The Hong Kong Court of First Instance has granted a so-called “Hadkinson order”, adjourning an application to resist enforcement of CIETAC arbitral awards, on the basis of the applicant’s poor conduct in earlier stages of the proceedings. The court also ordered the parties resisting enforcement to pay 40% of the award amounts as security. The application is the latest in a series of interim relief and enforcement proceedings in support of a Beijing seated CIETAC arbitration against Zhang Lan, billionaire and founder of the South Beauty restaurant group. Madam Zhang was earlier held in contempt of court for breaching a Hong Kong court injunction and asset disclosure order.
Tag: Simon Chapman
In Champ Prestige International Limited v China City Construction (International) Co, Limited and Dingway Investment Limited, the Hong Kong Court of First Instance reaffirmed the court’s discretion to order the winding-up of a foreign-incorporated company on just and equitable grounds, but refused to stay the winding-up petition in favour of arbitration.
The Petitioner, Champ Prestige, entered into a joint venture with China City for the development of certain land in Florida, United States by Dingway Investment Limited, an investment company incorporated in the British Virgin Islands (Company). The share sale and purchase agreement, under which Champ Prestige acquired a 45% interest in the Company from China City (SPA), contained an arbitration clause providing for disputes arising from or in connection with the SPA to be submitted to the HKIAC for arbitration.
The SPA also provided financing arrangements for the development of the project, including a put option that Champ Prestige could exercise in the event that China City did not fulfill its funding obligations. The parties subsequently entered into a cooperation agreement containing further terms for the development of the project. The cooperation agreement contained a similar arbitration clause to that of the SPA.
China City soon began to experience financial problems. Champ Prestige eventually exercised its put option, but China City did not pay the sums due on such exercise. The parties entered into a Framework Agreement in an attempt to resolve the financial issues. This Framework Agreement did not contain an arbitration clause.
Champ Prestige sought to wind up the Company on just and equitable grounds under section 327(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), alleging that the Company was unable to progress its intended business purpose of developing land, and that China City had variously breached the SPA and the Framework Agreement. China City applied to strike out the winding-up petition (Petition) on grounds that there was insufficient connection between the Company, whose business and assets were located in the United States, and Hong Kong, for the court to exercise its exorbitant jurisdiction to wind up a foreign incorporated company, and alternatively that the dispute should be referred to arbitration.
The court’s decision
Court’s exorbitant jurisdiction
The court reiterated and affirmed the principles governing the circumstances in which the court may exercise its discretion to wind up a foreign-incorporated company, as set out by the Court of Final Appeal in Kam Leung Sui Kwan v Kam Kwan Lai & Ors (2015) 19 HKCFAR 501 (also known as the Yung Kee case, discussed in our previous blog post here). The key issue in the present case was whether the first of three core requirements had been satisfied, namely whether the management and ownership had sufficient connection with Hong Kong to justify the court exercising its exorbitant jurisdiction to wind up a foreign company.
The court held that this question should be considered in general and common sense terms, and that regardless of a company’s place of incorporation, it is not necessary to undertake a forensic analysis of the various components of a company’s operations and ownership if it is fairly clear that it is fairly viewed as a Hong Kong business entity.
On the facts, the court found that the ownership and management of the Company was more closely connected with Hong Kong than with either the United States or the British Virgin Islands, taking into account the following factors:
- the majority of the Company’s directors was resident in Hong Kong;
- the Company, while incorporated in the British Virgin Islands, was owned by a Hong Kong-listed company; and
- the project in Florida was dormant.
Stay for arbitration dismissed
On the issue of whether the Petition ought to be stayed in favour of arbitration, the court cited with approval its decision in Re Quiksilver Glorious Sun JV  4 HKLRD 759 (which was decided by the same judge, Harris J) that where an agreement to arbitrate has been made between shareholders, the correct approach to determining whether or not the complaints in a shareholder’s petition should be referred to arbitration is to identify and determine whether the substance of the dispute between the parties is covered by the arbitration agreement. The court further noted that, where the petitioner’s complaints form part of one continuing narrative, the court will not exercise its discretion to stay the petition unless it is clear and obvious that the dispute forming the subject of the arbitration clause would be “central and probably determinative of the factual issues” raised by the petition.
While some of Champ Prestige’s complaints related to matters arising under the SPA or the cooperation agreement, both of which contained arbitration clauses, such allegations were also relevant to the complaint that there had been a breakdown in trust and confidence between the parties. The present case was therefore not one in which part of the dispute could sensibly be hived off and referred to arbitration, with the outstanding issues to be determined once the arbitration was complete. On such grounds, the court dismissed the stay application.
This case is one of the first cases citing the Court of Final Appeal’s landmark decision in the Yung Kee case, and it is expected that the Hong Kong court will continue to exercise its discretion under its statutory jurisdiction to hear shareholders’ petitions to wind up foreign incorporated companies on just and equitable grounds.
It is increasingly common for commercial agreements, including share purchase agreements and shareholders’ agreements, to provide for dispute resolution by way of arbitration. When disputes do arise however, parties often look beyond the immediate contractual dispute and seek to rely on statutory regimes, such as unfair prejudice and winding-up on just and equitable grounds, to obtain relief. Matters may become particularly complicated where multiple (and oftentimes conflicting) dispute resolution clauses are involved.
While the court will tend to scrutinise each case on its own facts to determine whether some or all of the disputed issues may be hived off for arbitration, in the context of winding-up on just and equitable grounds, even where underlying contracts contain arbitration clauses, factual issues are often so closely intertwined that the court may not be inclined to find it has no jurisdiction entirely.
For further information, please contact Simon Chapman, Partner, Kathryn Sanger, Partner, Stella Hu, Of Counsel, Jocelyn Heng, Associate, or your usual Herbert Smith Freehills contact.
We are very proud to announce that Simon Chapman, Head of Greater China Disputes, is to be appointed Queen’s Counsel.
The award of Queen’s Counsel is for excellence in both written and oral advocacy before the higher courts and arbitration tribunals. Simon is to be one of only 4 solicitor-advocates amongst the 114 QCs appointed this year. Simon will be one of a handful of Solicitor QCs in Asia, and the fourth QC currently practising at Herbert Smith Freehills. The prestigious appointment of QC is made by Her Majesty The Queen on the advice of the UK Lord Chancellor, following consideration by an independent Queen’s Counsel Selection Panel. The appointment is given to distinguished practitioners based on merit, and in recognition of their professional ability, reputation and integrity.
Simon is an international arbitration specialist focusing on cross-border disputes in Asia. He leads the Herbert Smith Freehills Practice in Greater China and appears regularly as lead counsel before arbitral tribunals all over the world. His practice covers both investment treaty and commercial arbitration and he has particular expertise in claims in fraud and breach of warranty, as well as post-M&A, joint venture, and shareholder disputes. Simon’s clients have included governments, state-owned entities, sovereign wealth funds and corporations across a range of industries, including the energy, private equity, finance, hospitality, and TMT sectors.
“With Simon’s appointment, Herbert Smith Freehills joins a very small group of firms that can offer its clients in-house access to senior advocacy through a practising QC based in Asia” said Executive Partner and CEO Elect Justin D’Agostino. “The appointment highlights the high calibre of talent and the bench strength of the firm’s market-leading disputes practice in the region and across our global disputes practice.”
“Simon is an extremely talented advocate, and we are very proud of this richly deserved appointment”, said Paula Hodges QC, Global Head of the International Arbitration practice at Herbert Smith Freehills. “It reflects Simon’s legal excellence and demonstrates the high esteem in which he is held by his peers, colleagues and clients.”
Simon will officially take silk at a ceremony on 16 April 2020.
In P v. M  HKCFI 1864; HCCT 6/2019 (24 July 2019), the Hong Kong Court of First Instance set aside parts of two arbitral awards which were found to be in breach of procedural fairness resulting in substantial injustice.
This is the second of two set aside applications arising from the same underlying arbitration based on a construction contract (Contract) which provided for domestic arbitration in Hong Kong. M had claimed against P for monies to which it was entitled under the Contract. After a first hearing in November 2017, the tribunal issued an interim award against P, ordering it to pay damages for loss and expense (First Award).
Challenge to the First Award
P raised a challenge to the parts of the First Award relating to a sum in respect of site overheads and insurance costs (Disputed Sum).
- P argued that M’s case on the Disputed Sum was that it was not required to give notice of the claim for the Disputed Sum, or that even if such notice were required, P had waived this requirement or was estopped from asserting M’s failure to do so.
- While the tribunal had rejected M’s pleaded claims, it nevertheless awarded M the Disputed Sum by finding that certain letters from M to P constituted notice as required by the Contract. P argued that in doing so, the tribunal had exceeded its powers, or had failed to conduct the arbitral proceedings in accordance with the procedure agreed by the parties.
- P thus sought to impugn certain paragraphs of the First Award pertaining to the Disputed Sum (Challenged Paragraphs), or alternatively, to set aside the First Award on the ground that P had been denied a reasonable opportunity to present its case in the arbitration.
P’s application was heard and granted by Mimmie Chan J.
- Chan J found that P had been “deprived of the fair opportunity to present its case and to make submissions to the tribunal on the effect and adequacy of the [letters] as proper notices under the Contract”, given that P had not been informed of this argument during the arbitration proceedings.
- While noting the need for finality of awards, and that only extreme cases would justify the court’s intervention, Chan J found that this was a case where a serious error had affected due process and the structural integrity of the arbitral proceedings, with the result that P had suffered substantial injustice.
- Since the complaint was that P had been deprived of a fair opportunity to make relevant submissions to the tribunal, Chan J remitted the matter to the tribunal for reconsideration. In addition, she declared that the Challenged Paragraphs would have no effect pending the reconsideration, and ordered the parties to file further submissions to the tribunal on specific issues, including the meaning and effect of the letters and whether they constituted valid notification of claims as required under the Contract.
Challenge to the Second Award
Following Chan J’s decision, the parties filed further submissions and the tribunal issued a second interim award (Second Award), which reinstated the Challenged Paragraphs in the First Award. P then raised a challenge to the Second Award on the same grounds as its first challenge.
- P again argued that the tribunal had exceeded its powers and/or failed to conduct the proceedings in accordance with the procedure agreed by the parties or as directed by Chan J by, among others:
- summarily rejecting P’s submissions on “threshold issues” that injustice arising from matters not raised in the substantive arbitration could not be rectified by further submissions on remission in the absence of a further evidentiary hearing;
- taking into account submissions made by M which were not “in reply” to P’s submissions on remission and had not been pleaded or dealt with in evidence in the arbitration;
- directing further submissions on matters which could not properly and fairly be addressed by a further evidentiary hearing;
- embarking on its own enquiry and making findings that were not contended by M.
- P submitted that it was denied an opportunity to address such matters, of which P had had no prior notice.
- P further submitted that there was no benefit in remitting such matters to the tribunal again.
Decision on the Second Award
Coleman J first canvassed the principles applicable to the challenge, which he regarded as “reasonably well-settled”:
- it is for the applicant to establish both serious irregularity and substantial injustice. The test of a serious irregularity giving rise to substantial injustice requires a high threshold to be met, so as drastically to reduce the extent of intervention by the Court in the arbitral process;
- the Court is concerned with the structural integrity of the arbitration proceedings, and not with the substantive merits of the dispute;
- a balance has to be drawn between the need for finality of the award and the need to protect parties against unfair conduct in the arbitration. Therefore, only an extreme case will justify the Court’s intervention;
- the effect of setting aside an award or declaring an award, or part thereof, to be of no effect is that the award, or the relevant part, is a nullity. The arbitration can revive or carry on as necessary to deal with the matters that were set aside or declared to be of no effect;
- following a remission, the tribunal’s revived authority extends only to the matters that are so remitted; it cannot go beyond the scope of the revived jurisdiction.
On the evidence, Coleman J agreed with P that there had been a serious irregularity leading to substantial injustice.
- Coleman J opined that “once it [was] identified and directed that parties are bound by their pleaded cases, and by the evidence already traversed at the arbitration hearing, and by the findings of fact made on that evidence, then there was really only one proper conclusion which the [tribunal] could have reached” – that the claim must fail.
- If M had wished to advance a case on the suggestion of the tribunal that the letters constituted the required notice, then “it could only properly have done so by making an application to amend its pleadings, which if allowed would almost certainly have required re-opening the evidentiary hearing.”
- While the tribunal was mindful of Chan J’s decision, and sought to provide proper opportunity for P to present its case by giving P the “final right of reply”, the defects “have not been cured, and could not have been cured, by the route taken by the Arbitrator”.
- The Court had in fact already considered that intervention in this arbitration is justified and necessary. Despite the remission for reconsideration, the serious irregularity warranting intervention has not been cured.
Coleman J thus proceeded to set aside the paragraphs in the First Award that had been impugned by Chan J, as well as the relevant paragraphs of the Second Award that exceeded M’s pleaded case.
While Hong Kong courts are slow to set aside arbitral awards, they will do so where they consider that the high threshold of serious irregularity resulting in substantial injustice has been met. To avoid challenges based on serious procedural irregularities, arbitrators must resist any temptation to look beyond the case as set out in the parties’ pleadings.
In the recent case of AIG Insurance Hong Kong Ltd v Lynn McCullough and William McCullough  HKCFI 1649, the Hong Kong Court of First Instance (CFI) considered the effect of an arbitration agreement under an insurance policy and, in particular, the circumstances in which an anti-suit injunction may be granted to restrain a party from pursuing foreign proceedings.
The CFI held that, as a matter of Hong Kong law, a party is not entitled to found a claim on rights arising out of an insurance policy without also being bound by the dispute resolution provisions in the policy. The CFI went on to hold that an anti-suit injunction will ordinarily be granted to restrain such a claimant from pursuing proceedings in a non-contractual forum unless there are strong reasons to the contrary.
The full judgment is available here.
The underlying facts of the case relate to an accident which took place whilst Mrs Lynn McCullough and Mr William McCullough were on holiday in the Caribbean in 2015. During that holiday, Mrs McCullough suffered a fall from a zip line, owned and operated by Rain Forest Adventures (Holdings) Ltd, Rain Forest Sky Rides Ltd and Rain Forest Tram Ltd (together, Rain Forest), and was rendered permanently quadriplegic.
AIG Insurance Hong Kong Ltd (AIG) had previously issued a Directors’ and Officers’ Liability Insurance Policy to Rain Forest (the Policy). The Policy covered Rain Forest (as the policyholder) and its directors, including a Mr Harald Joachim von der Goltz. The Policy referred any disputes arising under the Policy to arbitration in Hong Kong under the rules of the Hong Kong International Arbitration Centre (HKIAC).
On 15 January 2016, the McCulloughs commenced a claim in the Florida courts against several defendants, including Rain Forest, alleging negligence in the operation of the zip line excursion. They sought damages for the injuries that Mrs McCullough sustained.
On 14 July 2016, the McCulloughs filed a Second Amended Complaint adding Mr von der Goltz as a defendant, who subsequently gave notice to AIG that he was seeking an indemnity under the Policy as a director of the policy holder. The claim was rejected by AIG on the basis that claims resulting from a bodily injury were excluded under the Policy.
On 24 April 2018, a dispute resolution agreement was entered into by the McCulloughs and the Rain Forest defendants now including Mr von der Goltz. This agreement was approved by the Florida court which referred the matter to arbitration. The arbitration award was subsequently issued on 28 May 2018 and judgment was entered into on 12 July 2018 in favour of the McCulloughs against, among others, Mr von der Goltz, in the sum of US$ 65.5 million.
On 20 August 2018, the McCulloughs filed the Third Amended Complaint adding AIG as a defendant. The Third Amended Complaint contained a “common law tort claim available under Florida law against [AIG] for having failed to act in good faith in handling, litigating, and settling the US Proceedings, resulting in an excess judgment (i.e. judgment in excess of Policy limits) being entered into against the insured, Mr. von der Goltz” (the Bad Faith Claim). The nature of the Bad Faith Claim was that if AIG had honoured the Policy and provided Mr von der Goltz with US$ 5 million in coverage (i.e. the Policy limit), it would have been possible for him to have settled the McCulloughs’ claim. It was submitted that this failure by AIG exposed Mr von der Goltz to a liability of US$ 65.5 million and as a result, he had a claim against AIG for this amount. The right to claim directly against AIG for the US$ 65.5 million was said to be based on the McCulloughs being judgment creditors of Mr von der Goltz.
In the instant case, there were two applications before the CFI:
- An application from AIG for a continuation of an ex parte injunction originally issued on 18 December 2018 by DHCJ Simon Leung restraining the McCulloughs from pursuing proceedings in the Florida courts against AIG on the basis that the Policy provides that all disputes regarding coverage under the Policy should be settled by arbitration in Hong Kong under the HKIAC Rules; and
- An application from the McCulloughs for, amongst other things, (1) a declaration that the CFI should not exercise any jurisdiction that it may have; and (2) an order staying the action in the Hong Kong courts in favour of the proceedings in the Florida courts.
AIG’s position was that the underlying issue of coverage under the Policy should be determined by arbitration in Hong Kong under the HKIAC rules, irrespective of whether or not the McCulloughs were the insured under the Policy.
The McCullough’s position was that their cause of action against AIG was a freestanding tortious claim and that, as non-parties to the Policy, they cannot be compelled to arbitrate it.
Accordingly, the principal question for the CFI to decide was whether the proceedings commenced by the McCulloughs in the Florida courts, despite the McCulloughs not being parties to the Policy, amounted in substance to a claim to enforce the Policy such that the McCulloughs were bound by the agreement to arbitrate as set out in the Policy.
The CFI accepted the position of AIG that the dispute was to be resolved in accordance with the dispute resolution procedure provided for in the Policy, namely by arbitration in Hong Kong under the HKIAC rules, and exercised its equitable jurisdiction to grant an anti-suit injunction restraining the McCulloughs from pursuing proceedings in the Florida courts.
The CFI held that the relevant issue for the purposes of determining whether the anti-suit injunction should be granted was whether there was coverage under the Policy: “Such issue is clearly contractual, since it determines the liability of the insurer to the insured under the terms of the policy“. The CFI went on to hold that the establishment of coverage is a pre-condition to the Bad Faith Claim against AIG and, as a matter of Hong Kong law, the governing law of the Policy, AIG is entitled to have it determined in accordance with the contractual procedure.
In this regard, the CFI followed the principle applied in Qingdao Huiquan Shipping Company v Shanghai Dong He Xin Industry Group Co Ltd  EWHC 3009 (Comm) that a party “is not entitled to found a claim on rights arising out of a contract without also being bound by the forum provisions of that contract“.
The CFI concluded that an anti-suit injunction will ordinarily be granted to restrain a claimant from pursuing proceedings in a non-contractual forum unless there are strong reasons to the contrary, whether the claimant is a party to the policy or not. The basis of the CFI’s decision was that a dispute resolution provision is an essential part of the contractual basis upon which coverage arises under an insurance policy, and a party seeking to enforce a policy cannot do so free of its contractual dispute resolution mechanism.
This case serves as a useful reminder of the Hong Kong courts’ desire to give effect to an arbitration agreement wherever appropriate, albeit on this occasion in somewhat unusual circumstances. In so doing, the CFI has further reinforced Hong Kong’s reputation as a pro-arbitration jurisdiction.
In making its decision, the CFI has helpfully confirmed that an anti-suit injunction to restrain a party from pursuing proceedings in a non-contractual forum will ordinarily only be denied if there are strong reasons not to grant it. Accordingly, the Court has emphasised the high bar that the counter-party has to meet in order to resist such an injunction.
An article in which Simon Chapman and Naomi Lisney examined this decision, which was published on Lexis®PSL Arbitration on 15 August 2019, can be found here.
In But Ka Chon v Interactive Brokers LLC  HKCA 873, the Hong Kong Court of Appeal dismissed an appeal to set aside a statutory demand arising out of online forex futures trading debts. In doing so, Vice-President Kwan of the Court of Appeal made obiter comments on the circumstances in which a winding-up petition would be set aside where the parties to a contract had agreed to arbitration for dispute resolution.
Mr But’s margin account with Interactive Brokers (“IB“) suffered a large loss when the Swiss Franc/Euro exchange rate was unpegged in 2015. IB issued a margin call but Mr But did not inject funds into his account to resolve the margin deficit. IB accordingly proceeded to liquidate Mr But’s assets and positions and served a statutory demand on Mr But for the balance of the deficit plus interest at margin interest rates.
Mr But sought to set aside the statutory demand on the basis of (i) a counterclaim for misrepresentation and (ii) that the dispute should be arbitrated pursuant to an arbitration clause in his contract with IB. The application failed and Mr But appealed to the Court of Appeal.
Decision in the High Court
The High Court noted that the judgment in Re Southwest Pacific Bauxite (HK) Ltd  2 HKLRD 449 (known as the “Lasmos case“) had departed from previous authorities and had adopted a new approach. This was to generally dismiss winding-up petitions where three requirements were met:
- the company disputes the debt relied on by the petitioner;
- the contract under which the debt is alleged to arise contains an arbitration clause that covers any dispute relating to the debt; and
- the company takes the steps required under the arbitration clause to commence the contractually mandated dispute resolution process (which might include preliminary stages such as mediation) and demonstrates this to the Court.
The effect of the Lasmos case is that, where these three requirements are met, the company is entitled to have the petition dismissed without having to show that the petitioning debt is bona fide disputed on substantial grounds. Where there is an arbitration clause, it is sufficient to show that the debt is “disputed” and for that it is sufficient to show the debt is not admitted.
The High Court in But Ka Chon did not challenge the Lasmos approach, but simply found that the new approach was inapplicable to the instant case because the lower court judge had already adjudged on the dispute by way of Mr But’s claim that he had been induced by IB’s misrepresentations to enter into the contract. The misrepresentation claim was of no merit. There was therefore no genuine dispute to be arbitrated.
The judge also found that, even had the Lasmos approach been applicable, Mr But had not satisfied the third requirement in the Lasmos approach because he had not taken any steps to commence arbitration. The lower court judge therefore declined to set aside the statutory demand.
Decision in the Court of Appeal
The Court of Appeal agreed with the rationale of the judge below and found that it did not need to determine whether the Lasmos approach or previous approaches were applicable to the instant case. It held that, if the Lasmos approach was applicable, the third requirement of Lasmos would in any event not have been complied with based on the fact that Mr But had not demonstrated his genuine intention to arbitrate for more than two years after having first raised the possibility of commencing arbitration, and that no Notice of Arbitration was ever served on IB. The appeal was therefore dismissed.
Obiter commentary on the Lasmos approach
The Court of Appeal also made the following obiter observations on the Lasmos approach given the importance of this issue to insolvency proceedings:
- Insolvency petitions do not fall into Article 8(1) of the UNCITRAL Model Law on International Commercial Arbitration (which is adopted in section 20 of the Arbitration Ordinance). There is no automatic, mandatory or non-discretionary stay on insolvency petitions where there is an underlying arbitration agreement.
- The Court has a discretionary power under insolvency legislation whether to dismiss or stay a petition where the alleged debt arises out of a transaction containing an arbitration agreement. The Court will consider all relevant circumstances, including the financial position of the company, the existence of other creditors and the position taken by them.
- The creditor has a statutory right to petition for bankruptcy or winding-up on the ground of insolvency.
- The Lasmos case decided (following the English case Salford Estates (No 2) Ltd v Altomart Ltd (No2)  Ch 589) that the discretion under the insolvency legislation should be exercised only one way (i.e. that the petition should “generally be dismissed” save in “exceptional” or “wholly exceptional” circumstances, upon satisfaction of the three requirements). It is settled law that the “petitioning debt not being admitted” means a dispute sufficient for the purpose of arbitration, without regard to the quality of the dispute or substantive merits.
- The Lasmos approach constitutes a substantial curtailment of the creditor’s statutory right to petition for bankruptcy. Separately, in the case of Sit Kwong Lam v Petrolimex Singapore Pte Ltd  HKCFI 920, it has also been held that an arbitration clause which purports to restrict or fetter a creditor’s statutory right to petition would not be allowed by the Court for public policy reasons.
- The Eastern Caribbean Court has refused to adopt the Salford approach, as the BVI Court’s statutory jurisdiction to wind up a company based on its inability to pay its debts as they fall due unless the debt is disputed on genuine and substantial grounds is too firmly a part of BVI law to now require a creditor exercising the statutory right to prove exceptional circumstances to establish his status to wind up a company. The statutory jurisdiction is satisfied once the creditor is applying on the basis of a debt that is not disputed on genuine and substantial grounds. The position is the same as regards the insolvency legislation in Hong Kong.
- The Court of Appeal therefore has reservations if the discretion under the insolvency legislation should be exercised only one way to substantially curtail the right of the creditor to present a petition.
- Considerable weight should be given to the factor of arbitration in the exercise of the Court’s discretion.
- Discretion should not be exercised in a way that would inevitably encourage parties to an arbitration agreement to seek to bypass the arbitration agreement/legislation by presenting a winding-up petition. The Court is not powerless to deal with such tactics. The discretion should also not invariably be exercised in favour of the creditor where the Court is satisfied that there is no bona fide dispute on substantial grounds.
- Possible ways of exercising this discretion include requiring the debtor to establish in the normal way that there is a bona fide dispute on substantial grounds, failing which, the debtor can only expect a short adjournment to enable it to commence arbitration.\
- The debtor cannot simply put up its hands and say: “You, the court, have no jurisdiction because of my contract.” That is not what the contract says, and the Court is entitled to be satisfied that there is a proper dispute
The Court’s obiter comments indicate the Court already has the tools it needs to deal with the tension between the creditor’s right to petition for a debtor’s bankruptcy and the parties’ rights to agree to arbitration in a contract. Vice-President Kwan’s analysis suggests that she believes that the Lasmos Case propounded an overly one-sided exercise of the Court’s discretion. She has reiterated that, where the Court is satisfied there is no bona fide dispute on substantial grounds, the discretion should not invariably be exercised in favour of the creditor.
At its final attempt, First Media has overturned the Hong Kong courts’ earlier decisions to enforce five arbitral awards against it.
In a judgment dated 11 April, the Hong Kong Court of Final Appeal (CFA) unanimously allowed First Media’s appeal, set aside the orders of the courts below, and extended time for First Media to apply for leave to set aside the orders granting Astro leave to enforce the awards in Hong Kong.
This is a long-awaited victory for First Media, which has always maintained that the awards were made without jurisdiction, despite its decision not to apply to set aside the tribunal’s award on jurisdiction. However, it is not the final hurdle. First Media must now convince the Court of First Instance, as the enforcing court, to accept its jurisdictional objection and set aside the enforcement orders, while Astro will certainly resist.
We are delighted to share with you the latest issue of the publication from Herbert Smith Freehills’ Global Arbitration Practice, Inside Arbitration.
In addition to sharing knowledge and insights about the markets and industries in which our clients operate, the publication offers personal perspectives of our international arbitration partners from across the globe.