In the recent Hong Kong Court of First Instance case of Hyalroute Communication Group Limited v Industrial and Commercial Bank of China (Asia) [2025] HKCFI 2417, Recorder William Wong SC ruled on an “interesting and novel application” in the first case for a Hong Kong court to consider if an anti-suit injunction should be granted to restrain foreign winding-up proceedings in the Cayman Islands in favour of arbitration in Hong Kong.
This hearing arose against the backdrop of Re Guy Lam (2023) 26 HKCFAR 119 before the Hong Kong Court of Final Appeal and Sian Participation Corp v Halimeda International [2024] UKPC 16 before the UK Privy Council.
Under the Hong Kong approach, “winding-up proceedings will be stayed in favour of arbitration unless there is abuse”, in contrast to the more creditor-friendly approach of the UKPC decision in Sian Participation, where debtors are required to show the usual bona fide dispute.
As such, the court dismissed the anti-suit injunction on the basis that the intended foreign winding-up proceedings would not be in breach of the arbitration clause.
Background
Around mid-2018, two subsidiaries of Hyalroute (the “Plaintiff”), entered into a Term Facility Agreement (TFA), with the Plaintiff acting as guarantor and ICBC (the “Defendant”), acting as lender.
Due to political and commercial risks of investing in Myanmar, the Defendant entered into an insurance contract with the Multilateral Investment Guarantee Agency (MIGA) providing coverage for “specified risks, including: (1) war and civil disturbance; and (2) restrictions on transfer of currency” (together, the “Covered Risks”).
The TFA stipulated that if the Plaintiff made an application related to the Covered Risks (a “Covered Risk Application”) their obligations (as guarantor) would be suspended with regard to defaults caused by the Covered Risks.
This would however cease contingent on either the Defendant rejecting the Plaintiff’s Covered Risk Application, or if MIGA was not liable to compensate the Defendant.
The Plaintiff contended that a Covered Risk Application was made to the Defendant on 11 February 2021, shortly after a military coup in Myanmar. Accordingly, the Plaintiff, the Defendant and MIGA held a conference related to compensation under the MIGA insurance contract. The Plaintiff contended that their obligation as guarantor was therefore suspended.
On 22 and 27 November 2024, respectively, the Defendant served a statutory demand against the Plaintiff and their registered agent, Vistra (Cayman Limited) claiming, inter alia, that an outstanding debt of just over USD 93.4 million was due under the TFA.
Consequently, the Plaintiff issued an originating summons for an anti-suit injunction and summons.
Discussion and analysis
In his judgment, Recorder William Wong SC held that the starting point as to determine the proper construction of the arbitration clause:
“Clause 43.1 Arbitration
Any dispute, controversy or claim arising in any way out of or in connection with this Agreement (including (i) any issue regarding contractual, pre-contractual or non-contractual rights, obligations or liabilities and (ii) any issue as to the existence, validity, breach or termination of this Agreement) (a “Dispute”) shall be referred to and finally resolved by binding arbitration administered by the Hong Kong International Arbitration Centre (HKIAC)” (emphasis added) (the “Arbitration Clause”).
The issue was not whether the Arbitration Clause was valid, but whether the Plaintiff could establish that (i) dispute over their indebtedness under the TFA was covered by the Arbitration Clause; and (ii) the Cayman winding-up proceedings were also within the scope of the arbitration agreement in the Arbitration Clause.
The court interpreted that the express language of “finally resolved” in the Arbitration Clause imposed a positive obligation for the parties to have disputes arising or in connection with the TFA to be “finally resolved” by arbitration. The Arbitration Clause also imposed a negative obligation on the parties which precluded disputes from being “finally resolved” in a non-contractual forum.
As to whether the Cayman winding-up petition would “finally resolve” the dispute regarding the Plaintiff’s indebtedness under the TFA within the meaning of the arbitration clause, the Plaintiff argued that, inter alia, regardless of Cayman law position, Hong Kong law should be preferred over Cayman law – since Hong Kong law was the governing law of the Arbitration Clause.
Accordingly, the Hong Kong law approach would therefore consider that the intended winding-up proceedings may “finally resolve” the dispute, breaching the TFA.
On the other hand, the Defendant argued that the winding-up petition would only have the effect to “finally resolve” the dispute if the Cayman court’s rulings or findings would constitute res judicata and give rise to an estoppel over the dispute. In turn, whether res judicata may arise under Hong Kong law was a question to be determined by how Cayman winding-up proceedings are viewed under Cayman law, rather than under Hong Kong law.
The court held that in context of the Arbitration Clause, it would be wrong if “finally resolved” did not include the concepts of res judicata and estoppel. With this in mind, it considered that determining res judicata in a foreign judgment would require considering the relevant foreign law; therefore, Cayman law must be considered too in determining the Cayman winding-up proceedings under the Arbitration Clause.
The court took into account a line of authorities consistent with Sian Participation where it was clear that Cayman law does not view a winding-up petition as resolving a dispute substantively. Under Cayman law, it is only seen as resolving the threshold question of whether there was a genuine dispute on substantial grounds, which does not “finally resolve” disputes between parties.
The court therefore agreed with the Defendant, holding that on proper construction of the Arbitration Clause, the Cayman winding-up petition would not have the effect to “finally resolve” the dispute – and therefore would not be in breach of the TFA.
On a final note, Recorder William Wong SC noted that even in Re Guy Lam, there is no automatic stay or dismissal, even if a dispute resolution clause can apply to insolvency proceedings. Therefore, the court will consider other factors, notwithstanding the need for a “strong cause” to depart from the dispute resolution clause.
Additionally, a defence may be so “bad” that it borders on “frivolous or abuse of process”. Rejecting the Plaintiff’s defence that merits are irrelevant when considering anti-suit injunctions, the court held this defence on the underlying merits as “hopeless and frivolous”. It would simply be “abusive” to rely on such defence.
Accordingly, the Plaintiff’s anti-suit injunction application was dismissed.
Key takeaways
This case demonstrates the continuation of ongoing interaction between arbitration and winding-up proceedings. The outcome accords with a “common and commercial sense” approach, whereby the Hong Kong court takes a “creditor-friendly” approach in refusing to grant an anti-suit injunction against an offshore winding-up petition.
But parties should be mindful that the court will take into consideration winding-up proceedings commenced in a foreign jurisdiction.
It is anticipated that there will be similar applications in the future to further consider such issues, including in other foreign jurisdictions.
