Soremi Investments Ltd v. China National Gold Group Hong Kong Ltd and Another

HCA 797/2025

[2025] HKCFI 4514

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2025

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DECISION

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1.This is an application brought by the 1^st Defendant (“CNG”) pursuant to section 20(1) of the Arbitration Ordinance (Cap 609) for a permanent stay of the action herein in favour of arbitration.

A.  SIL’S CLAIMS AND THEIR BACKGROUND

2.It is convenient to start by summarising the claims brought by the Plaintiff (“SIL”) in this action. In essence, SIL claims that the Defendants instructed the directors at SIL appointed by CNG (“CNG’s SIL Directors”) and SIL’s CEO, Shenghong Cheng (“Cheng”), to misappropriate at least US$109.2 million of cash from SIL to a subsidiary of SIL, Société de Recherch et d’Exploitation Miniere Société Anonyme (“SSA”), in or around September 2023 (“the Wrongful Transfers”).

3.The main allegations of SIL include the following:

(1)  the Wrongful Transfers amounted to conversion of SIL’s funds for which CNG and/or the 2^nd Defendant (“CNGGC”) are directly or vicariously liable;

(2)  CNG’s SIL Directors and/or Cheng breached their equitable and/or fiduciary duties owed to SIL by procuring, causing and/or permitting the Wrongful Transfers of SIL’s funds;

(3)  CNG and/or CNGGC dishonestly assisted in breaches of equitable and/or fiduciary duties by instructing CNG’s SIL Directors and/or Cheng to procure, cause and/or permit the Wrongful Transfers;

(4)  CNG, CNGGC and CNG’s SIL Directors and Cheng (or any two or more together) are part of a lawful means, or alternatively an unlawful means, conspiracy, to put SIL’s assets out of reach of SIL and to frustrate the enforcement of the First Partial Award dated 8 February 2023 (“FPA”).

4.The background of the claims is described by SIL to be as follows. It is right to record that some of these matters are disputed by CNG.

(1)  SIL holds 90% of the shares in SSA, a company incorporated under the laws of the Republic of Congo (“RoC”). SSA operates a mining and processing project in the RoC called the Soremi Project.

(2)  Originally, SIL was wholly owned by Global Mining Development L.P. (“Global”). Global and Gerald Metals LLC (“Gerald Metals”) (together as “Gerald Parties”) at all material times are and were subsidiaries of Gerald International Limited.

(3)  On 17 March 2014, pursuant to a share purchase agreement, CNG acquired 65% of SIL’s shareholding (“65% Shares”) from Global. Global remained a 35% shareholder of SIL.

(4)  In March 2020, a dispute arose between the Gerald Parties and CNG in relation to the ownership of the 65% Shares. On 13 November 2020, the Gerald Parties commenced arbitration proceedings in Hong Kong. On 8 February 2023, the arbitration tribunal (“Tribunal”) issued the FPA. On 31 March 2023, the Tribunal ordered CNG to transfer the 65% Shares to Global.

(5)  On 26 May 2023, CNG applied to set aside an order of the BVI Court enforcing the FPA, which was dismissed by Mimmie Chan J on 30 August 2023: CNG v G [2024] 2 HKLRD 152 ([2024] HKCFI 575).

(6)  In September 2023, shortly after CNG’s application to set aside was dismissed but whilst SIL remained under the control of CNG and/or CNGGC, CNG and/or CNGGC allegedly instructed CNG’s SIL Directors and/or Cheng to make the Wrongful Transfers from SIL to SSA. The transfers came to light in March 2024 after Global’s SIL directors applied for disclosure order in the BVI to obtain the relevant bank statements.

(7)  CNG did not comply with the Tribunal’s award. Instead, CNG and/or CNGGC have continued to assert control over SIL, SSA and the Soremi Project through CNG’s SIL Directors, a management team sent by CNG and/or CHGGC (“the Soremi Management”), and/or Cheng.

(8)  The Gerald Parties had to take out multiple applications in Hong Kong and in the BVI to recognise the FPA, effect the transfer of the 65% Shares and preserve the assets of SIL, including an application to rectify the register of members of SIL on 13 June 2024.

(9)  On 13 September 2024, the Gerald Parties applied to the BVI Court for the appointment of interim receivers over the 65 Shares. On 17 September 2024, the BVI Court appointed Messrs Cosimo Borrelli and Colin Wilson as interim receivers (“Receivers”) over the 65% Shares pending resolution of the rectification application.

(10)  On 16 July 2025, the BVI Court handed down a judgment rectifying the Register of Members of SIL to confirm that 65% Shares are held legally and beneficially by Global.

(11)  The Receivers and SIL felt they had no option but to bring the proceedings in Hong Kong (being the jurisdiction of domicile and incorporation of CNG) to, amongst other things, seek the return of removed assets.

B.  CNG’S POSITION IN THIS APPLICATION

5.In this application, CNG relies on the arbitration agreement contained in the Shareholders’ Agreement dated 17 March 2014 (“SHA”). The parties to the SHA are (1) CNG as “Shareholder A”, (2) Global as “Shareholder B”, (3) SIL and (4) Gerald Metals.

6.The arbitration agreement is contained in clause 13.17 of the SHA, which relevantly provides:

“(a) Any dispute, controversy or claim arising out of or relating to this Agreement, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration ....”

7.CNG contends that all of SIL’s claims in this action arise out of or relate to the SHA, and should be referred to arbitration. It therefore seeks a permanent stay of these proceedings.

C.  THE RELEVANT PRINCIPLES

8.Section 20(1) of the Arbitration Ordinance (Cap 609) reproduces Article 8 of the UNCITRAL Model Law on International Commercial Arbitration:

“Article 8 of the UNCITRAL Model Law, the text of which is set out below, has effect—

“Article 8. Arbitration agreement and substantive claim before court

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.”.”

9.It is common ground that the court should ask four questions when approaching an application for stay under section 20(1) of the Arbitration Ordinance:

(1)  Is the arbitration clause an arbitration agreement?

(2)  Is the arbitration agreement null and void, inoperative or incapable of being performed?

(3)  Is there in reality a dispute or difference between the parties?

(4)  Is the dispute or difference between the parties within the ambit of the arbitration agreement?

See Chu Kong v Lau Wing Yan [2019] 1 HKLRD 589 at [11] (Poon JA).

10.There is no dispute that the burden is on the applicant (CNG in the present case) to show a prima facie case that the arbitration clause covers the claims in question: Magnus Leonard Roth v Vitaly Petrovich Orlov [2021] HKCA 639 at [13] (Au JA).

11.SIL does not appear to dispute that the answer to the first three questions is in the affirmative. Further, the parties accept that the present application only concerns the fourth question.

D.  WHETHER DISPUTES ARE WITHIN AMBIT OF ARBITRATION AGREEMENT

12.In Fiona Trust and Holding Corporation v Privalov [2007] Bus LR 1719, Lord Hoffmann at [13] said:

“… the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction.”

13.It is common ground between the parties that what Lord Hoffmann said in Fiona Trust at [13] is a starting point or presumption, and it is ultimately a matter of contractual construction in determining the ambit of the arbitration agreement: Magnus Leonard Roth (above) at [24] (Au JA).

14.The principles on construction of a document are trite. As Lord Hoffmann NPJ said in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 296D-E,

“[t]he construction of a document is … an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve…”

15.Further, Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912H said that “[i]nterpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.

D1.  CNG’s Submissions

16.CNG submitted that on its proper construction, the arbitration agreement covers disputes concerning the approval of corporate actions, disputes concerning shareholder control over SIL and the Soremi Project, and disputes arising from the SIL joint venture generally. CNG therefore submitted that SIL’s four causes of action concern matters arising out of or relating to the SHA because:

(1)  they involve the allegation that the Wrongful Transfers were misappropriations;

(2)  they hinge on SIL’s allegation of wrongful instruction; and

(3)  they are inextricably tied to SHA which regulates in detail the basis on which the parties would operate the SIL joint venture and the Soremi Project.

D2.  Scope of the Arbitration Agreement and Substance of the Claims

17.I would start by recognising that the phrase “any dispute, controversy or claim arising out of or relating to this Agreement” in the arbitration agreement is potentially very wide in scope. However, the width of such a clause can only be decided upon a proper construction of the SHA by reference to the subject matter of the contract in which the clause is found. As Mimmie Chan J said in VK Holdings (HK) Ltd v Panasonic Eco Solutions (Hong Kong) Co Ltd (unreported, HCCT 19/2014, 19.12.2014) at [24], “each arbitration clause must be construed in the context of the contract as a whole, and the meaning of a particular formula may be broader or narrower depending on the nature of the transaction, the circumstances in which the arbitration clause came into existence, and the other provisions of the contract”.

18.Some of the relevant background of the SHA is set out in the recitals.

(1)  Recital (A) records that pursuant to a sale and purchase agreement dated 18 December 2013 between CNG as purchaser and Global as seller, CNG agreed to purchase 65% of all outstanding equity interests in SIL.

(2)  Recital (C) records that the parties wished to enter into the SHA to set out the terms regulating the participation of CNG and Global as shareholders in SIL, and that the SHA would supplement the shareholders’ rights under the memorandum and articles of SIL.

19.Further, on 17 March 2014 (the date when the SHA was entered into), CNG acquired 65% shareholding in SIL from Global. Following the sale, Global remained a 35% shareholder of SIL.

20.From the above relevant background, it can be seen that at the time when the SHA was entered into, CNG had just become the majority shareholder of SIL, with Global becoming the minority shareholder. CNG and Global naturally became parties to the SHA. And they entered into the SHA (a shareholders’ agreement) to provide for certain terms to regulate their participation as shareholders of SIL, as recorded in the first sentence of Recital (C).

21.The second sentence of Recital (C) reinforces the notion that the purpose of the SHA is to supplement the rights of the two shareholders (CNG and Global) under the memorandum and articles of SIL. Further, as provided under clause 13.3 of the SHA, insofar as any provisions in the SHA conflict with the provisions of the memorandum and articles of association, the provisions in the SHA shall prevail as between the two shareholders.

22.It appears that the reason why Gerald Metals became a party to the SHA was to provide irrevocable and unconditional guarantees to CNG for the due and punctual performance of all obligations of Global under the SHA: see clause 11 of the SHA.

23.In his oral submission, Mr Simon Chapman for CNG drew my attention to clause 2.15 to demonstrate the relationship between SIL and the shareholders under the SHA. That clause provides that in the event that SIL has more cash and cash equivalents than it requires to meet its debt service requirements and its projected operating requirements, then either CNG or Global may demand SIL to declare and pay, and SIL shall so declare and pay, a dividend in an amount up to such excess. Because SIL has a separate legal personality, SIL needs to be a party to the SHA in order to give proper effect to the agreement between CNG and Global under clause 2.15. This is what I consider to be the practical object[1] of making SIL a party to the SHA. Accordingly, having considered the SHA as a whole, it seems to me that Mr Charles Manzoni SC (with Mr Jason Karas) for SIL were correct to submit that (1) SIL is not a transacting party under the SHA and (2) SIL was only named a party to the SHA because it was the subject of the investment between CNG and the Gerald Parties.

24.As far as the terms of the SHA are concerned, they appear to reinforce the wishes of the parties as recorded in Recital (C). They suggest that the SHA was intended to be a contractual document between the two shareholders of SIL to regulate their conduct to participate, as shareholders, in SIL; they govern the relationship between the two shareholders inter se. For instance, clause 3 sets out the two shareholders’ agreement, amongst other things, on how directors may be appointed, removed or nominated by each of CNG and Global as shareholders. Further, clause 4 and Schedule 2 set out the two shareholders’ agreement that they would procure that certain acts cannot be undertaken without approval of all the directors of SIL.

25.In the light of the background, context and purpose of the SHA as set out above, I am unable to accept CNG’s submission that the SHA was intended by the parties to “regulate in detail the basis on which the parties would operate the SIL joint venture and the Soremi Project”.

26.As mentioned earlier, the arbitration agreement is set out in clause 13.17 of the SHA, which refers to (1) any dispute arising out of or relating to the SHA and (2) any dispute regarding non-contractual obligations arising out of or relating to the SHA. In order to fall within the scope of the arbitration agreement, the dispute in question, whether contractual or non-contractual, must in my view arise out of or relate to the SHA.

27.Both parties accepted that in determining whether the dispute before the court is the subject of the arbitration agreement, the focus is on the substance of the dispute: Polytec Overseas Ltd v Grand Dragon International Holdings Co Ltd [2017] 3 HKLRD 258 at [25] (Mimmie Chan J).

28.It is also common ground that the ascertainment of the substance of dispute between the parties involves “looking at the claimant’s pleadings but not being overly respectful to the formulations in those pleadings which may be aimed at avoiding a reference to arbitration by artificial means. The exercise involves also a consideration of the defences, if any, which may be skeletal as the defendant seeks a reference to arbitration, and the court should also take into account all reasonably foreseeable defences to the claim or part of the claim”: Republic of Mozambique v Privinvest Shipbuilding SAL (Holdings) [2023] Bus LR 1359 at [72] (Lord Hodge DPSC).

29.I consider the substance of the dispute in the present action concerns the misappropriations of SIL’s assets. In paragraph 33 of its Statement of Claim, SIL has set out numerous grounds to support why it alleges the Wrongful Transfers were misappropriations of SIL’s assets. They include the allegations that the Wrongful Transfers were (1) unauthorised, (2) against SIL’s best interest, (3) for collateral/improper purposes of putting SIL’s assets out of reach of SIL and the Gerald Parties and frustrating the enforcement of the FPA, (4) without any legitimate basis, purpose or consideration, and were out of the ordinary course of SIL’s business. These issues do not in my view concern CNG’s rights or liabilities under the SHA because they are questions about the discharge by CNG’s SIL Directors and Cheng of their equitable and fiduciary duties to SIL: ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896 at [173] (Austin J). “Even giving a generous interpretation to the words of the arbitration agreement, presuming that the parties would not have intended some matters of dispute arising in connection with the SHA to fall within the arbitration agreement but other related matters to fall outside it”,[2] I do not consider the dispute regarding the misappropriations of SIL’s assets to be a dispute arising out of or relating to the SHA.

30.CNG submitted that the substance of SIL’s claims in this action concerns a breach of the SHA. In particular, CNG submitted that SIL’s allegation of misappropriations of SIL’s assets is in substance an allegation that the alleged Wrongful Transfers were made in breach of the reserved matters set out in clause 4 and Annexure 2 of the SHA.

31.I am unable to accept this submission. As explained above, I consider the substance of SIL’s claims as being misappropriations of SIL’s assets.

32.The fact that references to the SHA have been made in the Statement of Claim (e.g. at paragraph 33.5) does not mean that SIL’s claims are brought under the SHA or in substance based on a breach of the SHA.

33.As explained by Lord Hodge DPSC in the Mozambique case (above):

“… a “matter” is a substantial issue that is legally relevant to a claim or a defence, or foreseeable defence, in the legal proceedings, and is susceptible to be determined by an arbitrator as a discrete dispute. If the “matter” is not an essential element of the claim or of a relevant defence to that claim, it is not a matter in respect of which the legal proceedings are brought. I agree with the statement of Sundaresh Menon CJ in para 113 of Tomolugen that a “matter” requiring a stay does not extend to an issue that is peripheral or tangential to the subject matter of the legal proceedings. I agree with Foster J’s third proposition in WDR Delaware that a “matter” is something more than a mere issue or question that might fall for decision in the court proceedings or in the arbitral proceedings.” [75]

“… the exercise involving a judicial evaluation of the substance and relevance of the “matter” entails a question of judgment and the application of common sense rather than a mechanistic exercise. It is not sufficient merely to identify that an issue is capable of constituting a dispute or difference within the scope of an arbitration agreement without carrying out an evaluation of whether the issue is reasonably substantial and whether it is relevant to the outcome of the legal proceedings of which a party seeks a stay whether in whole or in part. …” [77]

34.The various causes of action of SIL are set out in its Statement of Claim (and summarised in Section A above). It does not appear to me that any of the causes of action is based on a breach of the SHA, or requires a determination of whether the SHA has been breached by CNG. SIL’s causes in action in conversion and conspiracy are tortious claims; its cause of action in dishonest assistance is a claim in equity. The breach of the SHA cannot therefore be a substantial issue that is legally relevant to SIL’s claims.

35.Further, I am not persuaded by the various arguments advanced on behalf of CNG.

36.First, Mr Chapman referred to paragraphs 89.5 and 92.2 of the Statement of Claim to support CNG’s argument that SIL needs to establish breach of the SHA to prove dishonesty in SIL’s dishonest assistance claim. I disagree that the references to the SHA pleaded in the two paragraphs are matters essential to the SIL’s claim in dishonest assistance. It is trite that dishonesty is not determined by reference to whether or not a contract has been breached.

37.Further, Mr Chapman submitted that the breach of the SHA is legally relevant to CNG’s potential defences. Relying on the evidence filed on behalf of CNG, he argued that CNG intends to contend that the alleged Wrongful Transfers were neither misappropriations nor dishonest, and were permitted and consistent with the terms of the SHA. However, even if the transfers were allowed pursuant to the SHA, CNG has not provided any explanation on how this contention can provide a legal defence to SIL’s allegations summarised in paragraph 29 above, and to SIL’s other causes of action such as lawful means conspiracy. I am therefore not satisfied that the issue of breach of the SHA can constitute a reasonably substantial and relevant issue in CNG’s potential legal defence.

38.Moreover, CNG submitted that SIL’s allegation that CNG instructed the Wrongful Transfers involves an examination of CNG’s rights and obligations under the SHA, and SIL’s causes of action therefore fall within the ambit of the arbitration agreement. This submission cannot be accepted because the substance of SIL’s case on wrongful instruction is not based on the rights and obligations of CNG under the SHA. As can be seen from the evidence sought to be relied upon by SIL, SIL’s case on wrongful instruction is in substance based on the contentions that (1) CNG was able to instruct CNG’s SIL Directors and Cheng and cause SIL to carry out its instructions and (2) CNG did in fact instruct them to procure the Wrongful Transfers.

39.Finally, on the particular facts of this case, I am unable to accept CNG’s submission that the Fiona Trust presumption would assist so that SIL’s claims herein are permanently stayed in favour arbitration.

(1)  I fully accept the general proposition that any arbitration agreement must be construed with the Fiona Trust presumption in mind.

(2)  As mentioned above in paragraph 23, it is my view that SIL is a non-transacting party to the SHA and only became a party to the SHA to give effect to the various agreements between CNG and Global. Given there is in my view no substantive relationship between CNG and SIL under the SHA, I do not believe the Fiona Trust presumption would assist in determining whether SIL’s present disputes fall within the scope of the arbitration agreement under the SHA.

(3)  In any event, as Au JA said in Magnus Leonard Roth (above) at [24], the Fiona Trust presumption does not assist in circumstances where the parties are considered to have clearly intended that disputes in question are not intended to be caught by the arbitration agreement. Having regard to the background, context and purpose of the SHA as set out in paragraphs 18 to 25 above, it seems to me that a dispute between SIL and CNG on the misappropriations of SIL’s assets is not intended to be within the ambit of the arbitration agreement in the SHA.

40.I conclude that the disputes in the present action fall outside the scope of the arbitration agreement in the SHA.

41.SIL also argued that CNG cannot rely on the arbitration agreement to seek a stay when it should have transferred the 65% Shares to Global by either 30 March 2020 or 8 February 2023. To support the argument, SIL relied on the prevention principle that “a person is not permitted to take advantage of his own wrong”: Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381. It would appear that SIL’s argument involves rewriting the facts so that the SHA would have become terminated after 30 March 2020 or at the latest soon after 8 February 2023. Neither Kensland Realty nor any of the authorities cited therein supports the proposition the prevention principle would allow the court to reconstitute the facts. Accordingly, I am not persuaded that the prevention principle can be invoked to support SIL’s alternative argument.

42.SIL further argued that the stay sought is an improper purpose of causing delay and incurring additional costs, or otherwise constitutes an abuse of process. Relying on the Mozambique case (above) at [110], SIL submitted that the court should exercise its discretion to refuse the stay. This is a fallback argument because it is premised on the present disputes falling within the scope of the arbitration agreement. In the light of my above conclusion that the present disputes fall outside the scope the arbitration agreement, this fallback argument does not arise and it is unnecessary for me to express any view on it.

E.  CONCLUSION

43.For the above reasons, I consider that CNG has not shown a prima facie basis that the disputes between the parties are within the ambit of the arbitration agreement. There is no basis for the court to grant a stay in favour of arbitration. Accordingly, I dismiss CNG’s summons dated 3 June 2025.

44.As to costs, I make an order nisi that the costs of and occasioned by the application are to be paid by CNG to SIL, to be taxed if not agreed. In the event that either party wishes to vary the costs order nisi (including to apply for summary assessment of costs in lieu of taxation), such application(s) will be dealt with and determined at the start of the hearing on 29 September 2025.

Mr Charles Manzoni SC, instructed by Karas So LLP and Mr Jason Karas, Solicitor Advocate, of Karas So LLP, for the Plaintiff

Mr Simon Chapman, Solicitor Advocate, of Herbert Smith Freehills Kramer, for the 1^st and 2^nd Defendants