NDK Limited v HUO Holding Limited (No 2)

A person who proposes to acquire shares may become a party to a shareholders’ agreement by executing and delivering a deed of adherence, even if the transfer is invalid or the person is not registered as a shareholder. The agreement and deed must be construed together and commercially. Where the deed creates contractual rights and obligations before registration, the arbitration agreement may extend to disputes concerning the validity of the transfer and those obligations. The principle of separability reinforces that conclusion. A construction which leaves disputes between existing shareholders arbitrable but excludes the intended transferee is commercially unlikely and should not be adopted.

NDK challenged LCIA arbitration awards under sections 67 and 68 of the Arbitration Act 1996. The court had previously dismissed NDK’s section 67 challenge to an earlier award, reported as [2022] EWHC 1682, and had dealt summarily with other challenges. The remaining threshold issue was whether HUO had become party to the arbitration agreement in a shareholders’ agreement by signing a deed of adherence, on the assumption that the share transfer to HUO was void and HUO never became a registered shareholder.

The issue was decisive of NDK’s remaining challenge to the Consolidated Arbitration Award and also affected its outstanding challenges to the PFA and Costs Award.

1. Outcome. NDK’s challenge to the Consolidated Arbitration Award under section 67 of the Arbitration Act 1996 failed. Its outstanding section 68 challenge to the PFA and its section 67 challenge to the Costs Award also failed. The parties were directed to agree an order and vacate the January 2023 hearing.
2. Accession before registration. The shareholders’ agreement contained a standing offer to persons proposing to take a transfer of shares. Reading the agreement and the prescribed deed of adherence together, a person within that class could accept the offer by signing and delivering the deed. The person thereby entered contractual relations with the existing shareholders and the company, even before valid registration as a shareholder.
3. The deed’s forward-looking warranties and promises, including the proposed transferee’s entitlement to registration and its agreement to become bound, would have no meaningful effect if contractual relations arose only after valid registration. The agreement therefore used “Shareholder” with sufficient latitude to include a proposed shareholder for relevant purposes.
4. Arbitration agreement. The LCIA arbitration clause was expressed in wide terms and extended to disputes concerning the existence and validity of the shareholders’ agreement, the validity of the share transfer, and alleged breaches of the transferee’s warranties. The reference to “the Parties” included a person who proposed to take a transfer and then executed and delivered the deed.
5. The statutory separability principle under section 7 of the Arbitration Act 1996, reinforced by articles 23.1 and 23.2 of the LCIA Rules, supported treating the arbitration agreement as distinct from the underlying agreement. It would be commercially absurd for a dispute concerning the transfer to be arbitrable between existing shareholders but not between an existing shareholder and the intended transferee. The transferring shareholder also remained party to the arbitration agreement for antecedent breaches.

The judgment describes continuing first-instance challenges to LCIA arbitration awards. An earlier section 67 challenge was dismissed in [2022] EWHC 1682; other challenges were struck out summarily. This judgment determined the remaining threshold issue and dismissed the outstanding challenges.