Authors
Key takeaways
- The Hong Kong Court of First Instance in Re Mega Gold Holdings Limited [2024] HKCFI 2286 (30 August 2024) followed the approach in Re Lam Kwok Hung Guy (2023) 26 HKCFAR 119 (Guy Lam (CFA)) and Re Simplicity & Vogue Retailing (HK) Co Ltd [2024] 2 HKLRD 1064 (Re Simplicity (CA)), departing from the UK Privy Council’s judgment in Sian Participation Corp (in Liquidation) v Halimeda International Ltd [2024] UKPC 16 (Sian (UKPC)) for winding-up and bankruptcy petitions concerning arbitration agreements
- The combined effect of Guy Lam (CFA) and Re Simplicity (CA) is that, in exercising its discretion, the Hong Kong court will generally uphold an arbitration agreement and require that the dispute be referred to arbitration in the absence of “countervailing factors such as the risk of insolvency affecting third parties” and “a dispute that borders on the frivolous or abuse of process”
Recent court decisions in both Hong Kong and England have shown different approaches to handling disputes involving arbitration clauses, exclusive foreign court jurisdiction clauses, and insolvency matters.
In Guy Lam (CFA), the Court of Final Appeal decided that in the ordinary case of an exclusive jurisdiction clause, in the absence of “countervailing factors such as the risk of insolvency affecting third parties” and “a dispute that borders on the frivolous or abuse of process”, the effect of the foreign exclusive jurisdiction clause should be upheld. Re Simplicity (CA) followed and extended the Guy Lam (CFA) approach to arbitration clauses.
This approach contrasts with the decisions of the English courts. In Sian (UKPC), the Privy Council held that where the parties were subject to an arbitration agreement in a winding-up petition, unless “the debt is disputed on genuine and substantial grounds”, the court would not stay or dismiss the petition.
In Re Mega Gold Holdings Limited [2024] HKCFI 2286 (30 August 2024), when faced with winding-up and bankruptcy petitions on the basis of debts allegedly owed under agreements containing arbitration clauses, Recorder Richard Khaw confirmed that Hong Kong would follow Guy Lam (CFA) and Re Simplicity (CA), but not Sian (UKPC), as a matter of stare decisis. Applying the Guy Lam (CFA) approach, the Hong Kong Court of First Instance decided that the defence raised did not border on the frivolous or an abuse of process. As the petitioner failed to demonstrate that the company lacked a genuine intention to commence arbitration, the court exercised its discretion to decline to exercise the winding-up and bankruptcy jurisdiction and ordered the petitions be stayed pending the resolution of disputes by arbitration.
Commentary
This case clarifies that, as a matter of stare decisis, the Hong Kong courts will depart from the English law position in considering the interplay between arbitration law and insolvency law. Practitioners should be aware of the divergence of decisions in different jurisdictions when considering litigation strategy.
Client Alert 2024-204