In Hyalroute Communication Group Limited v Industrial and Commercial Bank of China (Asia) (Hyalroute), the Hong Kong Court dismissed an application by a Cayman Islands-incorporated company for anti-suit relief to restrain a creditor from filing a winding-up petition in the Grand Court of the Cayman Islands.

This is the first time the Hong Kong Court has had to consider the circumstances in which it should restrain winding-up proceedings in a similar common law jurisdiction (here, the Cayman Islands) in circumstances where the two jurisdictions have conflicting approaches as to how they deal with winding-up proceedings in favour of arbitration.

Background

The underlying dispute arose from a Term Facility Agreement (TFA) containing an arbitration clause mandating resolution of disputes in Hong Kong: the creditor had served a statutory demand in the Cayman Islands for a debt allegedly owed under the TFA and other arrangements. The company disputed the debt was due.

The company applied to the Hong Kong Court to injunct presentation of a winding-up petition in Cayman arguing that it would be in breach of the TFA's arbitration clause. The Hong Kong Court had to ascertain whether the Cayman Islands winding-up proceedings would have the effect of finally resolving the dispute regarding the Plaintiff's indebtedness under the TFA.

The judgment

In order to reach a determination, Mr Recorder William Wong SC considered (at [31]) that the starting point for the Court was to "[evaluate] the foreign proceedings on broader grounds,

such as whether they are vexatious, oppressive, or inconsistent with principles of

forum non conveniens. In such cases, the Court is mindful of international comity and adopts a more cautious and restrained approach". [emphasis added]. The Court's reasoning in determining whether to grant anti-suit injunctive relief then continued as follows (at [38]):

"[The] Court's focus here is on enforcing the arbitration agreement, not to prejudge or evaluate the merits of the underlying dispute.

This approach ensures respect for the parties' contractual choice to arbitrate and avoids undermining the arbitral process by prematurely addressing issues that are properly reserved for the arbitral tribunal." [emphasis added]

By considering the tension between the approach taken by the Hong Kong Court and that of the Cayman Islands, the Court held that the intended Cayman Islands winding-up proceedings did not breach the TFA, and even if it had, there were strong reasons not to grant the injunction.

Analysis: the approach in Hong Kong

In Re Lam Kwok Hung Guy (Re Guy Lam), the Hong Kong Court (G Lam JA) specifically considered and rejected the principle that winding-up proceedings based on a disputed debt do not, in themselves, determine the dispute and therefore do not contravene a relevant arbitration clause.

Drawing an analogy between a winding-up proceeding and a summary judgment, G Lam JA explained that both processes can determine a dispute because both of them can give rise to an estoppel over the precise issues decided (subject to the usual conditions being satisfied). A proceeding which determines a dispute is a proceeding which is capable of giving rise to an estoppel.

Put simply, the Court held (at [64]) that: "[t]he starting point is that a pursuit of foreign proceedings in breach of an arbitration agreement would be liable to be restrained by an anti-suit injunction" and since "the Plaintiff seeks a contractual anti-suit injunction by invoking the arbitration agreement … it has to establish a breach … by the Defendant.

The burden is on the Plaintiff to show a "high probability of success" that the Defendant's pursuit of the anticipated Cayman winding-up proceedings breaches [the arbitration clause of the TFA]".

Analysis: the approach in the Cayman Islands

The Court then turned to the Judicial Committee of the Privy Council decision of Sian Participation Corp v Halimeda International (which is binding in the Cayman Isla...