beneficiary would be in no better position than the trustee had the trustee carried out its duties in a proper manner.
Was the arbitration clause null and void, inoperative or incapable of being performed?
P argued that part of the defendants’ fraud was to fragment any claims P might bring against them and to obstruct the finding of the true facts by putting in place divergent choice of law and dispute resolution clauses in the contracts. These clauses were unenforceable and should be disregarded as contrary to public interest, public policy, and the interest of justice. P specifically argued that any arbitration clauses the defendants might rely on to circumvent the jurisdiction of the court were null and void.
The court rejected P’s arguments:
- The starting point was to treat the arbitration agreement as a distinct agreement which can be void or voidable only on grounds directly related to it.
- There was (i) no evidence to support the alleged fragmentation of claims, (ii) no issue of accessibility to arbitration that would affect the validity of the arbitration agreement, and (iii) no precise formulation of any vitiating grounds related directly to the arbitration agreement. Even if P had formulated any vitiating grounds, P did not suggest that they would be compelling enough to be “incontestable”.
Stay in favour of the Director[4]
As with Crossbridge’s stay application, the crucial question for the court was whether P’s claims against the Director were the subject of the arbitration clauses in the Agreements.
On P’s case, it was wrong for the Director to contend that P’s claims arose from his role and capacity as agent of TrueCoin. P highlighted that its causes of action were based on the Director’s breach of fiduciary duty and gross negligence as P’s authorized representative, as well as his fraudulent and alternatively innocent representation, both personally and as a joint tortfeasor of TrueCoin. Furthermore, the Director was not a party to the Delaware law governed arbitration clauses in the Agreements.
The parties adduced expert evidence on Delaware law. The experts agreed that the language of the clauses was sufficiently broad to cover issues which may touch on contractual rights or contractual performance, and that under Delaware law, the courts may permit non-signatories to invoke arbitration clauses in cases of agency and estoppel, even when a contract clause bars third-party beneficiaries.
Applying agency principles under Delaware law,[5] the court found that there was clearly a prima facie case:
- Without the Agreements between P and TrueCoin, the Director would not have been appointed as P’s authorized representative and P would have had no assertable claims against the Director.
- P’s claims were therefore intertwined with TrueCoin’s obligations and duties under the Master Services Agreement and there was a close relationship between the Director (the non-signatory) and P and TrueCoin (the parties to the Master Agreement), such that P was bound to arbitrate its claims against the Director.
Applying equitable estoppel under Delaware law, the court was satisfied that the Director could compel arbitration as the allegations against him arose out of and related directly to the Agreements. Consistent with the general approach of the Hong Kong courts,[6] a Delaware court would not allow a valid arbitration clause to be defeated by “artful pleading” seeking to avoid the effect of a mandatory arbitration agreement.
Takeaways
This case is a helpful reminder that where claims are raised by or against a non-signatory, a prospective claimant must carefully consider the legal ramifications of asserting its claims in determining which forum to pursue them.
A dispute between a non-signatory and a party must be referred to arbitration if there is a prima facie or plainly arguable case that the dispute is subject to an arbitration agreement providing for Hong Kong that binds both parties. It will then be for the tribunal to determine in the first instance whether it has jurisdiction.
If the tribunal affirms jurisdiction, it will determine the dispute, but its decision on jurisdiction is still subject to a de novo review by the courts. By contrast, if the tribunal declines jurisdiction, its decision is not open to court review and the dispute will have to be resolved in court.
[1] The factual background derives from both judgments and has been simplified.
[2] See Techteryx Ltd v Legacy Trust Company Ltd and Others [2025] HKCFI 665 (Deputy High Court Judge Jonathan Wong).
[3] Mice Engineering Ltd v Johnson Controls Hong Kong Limited [2022] HKCFI 2768 at ¶¶17-18.
[4] See Techteryx Ltd v Legacy Trust Company Ltd and Others [2025] HKCFI 787 (Hon Mimmie Chan J).
[5] Set out in E I DuPont de Nemours & Co v Rhone Poulnec Fiber & Resin Intermediaries, SAS, 269 F3d 187, 199 (3d Cir 2010) and Parfi Holding AB v Mirror Image Internet, Inc 817 A2d 149, 155 at ¶¶155-157.
[6] Linde GMBH and Another v Ruschemalliance LLC [2023] HKCFI 2409 at ¶¶75-77.
