Asian private equity and international arbitration: key current issues

In summary

In the wake of a sustained increase in the volume of private equity investments in Asia and turbulent economic times, the frequency of disputes arising from investments in private companies has also increased. We explore key issues that investors should consider when structuring their investments and choosing the seat of arbitration in their agreements. Common law jurisdictions in Asia are continuing to maintain their pro-arbitration stance, and China is also making reforms to strengthen its pro-arbitration stance.

Discussion points

  • The Hong Kong courts’ reaffirmance of the ‘one-stop shop’ presumption and anti-suit injunction of a tort claim proceeding in mainland China
  • Hong Kong and Singapore courts following the established English doctrine in the winding-up context, in contrast to offshore jurisdictions
  • China embracing international arbitration and showing readiness to adopt the concept of the seat of arbitration as distinct from the place of arbitration

Referenced in this article

  • Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd’s Rep 254
  • Giorgio Armani SpA v Elan Clothes Co Ltd [2019] 2 HKLRD 313
  • Giorgio Armani SpA v Elan Clothes Co Ltd (No 2) [2020] 1 HKLRD 354
  • Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449
  • AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33
  • China Europe International Business School v Chengwei Evergreen Capital LP (formerly known as Chengwei Ventures Evergreen Fund LP) and Others [2021] HKCFI 3513

Despite the headwinds caused by covid-19 and increasing tensions between China and the West, Asia once again took the global lead in initial public offerings (IPOs) in 2021, accounting for 1,136 of the world’s 2,388 IPOs.[1] Indications are that the aggregate value of buyout investments in the Asia-Pacific increased in 2021 by over 60 per cent compared to 2020, with the number of transactions increasing by over 80 per cent. Asia-Pacific venture capital activity in the region increased by over 100 per cent from 2020 to 2021, with the volume of deals increasing by nearly 70 per cent.[2] It is no surprise that private equity and other investors in private (pre-IPO) companies have for years been active in Asia. For investors and companies that seek to tap into the global capital markets, these investments are invariably cross-border in nature.

Inevitably, with the sheer increase in volume of private equity investments and transactions, more disputes are arising. On top of this, recent economic, political and regulatory challenges are likely to see an increased number of challenges and disputes arising out of investments, for example, in the Chinese real estate development industry, and other sectors subject to increased data security and other regulation.

The distinct advantages to international arbitration in cross-border commercial and trade agreements apply equally to investments in private companies, as investors and the companies themselves desire a method of resolving disputes that is confidential, avoids any perceived bias of national courts, is flexible and relatively fast, readily accommodates multiple time zone virtual hearings and allows for efficient cross-border enforcement of awards. These features are no stranger to international arbitration in Asia. As a result, international arbitration has become the default option for private cross-border investment in Asia. This article seeks to discuss recent trends of particular importance to private investment disputes subject to arbitration agreements in Asia, in particular China, where the courts are becoming increasingly accepting of international arbitration.

The first part of this article examines an important issue for investors in private companies: will tortious conduct (or allegations of such conduct) allow companies to have their home courts resolve the parties’ dispute, despite the existence of an arbitration agreement? Significant for the region, Hong Kong has recently applied the ‘one-stop shop’ presumption in a case involving contractual and non-contractual claims and issued an anti-suit injunction to enjoin a mainland Chinese party from prosecuting its tortious interference with a contract claim in China. This case reflects the presumption that parties intending to resolve their disputes by way of arbitration intend to include non-contractual claims and is a welcome development as it provides investors with greater certainty regarding where their disputes will be heard.

We also highlight a subtle, but significant, distinction in how Hong Kong and Singapore, on the one hand, and the Cayman Islands and the British Virgin Islands (BVI), on the other hand, address arbitration agreements where one party is sought to be wound up. While the Asian jurisdictions give greater deference to arbitration agreements when faced with a winding-up petition, many Asia-based private investment opportunities are channeled through Cayman or BVI structures (particularly for those companies seeking to list on the Hong Kong or US stock exchanges), meaning not only will the governing law and seat of the arbitration be important considerations for investors in private companies, but so will the level at which they invest (ie, offshore or in Asia).

The final part of this article explores China’s recent effort to create a legal framework conducive to international arbitration, amid the increasing importance of cross-border infrastructure investments following the adoption of the Belt and Road Initiative in 2013. We also highlight recent developments in the effort to ‘legalise’ the common variable interest entity (VIE) structure that is frequently seen in Chinese companies that seek to raise funding from international investors. Spoiler alert: the grey area may not be grey for much longer.

Recent application of the common law ‘one-stop shop’ presumption of arbitration agreements in Asia

Where parties have incorporated an arbitration clause in an agreement, the common law position is to give effect to the parties’ choice of arbitration as the ‘one-stop’ dispute resolution mechanism unless it can clearly be established to the contrary. This principle was laid down in the well-known case of Fiona Trust.[3]

Refresher on Fiona Trust

The Fiona Trust case concerns the scope and effect of arbitration clauses in charter agreements relating to a shipping matter. The owners claimed that the charters were procured as a result of bribery and, therefore, purported to rescind the charters on this ground. The owners commenced court proceedings for a declaration that the charters had been validly rescinded.

The House of Lords unanimously rejected the owners’ claim. In his judgment, Lord Hoffmann emphasised the commercial purpose of the arbitration clause. It was held that, when constructing an arbitration clause, the parties, as rational businesspeople, are likely to have intended that ‘any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal’, unless the contrary can be established.[4]

Lord Hoffmann explained the rationale of this ‘one-stop shop’ presumption as follows: by entering into the arbitration agreement, the parties agree to have disputes between them decided by ‘a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law’. [5] His Lordship appreciated that, particularly in the case of international contracts, parties would ‘want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction’.[6] And a proper approach to construction of arbitration clauses should ‘give effect, so far as the language used by the parties will permit, to the commercial purpose of the arbitration clause’.[7]

By applying the ‘one-stop shop’ presumption, it was held that the arbitration clause applies to the declaratory action commenced in court, because the arbitration clause refers to ‘any dispute arising under this charter’, and it contains nothing to exclude disputes about the validity of the contract, whether on the grounds that it was procured by fraud, bribery, misrepresentation or anything else.

Application of the ‘one-stop shop’ presumption continues in Asia

In Fiona Trust, it is notable that Lord Hoffmann used the word ‘relationship’ – not ‘contract’ or ‘agreement’ – in formulating the ‘one-stop shop’ presumption.[8] This means that the scope of disputes covered by an arbitration agreement is not limited to those based on breaches of a contract, but includes any dispute arising from the entire commercial relationship between the contractual parties – whether the dispute is contractual, tortious or of any other nature, and even if the dispute in question involves a non-contracting party. The broad ambit of the ‘one-stop shop’ presumption is illustrated in the Hong Kong Court of First Instance cases Giorgio Armani SpA v Elan Clothes Co Ltd[9] and Giorgio Armani SpA v Elan Clothes Co Ltd (No 2).[10]

The dispute was related to a master agreement entered into between Armani (the plaintiff) and Elan (the defendant) under which Elan was appointed as an authorised retailer to operate Armani stores in mainland China. Following the announcement of certain unilateral changes to the brands covered by the master agreement, Elan ceased to pay royalties and advertising contributions that Armani claimed were due. Armani commenced arbitration in Hong Kong in accordance with the arbitration clause under the master agreement, which provides that ‘[a]ny dispute, controversy or claim deriving from, arising out and/or regarding this Agreement . . . shall be settled by arbitration’.[11] On the other hand, Elan commenced tort proceedings in a mainland Chinese court against Armani and certain non-contracting parties, claiming losses caused by the rebranding announcement. One of the issues before the Hong Kong court was whether the tort proceedings fell within the scope of the arbitration clause.

The court ruled in favour of Armani and rejected Elan’s narrow interpretation of the arbitration clause to the effect that the tort claim had no connection with and was not based on any breach of the agreement. Instead, the court’s application of the Fiona Trust approach led to the conclusion that the relationship created under the master agreement is for Armani to supply Elan and its affiliates (which were distributors) with products for sale in mainland China on the terms set out in the master agreement. The court opined that disputes as to Elan’s right to be supplied with and to sell and distribute the products, as well as its obligation to make the payments under the agreement, all arise out of, derived from and related to the agreement, and the relationship created thereunder between the parties. Accordingly, the court found that, as rational commercial businesspeople, the parties must have intended that all such disputes should be decided by one tribunal as provided by the arbitration clause.[12]

In reaching the conclusion that it made no difference whether the claims were contractual and made under the master agreement or were tortious in nature, the court adopted the test of whether the tort claim was ‘entirely unrelated to’ the master agreement and the relationship created between the parties.[13] If not, as the court concluded, then even if some of the parties to the tort claim were not parties to the master agreement, the arbitration clause, ‘construed in the modern trend of presumption in favor of one-stop arbitration’, must extend to the tort claim in the mainland Chinese court.[14]

Hong Kong court did not hesitate to issue an anti-suit injunction of mainland China court proceeding

Based on the ‘one-stop shop’ presumption, Armani was successful in obtaining an anti-suit injunction from the Hong Kong courts, restraining Elan from taking any further steps in the proceedings in mainland China. Armani also sought a declaration that Elan’s conduct constituted a breach of the arbitration clause and permanent injunctions requiring Elan to discontinue the proceedings in mainland China and restraining Elan from pursuing any proceedings other than the arbitration.

The English Court of Appeal case of Aggeliki Charis Compania Maritima SA v Pagnan SpA (‘The Angelic Grace’)[15] established the principle that the court may grant an injunction restraining foreign proceedings from being brought when one party has promised not to bring them. Such anti-suit injunctions are granted on the basis that a breach of contract has been committed, and the presumption is in favour of enforcing the contract, unless good reasons are shown why an injunction should not be granted.[16]

Following The Angelic Grace principle, the Hong Kong Court of First Instance in Giorgio Armani SpA held that unless good reason can be shown why the court should not exercise its discretion, the injunction should be granted on the simple and clear ground that the defendant had promised not to bring proceedings other than by way of arbitration in Hong Kong.[17] In the circumstances, the court found no good reason as to why the injunction should not be granted.[18]

As Mimmie Chan J stated in Giorgio Armani SpA, the court has the jurisdiction to order an anti-suit injunction under section 21L of the High Court Ordinance (Chapter 4 of the Laws of Hong Kong), which empowers the court to grant an injunction in all cases where it appears to be just or convenient to do so, or its inherent jurisdiction in accordance with the principles set out in The Angelic Grace.[19]

This case demonstrates how the common law courts in Asia continue to adopt a liberal approach towards construing arbitration agreements (Singapore courts have also confirmed Fiona Trust applies in Singapore), which provides comfort to investors in private companies that tortious disputes related to the investor’s relationship with the company will be resolved through arbitration as agreed among the parties. While the disputes in Giorgio Armani SpA arose in the context of a retail distribution agreement, it is not difficult to imagine similar issues arising from a cross-border investment in a private company. While it may still be advisable to include a carefully drafted arbitration clause specifically covering non-contract disputes to ensure certainty, the discussion above shows that the courts are prepared to give effect to the parties’ intention by the operation of the ‘one-stop shop’ presumption

Exception to the ‘one-stop shop’ presumption? The case of winding-up petitions

Of course, not all investments are successful and result in an IPO – many investments have the opposite result: failure, oppressive conduct or irretrievable breakdown in a quasi-partnership relationship, leading to winding-up of the company on insolvency or other bases, most notably just and equitable. In this context, the key Asian common law jurisdictions – Hong Kong and Singapore – continue to apply the ‘one-stop shop’ presumption, in contrast to the offshore jurisdictions of the Cayman Islands and the BVI, where winding-up petitions will only give way to arbitration agreements if there is a bona fide dispute giving rise to the petition. Because each of these four jurisdictions are significant to investments in private companies (indeed, many private companies looking to list on international stock exchanges are structured with entities in two or more of these jurisdictions), investors should be aware of the differences when considering their options as an investee company approaches the zone of liquidation.

The general position in common law is that, faced with an application to wind up a company on insolvency grounds, the court will need to determine whether the debt in issue is disputed bona fide on substantial grounds. The answer may fall into one of the following three categories:

  1. there is no dispute at all or the debt is admitted in its entirety;
  2. the debt is disputed but not on a substantial ground or without bona fide defence; or
  3. there is a bona fide defence to the debt on substantial grounds.

Unless the company has bona fide grounds to dispute the debt on substantial grounds (category (3) above), the court may exercise its discretion to make the winding-up order.

It becomes more complex when the dispute is subject to an arbitration agreement. The court needs to consider whether it has the jurisdiction to determine the winding-up application before the dispute raised by the debtor company has been resolved by agreed means (ie, arbitration).

We have seen the common law courts in Asia, including Hong Kong[20] and Singapore,[21] following the pro-arbitration English approach. Salford Estates (No 2) Ltd v Altomart Ltd (No 2)[22] is the leading authority on this front. In that case, the English Court of Appeal held that when the creditor has agreed to refer any dispute relating to the debt to arbitration, it would be inconsistent with the legislative intent of the Arbitration Act 1996 for the court ‘to conduct a summary judgment type analysis of liability for an unadmitted debt, on which a winding up petition is grounded’.[23] The court went on to say that the fact that the debt is not admitted is sufficient to constitute a dispute within the Arbitration Act, regardless of the substantive merits, and held that the petition should either be dismissed or stayed ‘so as to compel the parties to resolve their dispute over the debt by their chosen method of dispute resolution rather than require the court to investigate whether or not the debt is bona fide disputed on substantial grounds’.[24] In other words, the UK courts would compel the parties to resolve their dispute by the chosen arbitral tribunal for any debt dispute falling into categories (2) and (3) above.

The pro-arbitration stance is not limited to insolvency situations, as illustrated by a recent Hong Kong case China Europe International Business School v Chengwei Evergreen Capital LP (formerly known as Chengwei Ventures Evergreen Fund LP) and Others,[25] a classic example of a private equity investors’ dispute. The company was a joint venture vehicle in the mainland Chinese educational publishing business set up by a higher education institution (the petitioner in the winding-up proceedings) and a Chinese investment firm. The suite of agreements governing the arrangement contained an arbitration clause, except for a quitclaim agreement that the petitioner entered into in favour of the subject company (the joint venture vehicle), allowing the company to use the petitioner’s trade name, trademarks and logos. The petitioner subsequently sought to renegotiate the quitclaim. Negotiations eventually went south, which led to various share transfers by the investment firm with a view to gaining control over the company. The investment firm commenced arbitration, alleging the breach of the quitclaim and other agreements on the part of the petitioner. At the same time, the petitioner applied for the subject company to be wound up on just and equitable grounds, alleging that there was a breakdown of mutual trust and confidence between the parties.

Applying the Fiona Trust ‘one-stop shop’ presumption, the Hong Kong Court of First Instance stayed the winding-up petition in favour of arbitration, holding that the substance of the dispute fell within the scope of the arbitration agreements. This is because the mutual trust and confidence between the parties are ‘no more than background to the cooperation’ between the parties, the scope of which requires the consideration of the constructions of the suite of agreements.[26]

Linda Chan J held that the arbitration agreements, which cover ‘any dispute, controversy or claim arising out of or relating to this [a]greement’, was wide enough to capture the existence and effect of the parties’ common understandings and the share transfers.[27]

This ruling is consistent with the Salford Estates line of authorities, and confirms that the courts in the region will not hesitate to extend the applicability of the ‘one-stop shop’ presumption.

That is, however, not the end of the matter. Offshore structures, such as VIEs (further explored in the next section) are often involved in equity investments in the region. Where the debtor is a foreign entity, the creditor will need to seek winding-up relief in the jurisdiction with sufficient nexus, which would typically be the place of incorporation. As compared to Asia, offshore jurisdictions, such as the Cayman Islands and the BVI, have taken a different approach towards deference to disputed debts that are subject to arbitration agreements.

Cayman courts seem to have taken a slightly more conservative approach. The recent Grand Court decision in Re Grand State Investments Limited[28] has confirmed that Cayman courts will normally grant a stay of a winding-up petition if the disputed debt falls within the scope of an arbitration agreement. However, Justice Parker also confirmed in Re Grand State Investments that the mere presence of a dispute is not enough, and the Grand Court will need to be satisfied that the dispute is bona fide and contended on substantial grounds. This means that the Cayman courts will only refer the debt dispute to an arbitral tribunal if the dispute falls into category (3) above (there is a bona fide defence to the debt on substantial grounds). To demonstrate a dispute falls into category (3), the parties are likely to have to undergo a summary judgment-like adjudication of the merits of the dispute, which can be time-consuming and costly.

Similarly, the BVI courts’ position is also that disputing a debt of matters caught by an arbitration agreement does not always warrant a stay of the petition. In the case Re A Creditor v Anonymous Company Ltd,[29] decided in early 2021, the BVI’s Commercial Court stated that the courts will not stay or strike out winding-up petitions in favour of arbitration unless it is demonstrated that there is a genuine dispute as to the alleged debt and the matter giving rise to the debt dispute falls within the scope of arbitration.

Ultimately, in the area of insolvency law, how arbitration agreements affect courts’ discretion to wind up a company is a matter of statutory interpretation. One can see that the common law courts in Asia are willing to give effect to the parties’ choice of dispute resolution mechanism when it exercises such discretion. If anything, this should strengthen the parties’ confidence that arbitration agreements and the ‘one-stop shop’ presumption are given due regard in Asia, and investors in private companies that are in their initial stages (which have more opportunity to fail as compared to a late-stage pre-IPO company) should consider the feasibility of investing at the Hong Kong or Singapore level, rather than the Cayman or the BVI level, to provide more certainty as to how disputes relating to the investment will be resolved should the worst-case scenario occur.

Continued development of arbitration law in China

No article about investment disputes in Asia can be complete without reference to China and, in particular, the impact of the Belt and Road Initiative put forward in 2013, which seeks to actively promote infrastructure investments in neighbouring countries, and has successfully boosted the number of cross-border commercial transactions. To support these cross-border transactions, China has been gradually reforming its legal framework to facilitate efficient resolution of cross-border commercial disputes. As part of these policy initiatives, in December 2018, the State Council issued Several Opinions on Improving the Arbitration System to Strengthen the Credibility of Arbitration.[30] The opinions emphasised the indispensable role of international arbitration in promoting cross-border trade, and formulated inter-departmental policies to create an arbitration-friendly environment. In December 2019, the Supreme People’s Court of China also promulgated the Opinions Regarding Further Providing Judicial Services and Supports by the People's Courts for the Belt and Road Initiative, making it clear that the courts will provide judicial services and support for the Belt and Road Initiative, including vigorously supporting the development of international arbitration.[31]

In July 2021, the Ministry of Justice published a set of major draft amendments to the Arbitration Law,[32] recognising the concept of the seat of arbitration and that parties are free to choose their preferred seat of arbitration. On the face of it, the draft amendments would not exclude a state as a party to the arbitration.[33] If adopted, these amendments will no doubt further promote the use of arbitration in cross-border investments.

The draft amendments to the Arbitration Law are a culmination of the Chinese courts’ gradual shift in attitude toward international arbitration. Before the adoption of the recent policy initiatives, there have been many controversial court cases concerning whether arbitrations conducted within mainland China administered by foreign institutions should be overseen by courts in China or in the jurisdictions of the institutions, as well as the validity of arbitration agreements providing for such arbitration and the enforcement of awards issued in such arbitrations.[34] This resulted in significant uncertainty for parties.

Assuming the proposed amendments to the Arbitration Law are adopted, the adoption of the concept of the seat of arbitration is expected result in the location of the arbitration proceeding and the nationality of the foreign arbitration institution becoming less relevant to international arbitration taking place within mainland China. This is a welcome development for international arbitration institutions intending to expand business in China, as well as investors who seek certainty concerning the conduct of any arbitration and enforceability of arbitration awards.

It is notable that in areas outside arbitration, China’s legal system is also undergoing reforms to bring certainty to commercial transactions. For example, with regard to the VIE structure, which has historically been seen as a grey area in China’s securities law, in December 2021, the State Council published the draft Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies, proposing to bring all overseas listing activities, direct or indirect (eg, through the VIE structure), under regulation by adopting a filing-based administration system. While the VIE structure has already been widely adopted by Chinese companies to achieve overseas listings, there has been no conclusive view as to whether such structure is legally compliant under Chinese law.[35] By formally regulating VIE entities, if enacted, the draft Provisions will, for the first time, formally give Chinese companies access to overseas listings via the VIE structure after complying with appropriate filing requirements.[36] Formalising the already common VIE structure will clarify that VIE structures no longer operate in the grey.

As China proceeds with legal reforms and clarifies uncertainty in different areas of law, it will become less important for parties to commercial transactions to turn to the court for an authoritative view of the law. This will also likely increase the popularity of international arbitration and other means of settling disputes outside of court.


One can be confident that arbitration agreements will be given effect with an increasingly limited degree of interference by the courts in Asia, as demonstrated by recent developments in common law jurisdictions and in China. We expect that, where an appropriately drafted arbitration agreement is featured in investment contracts, the likelihood of arbitration being successfully challenged as the binding mechanism for dispute resolution will continue to decrease as the law in China and neighboring states continues to be clarified.


[2] Data published by Refinitiv in mid-March 2022 and cited by Fund Selector Asia. See <>.

[3] Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd’s Rep 254.

[4] ibid [13].

[5] ibid [6].

[6] ibid [6].

[7] ibid [8].

[8] ibid [6].

[9] [2019] 2 HKLRD 313.

[10] [2020] 1 HKLRD 354.

[11] [2019] 2 HKLRD 313 [10].

[12] [2020] 1 HKLRD 354 [19].

[13] [2020] 1 HKLRD 354 [20].

[14] ibid; [2019] 2 HKLRD 313 [52].

[15] [1995] 1 Lloyd’s Rep 87.

[16] See Yeo Tiong Min, ‘The Contractual Basis of the Enforcement of Exclusive and Non-Exclusive Choice of Court Agreements’ (2005) 17 Singapore Academy of Law Journal 306.

[17] [2020] 1 HKLRD 354 [28].

[18] [2020] 1 HKLRD 354 [29].

[19] [2020] 1 HKLRD 354 [23].

[20] Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449.

[21] AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33.

[22] [2015] Ch 589.

[23] ibid [39]–[40].

[24] ibid [41].

[25] [2021] HKCFI 3513.

[26] ibid [86]–[88].

[27] ibid [89].

[28] 28 April 2021, FSD 11/2021(RPJ).

[29] BVIHC (COM) [redacted] (28 January 2021).

[32] Ministry of Justice of the People’s Republic of China, Arbitration Law of the People’s Republic of China (Amendments) (Draft for Comments) (30 July 2021).

[33] ibid, article 2.

[34] Li Qingming, ‘Legal Issues Arising out of Arbitration Seated in the Mainland of China but Administered by Overseas Arbitration Institutions’ [2016] 3 Global Law Review 181.

[35] In specific industries, such as certain providers of private education, the relevant authorities have prohibited the adoption of the VIE structure. See article 13 of the Implementation Regulations of the People’s Republic of China on the Law Regarding the Promotion of Private Education, as revised in 2021.

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