Summary of facts
The petitioner, ACTATRADE SA (Petitioner), and the Company entered into a number of contracts for the sale and purchase of methanol cargo (Cargo). The Petitioner lodged a petition for the winding up of the Company (Petition) on the ground of insolvency and on the basis that the Company had failed to comply with a statutory demand by paying to the Petitioner the outstanding purchase price for the Cargo (Debt). The relevant contract provided for all disputes, including those pertaining to the Debt, to be referred to CIETAC arbitration (Arbitration Agreement).
The Company sought the dismissal of the Petition on the following grounds:
- There was a prima facie dispute that should be referred to arbitration pursuant to the Arbitration Agreement (Arbitration Ground).
- There were bona fide disputes on substantial grounds in respect of the Debt (Bona Fide Dispute Ground)
- The Company had a cross-claim against the Petitioner which exceeded the Debt (Cross-claim Ground).
The court rejected all the Company’s grounds of opposition.
On the first ground, the Company submitted that the court should not follow the approach in Lasmos or the traditional approach of requiring the debtor to demonstrate a bona fide dispute on substantial grounds. Instead, the Company urged the court to follow the Singapore approach expounded in AnAn Group (Singapore) Pte Ltd v. VTB Bank (Public Joint Stock Company)  SGCA 33 and the English approach in Salford Estates (No.2) v. Altomart Ltd (No.2)  1 Ch 589, which applied the ‘prima facie’ standard; i.e., once the court found that there was a prima facie dispute, it would ordinarily dismiss the petition and would only grant a stay if there was legitimate concern about the solvency of the company and no triable issue was raised by the company.
The court held that, whether under the prima facie standard (as adopted by the Singapore and English courts) or a bona fide dispute on substantial grounds (as adopted by the Hong Kong courts), it would be incumbent upon the debtor to demonstrate that there was a genuine dispute on the debt which required the determination of an arbitral tribunal. It would be pointless to require the parties to resolve a dispute unless it was a genuine dispute. As observed in But Ka Chon v. Interactive Brokers LLC  4 HKLRD 85, prior to Lasmos, the court would, in the exercise of discretion, give considerable weight to the existence of an arbitration agreement and other relevant circumstances. The discretion was not exercised only one way as discussed in Lasmos; i.e., the petition should “generally be dismissed” save in “exceptional” or “wholly exceptional circumstances” if (1) the debt was not admitted, (2) the dispute was covered by the arbitration clause and (3) the company had taken steps to commence arbitration.
Bona Fide Dispute Ground
The court therefore went on to discuss the second ground and concluded that the Company had failed to show that there was a bona fide dispute as regards the Debt or that there were serious cross-claims which would justify withholding payment of the Debt.
The Company alleged that it was entitled to withhold payment of the Debt pending the determination of the cause of certain discoloration of the Cargo, i.e., whether the discoloration was due to the fault of the Petitioner and/or the carrier. The court held that this did not amount to a bona fide dispute, let alone a dispute on substantial grounds, in respect of the Debt because the Company had not identified any contractual provision that entitled it to withhold payment of the Debt. In any case, the discoloration issue had already been settled between the carrier and the owner of the Cargo. The Company had not identified any basis or adduced any evidence to show that it had suffered any loss from the discoloration issue or that the Petitioner caused the discoloration.