What is the effect of Guy Lam on winding up petitions involving an arbitration clause? A third voice

Where a winding up petition is based on a debt arising from a contract with a non-Hong Kong exclusive jurisdiction clause, the court will tend to dismiss or stay the winding up petition in favour of the parties’ agreed forum unless there are strong countervailing factors. The Court of Final Appeal confirmed this approach in its recent landmark decision in Re Guy Kwok Hung Lam [2023] HKCFA 9 (“Guy Lam“; which we discussed here). However, the Court of Final Appeal specifically left the question open for cases involving an arbitration clause.

Case law from lower courts since Guy Lam has not been consistent in approaching this open question. In Simplicity & Vogue Retailing (HK) Co., Limited [2023] HKCFI 1443 (“Simplicity“) where our firm successfully acted for the petitioning creditor, Linda Chan J took the view that the Guy Lam approach is limited to non-Hong Kong exclusive jurisdiction clauses, and therefore inapplicable where the underlying debt is subject to an arbitration clause (see our blogpost). In contrast, in Re Shandong Chenming Paper Holdings Limited [2023] HKCFI 2065 (“Shandong Chenming“), Harris J took the view that there was no difference in the applicable principles when the underlying dispute was subject to an arbitration clause (see our blogpost). Continue reading

Litigation and Arbitration Funding in Hong Kong: Will the UK Supreme Court decision in PACCAR Affect Hong Kong Litigation Funding?

In R. (on the Application of PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 (judgment handed down on 26 July 2023), the UK Supreme Court held that litigation funding agreements with third parties who play no part in the conduct of litigation, but who are to be paid a share of any damages recovered by the claimant, are “damages-based agreements” (or “DBAs”) within the meaning of the relevant UK legislation which regulates such agreements. Such agreements must therefore comply with the relevant regulatory regime and, if they do not, they are unenforceable under English law.

The likely effect of the UK Supreme Court’s decision is that most English law-governed third-party litigation funding agreements currently in place will be unenforceable, since participants in the litigation funding market have generally assumed that their agreements are not DBAs and therefore do not have to comply with the relevant regulatory regime. For an in depth coverage of the ruling see a full article by our London team. There is also an episode on this issue on our Commercial Litigation podcast. Continue reading

Can you petition for winding up if your debt is subject to arbitration? The debate continues

Following the Court of Final Appeal’s landmark decision in Guy Lam, Hong Kong’s Court of First Instance (the “Court”) considers that winding-up petitions can be stayed by reason of ongoing cross-claims that are the subject of an arbitration clause

Recently, the Court of Final Appeal confirmed that a Hong Kong bankruptcy petition should generally be stayed or dismissed if the debt in question is subject to a non-Hong Kong exclusive jurisdiction clause. Our discussion on this landmark decision of Guy Kwok-Hung Lam v Tor Asia Credit Master Fund LP [2023] HKCFA 9 can be found here.

Since then, the application of the principles Guy Lam has been considered by the Court of First Instance in the context of a winding up petition, which we have written about here. In that case Linda Chan J took the view that the approach in Guy Lam did not apply where, instead of a non-Hong Kong exclusive jurisdiction clause, there is an arbitration clause. Continue reading

The Hong Kong Court reiterates that a company remains only a nominal party in unfair prejudice petitions fought between its shareholders

Unfair prejudice petitions are a means for minority shareholders to seek redress against a shareholder said to be in control of the company, on the basis that the latter has caused the company’s affairs to be conducted in a manner that is unfairly prejudicial to their interests as minority shareholders. Since such petitions do not involve claims against the company itself, the company is just a nominal party and should not ordinarily participate or expend its funds in a partisan way in those proceedings.

Recently, this position was reiterated in the case of Glory Sky Asia Limited & Ors v Koo Kam Pui & Anor [2023] HKCFI 1849 in which the Court of First Instance stated that the Court’s starting point is a “rebuttable distaste” for a company’s participation in unfair prejudice proceedings and “initial scepticism” as to its necessity or expediency. In considering whether the Company’s participation and expenditure is proper, the test is whether it is “necessary” or “expedient in the interests of the company as a whole“. The onus would be on the company to satisfy the Court with evidence of the necessity or expedience and is no doubt a heavy one. Continue reading

English High Court reaffirms decision not to allow activists to proceed with derivative action against Shell

In our recent blog post, we discussed the English High Court’s decision to block the shareholder derivative action commenced by an activist shareholder, ClientEarth, against Shell’s directors. The English High Court found that ClientEarth did not have a prima facie case against Shell’s directors.

While this previous decision was made on the papers, ClientEarth invoked its rights under the English civil procedures to request the Court reconsider its decision at an oral hearing. Following an oral hearing, the English High Court reaffirmed its earlier decision on 24 July 2023: ClientEarth v Shell plc [2023] EWHC 1897 (Ch). While part of the judgment concerned certain technical details at the permission stage of a derivation action under English law, the following points may be of interest to Hong Kong readers: Continue reading

Lessons from the Hong Kong Court on the fixed and floating charge distinction

Valuable lessons can be learnt from the Hong Kong Court of First Instance’s (“CFI“) recent decision in Bei Ni Ltd v Cornwell (Hong Kong) Limited [2023] HKCFI 1799. The CFI was confronted with the question of whether a charge over shares in a margin account was a fixed charge or a floating charge.

The CFI held that the key question was whether the proceeds were held for the benefit of the chargee.

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Companies Court holds register of members is not conclusive evidence of share ownership and rectification is not an automatic right

Section 633(1) of the Companies Ordinance allows a person or a member of the company to apply to the Court to request a rectification of the register of members if a name is entered or omitted from the register without sufficient cause or where a person ceases to be a member. The Companies Court (“Court“) in Shi Jiu Xing v Hong Kong A-Sun Group Co Ltd and Others [2023] HKCFI 1852 held that a rectification application under section 633(1) of the Companies Ordinance was subject to the Court’s discretion. The Court also confirmed that, in Hong Kong, the Court continues not to treat the register of members as conclusive evidence and is entitled to consider all relevant facts and circumstances.

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UK Supreme Court clarifies the scope of Quincecare duty for financial institutions executing customer payments

Earlier this month, the UK Supreme Court in Philipp v Barclays Bank UK plc [2023] UKSC 25 addressed the scope of the Quincecare duty in the context of an “authorised push payment” (APP) fraud, where the victim was tricked into willingly authorising the bank to transfer funds into an account controlled by the fraudster. Continue reading

The Hong Kong Court affirms that victims of fraud’s concerns over dissipation of assets in Mareva injunction is justified notwithstanding LNCs in place

Following the Hong Kong Court of Appeal’s decision in Tam Sze Leung & Ors v Commissioner of Police [2023] HKCA 537 (discussed in our previous blog post here), the constitutionality of “letters of no consent” (LNC) appears to be settled for the time being. The Court of Appeal held that the Police’s issuance of LNCs did not amount to any informal, unregulated – and unconstitutional – asset freezing power. It is up to the bank to decide whether to freeze a bank account, notwithstanding the presence of an LNC.

A more practical issue was addressed in the recent decision of Stephen Anthony Sokyka v Hang Xu Trading Co., Limited [2023] HKDC 947: given Hong Kong law requires an applicant to demonstrate that there is a real risk of dissipation of assets available to satisfy judgment before a Mareva injunction is granted, can this requirement still be satisfied if the relevant bank has already taken appropriate steps to freeze funds held in a bank account that is subject to an LNC?

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Hong Kong Companies Court clarifies the applicability of Re Guy Kwok Hung Lam to cases involving an arbitration clause

In Simplicity & Vogue Retailing (HK) Co., Limited [2023] HKCFI 1443, the Hong Kong Companies Court (the “Court“) made a winding up order against the Company on the basis that it failed to pay security in time. In considering the Company’s opposition grounds, the Court commented that it retains discretion to wind up a company in cases involving an arbitration clause.

Herbert Smith Freehills’ Jojo Fan, Trevor Ho and Jody Luk represented the successful Petitioner.

This is the first case considering the Court of Final Appeal’s (“CFA“) landmark decision in Re Guy Kwok Hung Lam [2023] HKCFA 9 (“Guy Lam“; which we blogged here), which was handed down recently in May 2023 and involved a winding up petition based on a debt subject to a foreign exclusive jurisdiction clause. Continue reading