Hong Kong court refers parties to arbitration over contract clauses

Parties entering into related contracts should carefully consider how future disputes ought to be resolved after a recent Hong Kong decision – Bluegold Investment Holdings Limited v Kwan Chun Fun Calvin – involving the construction of inconsistent dispute resolution clauses in related contracts.

A British Virgin Islands (BVI) company P (the plaintiff), another BVI company (the company), the company’s founder and director D (the defendant), and several of the company’s subsidiaries, entered into a subscription agreement (SA). Under the SA, the company was to issue notes to P in the amount of US$10 million, and a warrant to subscribe for shares in the company. D, the company and its subsidiaries were to use their best endeavours to conduct a qualified IPO within three years, failing which P was entitled to require the company to redeem the notes. D executed a separate guarantee promising, as primary obligor, to pay P the amounts payable in respect of the notes.

The SA contained a broadly drafted arbitration clause providing for arbitration in Hong Kong regarding any dispute “arising out of or relating to” the SA. The note certificate incorporated that arbitration clause. The guarantee, on the other hand, contained a jurisdiction clause under which D “irrevocably submits to the non-exclusive jurisdiction of the Hong Kong courts”. Relying on the jurisdiction clause in the guarantee, P commenced proceedings against D in the Hong Kong Court of First Instance for the sum of US$10 million plus interest payable under the guarantee. D requested the court to stay the proceedings and refer the dispute to arbitration in accordance with section 20(1) of the Arbitration Ordinance (AO) because the dispute was the subject of the arbitration clauses of the SA and notes.