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. Those warranties were enforceable whether or not the proposed shareholder had validly executed a transfer of shares. One such warranty was that the proposed shareholder was entitled to be registered on the SPV’s list of members. The SHA and DoA contemplated a situation where a proposed shareholder was not yet registered as a member of the SPV, and created binding obligations for such a scenario. Foxton J concluded that “by entering into the Deed of Adherence…certain contractual obligations which are intended to apply even in circumstances in which the terms of the SHA were not in all respects binding upon [the proposed shareholder]”.

The Commercial Court then followed the wording of the SHA and held that the delivery of an executed DoA was sufficient to become party to the SHA – whether or not the party became a validly registered shareholder. Foxton J, citing Tolley’s Company Law Service, noted in this regard that it was frequently the case that a deed of adherence will have the effect of making a signatory a party to an SHA before the formal transfer of shares is completed.

The Commercial Court ultimately held that because HUO delivered an executed DoA, it became party to the SHA even though (as assumed for the purposes of the proceedings) it never became a shareholder in the SPV. Foxton J emphasised that he reached this conclusion by reading the contract between the parties as a whole (considering Wood v Capita Insurance Services Limited [2017] UKSC 24 – see our digest of this case here).

Was HUO covered by the arbitration clause?

Foxton J addressed separately the issue of why HUO joining the SHA led to the dismissal of NDK’s challenge. The LCIA arbitration clause was expressed in very wide terms, so it included within its scope the parties’ dispute as to the validity of the SHA. Any conclusion to the contrary would result in a “very surprising” outcome. It would mean that the SHA and the DoA created obligations between NDK and HUO, yet the mechanism to settle disputes as to those obligations was inapplicable.

Foxton J also relied in his analysis upon the Fiona Trust principle, which holds that arbitration clauses governed by English law will be interpreted with a presumption that the parties, as rational businessmen, intend it to apply to all disputes arising from the relationship between the parties. It would have been “commercially absurd” for the parties to have intended for the SHA validity dispute between current shareholders (NDK and K Co) to be arbitrated, but for the very same dispute between a proposed shareholder and a current shareholder (HUO and NDK) not to be arbitrated. HUO was thus party to the arbitration clause and NDK’s s. 67 challenge failed.

Foxton J’s dismissal of this challenge also had the effect of rejecting the remainder of NDK’s challenges.

What are the practical lessons going forward? 

This decision illustrates the practical, pro-arbitration approach of the English courts in the joint venture context. Foxton J’s analysis of the key documents considered the parties’ agreement as a whole and accounted for the commercial need to ensure continuity of shareholding. A robust application of the pro-arbitration Fiona Trust principle followed, with Foxton J again focussing on the practical outcomes of his reasoning. The judgment reinforces that in England and Wales, the commercial arrangements of businesses will be upheld and their decision to arbitrate respected. This approach will continue to be one of the features of arbitration in this jurisdiction that makes England and Wales a popular choice as an arbitral seat for commercial parties.

The case also reminds parties to punctually raise arguments during the arbitration if they are to be used at the set-aside stage. Foxton J noted that NDK failed to raise its jurisdictional arguments in this proceeding during the arbitration, though the point was left undecided in this case. Under section 73 of the AA, a party that fails to raise certain arguments or challenge a certain ruling may lose the right to make those arguments upon enforcement.

For more information, please contact Craig Tevendale, Partner, Jake Savile-Tucker, Senior Associate, or your usual Herbert Smith Freehills contact.

The authors would like to thank Dan Kulebiakin for their assistance in preparing this blog post.

Craig Tevendale
Craig Tevendale
+44 780 9200648
Jake Savile-Tucker
Jake Savile-Tucker
Senior Associate


Welcome to issue 14 of Inside Arbitration.

We are delighted to share with you the latest interactive issue of this publication from Herbert Smith Freehills’ Global Arbitration Practice.

Despite signs of post-Covid recovery, the invasion of Ukraine has had global ramifications, exacerbating the already challenging cost-of-living crisis, with soaring inflation as energy, food and consumer product prices have spiked. Many of our corporate clients have been faced with closing their Ukrainian operations and supporting staff through enormously challenging circumstances. As trusted advisors to our clients, we need to be able to anticipate and respond to the challenges and opportunities on the horizon as political and financial instability have knock-on effects across regions and sectors.

Incorporating articles, interviews and videos from our practitioners around the network, this edition features articles and interview spotlights from across our global team in addition to recent arbitration news and developments including:

  • The war in Ukraine – implications for investments and contracts: Andrew Cannon, Hannah Ambrose, Olga Dementyeva and Jake Saville-Tucker explore some of the principal considerations in relation to terminating Russia-related commercial contracts and how investment treaties may offer an avenue for recourse if investments in Ukraine or Russia are affected by Russian state action.
  • The future of energy disputes: shocks to the system: Craig Tevendale, Louise Barber and Divyanshu Agrawal discuss how battered supply chains and turbulent geopolitics mean the energy sector should brace for a surge in disputes
  • Cyber disputes – are there borders in the blockchain? With the cyber economy fast emerging, courts are struggling with drawing borders in a decentralised world. Simon Chapman QC and Troy Song highlight one recent case that hints at the path ahead
  • Arbitration in Dubai: wa hala’ la wein (where do we go from here?): Following a busy year, Stuart Paterson, Nick Oury and Patrick O’Grady reflect on how the consolidation of two leading Dubai arbitration centres has radically changed the UAE disputes landscape
  • Whether virtual or physical, we can do more to make arbitration hearings sustainable: Amal Bouchenaki, Craig Tevendale, Maguelonne de Brugiere and Olga Dementyeva present the findings of our study comparing the carbon impact and expense of virtual hearings with in-person equivalents.
  • Investor-state dispute resolution series part II: Reform or rebirth?: With concerns from stakeholders growing, Andrew Cannon and Vanessa Naish consider how ongoing reforms could rebalance the ISDS process.
  • Asia-Pacific private equity disputes to rise as deal volumes grow: Following a period of pandemic-enforced turbulence, private equity deals have rebounded strongly, with disputes likely to grow as a result. Chad Catterwell and Guillermo Garcia-Perrote consider the implications of recent developments for disputes in this sector.
  • Spotlight interviews: Our three new arbitration partners Jonathan Ripley-Evans, Dan Waldek and James Allsop feature in our Spotlight articles, shedding light on their specialisms in their regions (and their story so far)

Previous issues can also be viewed here. We hope that you enjoy reading issue #14 of Inside Arbitration and would welcome any feedback you may have.

‘Obvious accounting mistake’ sinks LMAA arbitrator’s award in rare successful s.68 challenge by charterer

In Ducat Maritime Ltd v Lavender Shipmanagement Inc [2022] EWHC 766 (Comm), the English High Court set aside part of an award under section 68(2)(a) of the Arbitration Act 1996 on the grounds that an ‘obvious accounting mistake’ by an arbitrator had breached the duty of fairness under section 33 of the Arbitration Act 1996. Contrary to common ground between the parties and without giving them an opportunity to comment on a departure from that common ground, the arbitrator had mistakenly included the value of an unsuccessful counterclaim in the award, thereby inflating the amount awarded by approximately 33%.

This High Court authority will give comfort to parties whose arbitration award contains obvious errors but which the arbitrator fails to correct.

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A decade of emergencies in Stockholm

The SCC Arbitration Institute was at the forefront of the development of emergency arbitration proceedings, which now constitute a permanent part of the international arbitration landscape. The end of 2019 marked a decade since the arbitral institution’s innovative rules amendment. In April this year, the SCC released a report analysing its emergency arbitration statistics, which demonstrate the success of these once novel provisions.

The introduction of emergency arbitration

In January 2010, the SCC introduced into its rules Appendix II, which provided for emergency arbitration. While there were some precursors to emergency arbitration rules (such as the ICC pre-arbitral referee procedure and the ICDR article 37 emergency measures provisions), the emergency arbitration rules implemented by the SCC represented one of the first examples of modern emergency arbitration provisions. Since these rules were promulgated, other leading institutions have followed suit, issuing their own emergency arbitration rules with a variety of refinements, for instance the SIAC, the ICC, the HKIAC and the LCIA.

The emergency arbitration rules allowed parties for the first time to make an application to the SCC for the urgent appointment of an emergency arbitrator who would be empowered to make emergency decisions on interim measures before the case had been referred to the arbitral tribunal. An emergency decision on interim measures was to be made not later than five days from the date when the application was referred to the “Emergency Arbitrator”. The SCC board could extend the five-day time limit upon a reasoned request by the Emergency Arbitrator, or if otherwise deemed necessary.

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English High Court refuses to set aside order for enforcement under s103 in long-running dispute regarding ICC award

The English High Court has refused an application under s.103 of the Arbitration Act 1996 (“AA 1996“) to set-aside an order allowing for the enforcement of an ICC award in England. The decision is the culmination of a long-running dispute in which the award debtor has sought to set-aside the award and prevent enforcement in France, the Seychelles and England. The judgement is the latest illustration of the pro-enforcement approach of the English courts with respect to international arbitral awards, particularly where an award debtor has made efforts in multiple jurisdictions to prevent enforcement against it. While the outcome is not surprising, the level of attention given to the grounds raised by the award debtor, even in the face of issue estoppel, demonstrates the importance placed by the English Court on its New York Convention obligations.

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Tribunal awards India first BIT case win, dismissing claims of French investor

An UNCITRAL arbitral tribunal has reportedly dismissed a US$36 million claim by a French investor, Louis Dreyfus Armateurs SAS (“LDA“), against India under the 1997 France-India bilateral investment treaty (“BIT“). The award is not public at this time, but press reports state that LDA has also been ordered to pay approximately US$7 million in respect of India’s substantial legal expenses.

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