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In 李明實, 方壘 and 史洪源 and Others v. Ace Lead Profits Ltd and Another [2022] HKCFI 3342, the court dismissed the defendants’ application for a stay of the action in favour of arbitration. Whilst the court determined that the pertinent arbitration agreement was capable of being performed despite the nomination of a non-existent arbitration institution, it found that the defendants had failed to establish that the dispute fell within the ambit of the arbitration agreement.


Dr Wang (P2) was the founder of Beijing HollySys. As the company’s business expanded, it was restructured in preparation for listing, which included the incorporation of Plus View Investment Limited (P3) and Ace Lead Profits Limited (D1) as shareholding entities.

P2 was the sole director and shareholder of D1. On 12 August 2016, P2 transferred his entire issued share capital in D1 to Mr Shao (D2), making D2 the sole director and shareholder of D1.

In 2006, HollySys Automation Technologies Limited (HollySys) was incorporated in the BVI and was listed on the NASDAQ stock exchange in 2008. As founding members of HollySys, P3 and D1 were allotted shares in HollySys (HOLI Shares) in accordance with their holding in Beijing HollySys.

To share the success of the group, P2 intended to give out HOLI Shares held by P3 and D1 to its employees (P1) under a trust scheme (Trust Scheme). As a result, the HollySys Trust Committee (Trust Committee) was formed and was regulated by its own set of articles (Articles). It was P2’s case that D2 should administer and manage the Trust Scheme via D1.

The Trust Scheme consisted of different layers between P3, D1 and HollySys employees. Eligible employees could obtain HOLI Shares at a certain subscription price. Declarations of trust (DoTs) would then be signed with the participating employee as the beneficiary and the companies, P3 and D1, as trustees.

The arbitration agreement invoked was found in each of the DoTs, which reads “[t]he governing law of this contract is Hong Kong law, and either party shall have the rights to, when mediation is ineffective, refer any disputes arising from the trust relationship between the settlor and the trustee to the Hong Kong arbitration committee for adjudication.” (Arbitration Agreement).

The plaintiffs’ argument was that there were two tiers of trusts created that were separate from each other.

  • The first tier was “a de facto trustee-beneficiaries relationship between Ace Lead and Plus View as trustees and HollySys employees over the trust shares” (the Overarching Trust).
  • The second tier comprised the trusts created individually by the signed DoTs (DoT Trusts).

Disputes arose between the plaintiffs and D2. The plaintiffs commenced the present proceedings against the defendants for (among other things) a declaration that the HOLI Shares held by and in the name of D1 were held by D1 on trust for the HollySys employees under the Trust Scheme (Trust Shares Claim). The defendants applied for a stay of the Trust Shares Claim on the basis that it fell within the ambit of the Arbitration Agreement.