DLA Piper secures victory as Hong Kong court rejects stay application and affirms the limits of arbitration agreements on non-parties

Modern commercial transactions are frequently structured through a suite of agreements between different, albeit related, parties. Where those agreements carry different dispute resolution clauses, parallel arbitration and court proceedings may be unavoidable once common issues arise. That raises the question: where an arbitration is already on foot, must the court action give way?

In Glory Asia Ventures Limited v VC East Triumph Holdings Limited & Anor [2026] HKCFI 3888, the Court of First Instance answered no. DLA Piper secured a victory for the Plaintiff in resisting the Defendants’ application to stay the Plaintiff’s action pending determination of a parallel HKIAC arbitration.

The DLA Piper team representing the Plaintiff consists of Harris Chan (Partner), KC Tai (Partner) and assisted by Andy Lam (Associate).

 

BACKGROUND

On 4 November 2025, the Plaintiff commenced the present action to enforce a share charge (between the 1st Defendant as chargor and the Plaintiff as chargee) and a guarantee (between the 2nd Defendant as guarantor and the Plaintiff as beneficiary), both dated 2 December 2020.  Both instruments contain exclusive jurisdiction clauses providing for disputes arising in connection with them to be submitted to the Hong Kong court.

Madam Chen and the 2nd Defendant entered into a joint venture (JV) agreement dated 16 July 2018 (JV Agreement), under which the 2nd Defendant agreed to sell 50% of his interest in the JV company to Madam Chen, and subsequently executed a number of supplemental agreements. Under the 2nd Supplemental Agreement dated 2 December 2020, Madam Chen was to advance a loan to the JV company. As security for that loan, the 1st Defendant was to charge its 50% shareholding in the JV company to the Plaintiff, and the 2nd Defendant was to provide a guarantee in the Plaintiff’s favour. Those are the instruments sued upon in the present action.

It is noteworthy that the Plaintiff is not a party to the JV Agreement or the supplemental agreements, nor to the arbitration agreement contained in the JV Agreement, which provides for a Hong Kong-seated arbitration administered by the HKIAC.

On 5 February 2026, the 2nd Defendant commenced an arbitration against Madam Chen, JV company and another entity as respondents, seeking relief concerning the JV Agreement. The Plaintiff is not a party to that arbitration.

On 10 February 2026, the Defendants took out a summons contending that the Plaintiff’s action should be stayed pending determination of the arbitration, on the bases that:

• a mandatory stay should be granted under section 20(1) of the Arbitration Ordinance (Cap. 609), because the Plaintiff should be regarded as a party to the arbitration agreement contained in the underlying JV documents; and

• alternatively, a discretionary case management stay should be granted under Order 1B, rule 1(e) of the Rules of the High Court or pursuant to the Court’s inherent jurisdiction, on the grounds, among others, that the Defendants’ liability was contingent on the outcome of the arbitration, and that the 1^st Defendant had offered an undertaking to be bound by the determinations in the arbitration.

 

RULING

Deputy High Court Judge Reyes SC dismissed the Defendants’ application on both limbs, with Reasons for Judgment (Judgment) handed down on 22 July 2026.

On the mandatory stay, His Lordship held that section 20(1) and Article 8(1) of the Model Law do not require the court to stay, in favour of arbitration, court proceedings initiated by a person who is not a party to an arbitration agreement. The particulars relied upon were insufficient to support even a prima facie inference that the Plaintiff was a party to the relevant arbitration agreements through Madam Chen’s agency. The mere fact that the Plaintiff advanced loan monies on Madam Chen’s instruction and behalf would not turn the Plaintiff into her principal for the purposes of being bound by the arbitration clause, and if the monies loaned had originated from Madam Chen, that would only fortify the conclusion that Madam Chen alone was bound.

His Lordship also rejected the suggestion that an overlap between the scope of the court proceedings and that of the arbitration could itself justify a mandatory stay. Merely because the outcome of an arbitration may have ramifications for the outcome of court proceedings cannot be a basis for treating the parties to those court proceedings as parties to an arbitration agreement and thus susceptible to a mandatory stay.

On the discretionary stay, His Lordship considered that a case management stay would be a recipe for future arguments before the court as to what the tribunal actually found or did not find, on what specific issues and in what specific contexts, referring to the narrow scope of the doctrine of issue estoppel discussed in Skatteforvaltningen v MCML Ltd [2026] UKSC 19. His Lordship also observed that even the undertaking offered by the 1st Defendant, a non-party to the arbitration, to be bound by the determinations of the arbitration was vague. By contrast, the court’s power to join parties under Order 15, rule 4, for which there is no equivalent extensive power in arbitration, made the continuation of the court proceedings the most efficient and effective way forward.

His Lordship further observed that the risk of parallel proceedings in different forums is a common one where there are conflicting dispute resolution clauses, that it is primarily for the parties at the time of contracting to ensure such conflicts are minimised or eliminated, and that it is not the court’s task to go through semantic or other “contortions” merely to reconcile provisions that commercial parties themselves did not harmonise.

The Defendants’ stay application was accordingly dismissed. Directions have since been given setting down a timetable leading to the early trial fixed for March 2027.

 

KEY TAKEAWAYS

The Judgment serves as an important reminder that a mandatory stay under section 20(1) turns on the identity of the parties, not the identity of the issues. Where the plaintiff is not a party to the arbitration agreement, a defendant who can point only to the practical consequences of an arbitral award has not met the statutory threshold.

More broadly, the Judgment confirms that the Hong Kong courts’ pro-arbitration stance does not make arbitration a blanket shield against court proceedings. Where a stay is sought in favour of arbitration, the court will scrutinise closely whether the mandatory or discretionary basis for that relief has genuinely been made out.

The Judgment is also notable for its observations on the perceived efficiency of arbitration, a perception that may not hold where non-parties are involved.  In certain cases, court proceedings may be the more efficient one-stop option for resolving the parties’ differences.

For transactional lawyers and commercial parties, the practical lesson lies at the drafting stage. Where a transaction is documented through several related agreements, the implications of this Judgment are worth bearing in mind when the dispute resolution clauses are settled.

The Reasons for Judgment can be found here.