Hong Kong

The Hong Kong luxury real estate market has, in recent years, contended with a confluence of formidable challenges, including a protracted period of elevated interest rates, pervasive global economic uncertainties, evolving geopolitical dynamics, and shifts in local demographic patterns. As the legal community and market participants cast their gaze towards 2026, a cautious yet discernible optimism begins to emerge regarding the prospects for a recovery within this high-value segment. This article aims to provide an incisive overview of the intricate legal and regulatory landscape that is poised to shape and potentially facilitate this anticipated recovery, meticulously examining the key drivers, prospective policy shifts, and persistent legal challenges from the vantage point of a leading real estate practitioner.   The current market dynamics and the trajectory towards recovery The luxury residential sector, typically defined by properties commanding values in excess of HK$30 million, has experienced notable price corrections and a discernible contraction in transaction volumes. This downturn can be attributed to several critical factors. Globally, the tightening of monetary policy has directly impinged upon mortgage affordability and investment yields, while a broader economic deceleration, both regionally and internationally, has eroded investor confidence and dampened wealth creation. Furthermore, ongoing geopolitical tensions have fostered a more conservative investment climate, and shifts in talent mobility have inevitably influenced demand patterns. Notwithstanding these headwinds, 2026 is increasingly viewed as a potential inflection point, propelled by several anticipated catalysts. A global pivot towards the stabilization or reduction of interest rates could significantly alleviate borrowing costs, thereby stimulating renewed demand. Concurrently, a robust economic rebound, particularly within mainland China and across global markets, is expected to inject fresh capital and confidence into Hong Kong. This period of subdued activity has also cultivated a substantial reservoir of pent-up demand among high-net-worth individuals (HNWIs) who seek prime assets for both wealth preservation and lifestyle enhancement. Moreover, the inherent scarcity of genuinely prime luxury properties in Hong Kong, particularly in prestigious locations such as Hong Kong Island, continues to underpin a compelling long-term value proposition for discerning investors.   Banks lift Hong Kong property forecasts as market shifts Hong Kong’s residential property market is poised for a sustained recovery in 2026, with major financial institutions upgrading price forecasts amid tightening supply and resilient demand. Citi Research now expects home prices to rise 8% this year – a significant increase from its October projection of 3% – citing a faster-than-expected rebound in 2025 and dwindling housing stock. This follows Morgan Stanley’s recent upgrade of the sector to "attractive," forecasting gains exceeding 10%. The optimism stems from fundamental shifts: new land supply has hit a 14-year low, while available housing inventory contracted by roughly 10% last year. Concurrently, structural demand is strengthening. Rising student enrolments, continued inflows of skilled workers, and falling mortgage rates are converting renters into buyers. UBS (forecasting +5% prices) notes that two consecutive years of rental growth – even during earlier price declines – prove buying demand was deferred, not destroyed. Bank of East Asia aligns with this view, predicting 6-8% growth fuelled by "strong rental demand and improving economic fundamentals." Yet caution persists. While Bank of America anticipates single-digit price growth, it warns that equity market volatility could derail the recovery. OCBC highlights a concerning trend: despite recent price increases, transaction volumes remain stagnant, indicating buyers are highly selective. Critically, S&P Global Ratings points to a major overhang – over 26,000 completed but unsold units remain on the market, with new supply expected to match demand in 2026. "Home prices will likely remain rangebound this year," notes S&P’s Edward Chan. OCBC’s Cindy Keung adds that price growth is now outpacing rents, potentially capping investment yields. The market’s trajectory now hinges on external forces. Bank of America suggests aggressive Federal Reserve rate cuts could accelerate price gains, but acknowledges elevated valuations leave little margin for error. While a multi-year upcycle may be emerging, Hong Kong’s recovery remains delicately balanced between supply constraints and persistent inventory challenges.   Pivotal legal and regulatory considerations for market resurgence The overarching legal and regulatory framework exerts profound influence on market dynamics. For sustained recovery in the luxury real estate sector in 2026, several critical legal domains warrant scrutiny and potential adjustment. The Strategic Role of Stamp Duty Regimes Hong Kong's property market has been subject to a decade of "cooling measures" through various stamp duties: the Buyer's Stamp Duty (BSD), a 15% levy on non-permanent residents and corporate buyers; the Special Stamp Duty (SSD), imposing tiered duties up to 20% on properties resold within 36 months; and the higher Ad Valorem Stamp Duty (AVSD) rates of 15% for second-time buyers and corporate entities. Any relaxation or abolition of these demand-side measures would serve as the most potent legal catalyst for market recovery. Reducing or removing the BSD could re-attract mainland Chinese and international HNWIs who view Hong Kong properties as attractive global assets. Adjusting the higher AVSD rates would encourage local upgraders and investors, liberating capital for luxury acquisitions. While SSD relaxation may have less direct impact on long-term luxury investment, it would enhance market liquidity and investor confidence. The government's decisions on these duties represent a critical policy choice, balancing market stabilization against overheating concerns. Legal analysis will focus on specific thresholds, exemptions, and implementation timelines of any proposed changes. Mortgage Policies and Financial Regulatory Frameworks The Hong Kong Monetary Authority (HKMA) sets loan-to-value (LTV) ratios and debt-servicing ratio (DSR) requirements for residential mortgages. While luxury buyers often possess substantial cash reserves, easing LTV ratios for high-value properties—currently subject to stringent limits—or recalibrating DSR stress tests could improve financing options and bolster market sentiment. Hong Kong's banking sector stability and robust regulatory oversight, governed by stringent legal frameworks, remain cornerstone attractions for international investors. Land Supply and Development Policy Imperatives Hong Kong's geographical constraints make government land sales and urban planning policies paramount. The legal framework governing land premiums for lease modifications or new grants directly influences developers' costs and property pricing. Zoning regulations, building height restrictions, and environmental protection laws in prime enclaves such as The Peak and Island South legally restrict new supply, underpinning existing asset values. Streamlining planning and building approval processes could facilitate more efficient introduction of new luxury developments. Foreign Ownership and Investment Regulations Unlike many global metropolitan centres, Hong Kong maintains a remarkably liberal framework for foreign property ownership, imposing no restrictions beyond standard stamp duties for non-permanent residents. Continuation of this open policy is vital for attracting international capital. Any legislative shift restricting foreign ownership would profoundly deter luxury investment. The legal certainty and administrative ease of property transfer for international buyers remain significant competitive advantages. Anti-Money Laundering (AML) and Sanctions Compliance Hong Kong operates a stringent anti-money laundering (AML) and counter-terrorist financing (CTF) regime. Robust enforcement of AML/CTF laws by the Land Registry, financial institutions, and legal professionals is indispensable for preserving Hong Kong's reputation as a clean and reliable financial hub. This rigorous oversight instils confidence in legitimate HNWIs and institutional investors, ensuring transparent and compliant property transactions. Contract Law and Dispute Resolution Mechanisms The stability of Hong Kong's common law system, independent judiciary, and established dispute resolution mechanisms, including international arbitration, form the bedrock of investor confidence. Luxury real estate investors rely upon enforceable contracts, secure property titles, and fair dispute resolution. Any erosion of this legal certainty would undermine confidence regardless of economic factors. Preserving the integrity of the legal system is paramount for sustained long-term investment.   Challenges and inherent risks from a legal standpoint Despite the palpable potential for recovery, several legal and regulatory risks continue to cast a shadow of uncertainty. The precise timing and extent of any policy relaxation remain inherently uncertain, fostering a "wait-and-see" approach among prospective buyers. Furthermore, external geopolitical pressures could conceivably lead to the introduction of new regulations, such as those pertaining to sanctions compliance, which might impact international capital flows or specific investor groups. The increasing global emphasis on environmental, social, and governance (ESG) factors could also precipitate new building codes, disclosure requirements, or investment criteria that might affect property values and development costs, particularly for older luxury assets. Lastly, while not directly a matter of Hong Kong law, any tightening of capital outflow controls from mainland China could legally restrict the capacity of mainland HNWIs to invest in Hong Kong property, thereby impacting a significant demand segment.   Notable high-value transactions in Hong Kong's luxury market The resilience of Hong Kong's luxury property market is exemplified by several landmark transactions that have occurred despite challenging conditions. In the ultra-prime segment, a luxurious house at 75 Deep Water Bay Road on Hong Kong Island was sold for approximately HK$1.93 billion in late 2024, setting a record for the highest price per square foot for a residential property in Hong Kong. Similarly, prestigious developments in the Southern District have commanded substantial attention, with luxury units at Headland Road and properties in the exclusive Repulse Bay area transacting at prices exceeding HK$500 million. The corporate sector has also demonstrated confidence, with significant acquisitions of luxury residential developments by major conglomerates and family offices seeking trophy assets. These transactions underscore the enduring appeal of Hong Kong's most coveted addresses and the willingness of ultra-high-net-worth individuals to commit substantial capital to prime real estate, even in periods of broader market uncertainty. Such high-value deals serve as important barometers of underlying market strength and investor confidence in Hong Kong's long-term property fundamentals.   Some recent transactions our team was involved The vitality of Hong Kong's luxury property market is further demonstrated by the significant transaction activity undertaken by leading real estate firms. Hugill & Ip's Real Estate team has been at the forefront of this market activity, having been involved in several high-profile and valuable transactions over the past few months. Notable among these are the advisory roles of the purchaser in Swire Properties' two single-house development on Deep Water Bay Road, representing one of the most prestigious residential projects in the Southern District; Mont Verra, an exclusive luxury development that has attracted considerable interest from discerning buyers; The Southside Phase 2 La Marina, a premium waterfront residential project; and Blue Coast of the Southside, another distinguished development in one of Hong Kong's most sought-after locations. Collectively, our real estate team led by our partner, Ms. Polly Chu has managed few transactions for the past three months representing a total deal value of approximately HK$31 billion, underscoring both the scale of investment flowing into Hong Kong's luxury property sector and the sophisticated legal and transactional expertise required to execute such complex, high-value deals. This substantial transaction volume reflects the continued confidence of major developers and investors in Hong Kong's luxury residential market, even amid broader economic headwinds.   Final thoughts The Hong Kong luxury real estate market in 2026 stands at a critical juncture, poised for a potential resurgence. While underlying economic fundamentals and interest rate trajectories will undoubtedly serve as primary drivers, the intricate legal and regulatory framework will play an equally decisive role in either facilitating or impeding a robust recovery. The government's judicious willingness to adjust demand-side management policies, coupled with the unwavering stability and reliability of Hong Kong's time-honoured legal system, will be the ultimate determinants. As legal practitioners, it is incumbent upon us to meticulously monitor these evolving developments, providing our clients with astute counsel to navigate the emerging opportunities and mitigate the inherent risks within this dynamic and strategically significant market.

In Re Success Lane Development Limited [2025] HKCFI 1121, the Companies Court considered whether a company could resist a winding-up petition presented based on outstanding interlocutory costs orders (payable forthwith or within 14 days upon summary assessment) by relying on a cross-claim for damages in ongoing legal proceedings. Background The dispute between the Petitioner and the debtor Company  arose over a "Long Stay Room Contract" under which the Company rented a hotel room for storage purposes.  In the District Court, the Petitioner alleged that the Company had damaged various items stored in the hotel room, and claimed against the Petitioner for damages in the sum of at least HK$3,000,000. The Petitioner had obtained various costs orders against the Company as a result of interlocutory applications in the District Court proceedings.  The costs orders are all payable forthwith in the total sum of HK$697,534.66 plus judgment interest (the “Costs Orders”). Based on the unpaid Costs Orders, the Petitioner served a Statutory Demand on the Company.  Shortly after the expiry of the Statutory Demand, the Company applied to set aside and stay the Costs Orders by commencing a separate set of District Court proceedings.  Yet, the said applications were also dismissed. As of the date of the Petition hearing, the Costs Order were either orders not appealed against, or orders against which leave to appeal had been refused by the Court of Appeal.  The main issue at the hearing was whether the Company could resist the Petition (based on Costs Orders payable forthwith) with a cross-claim (for damages in the sum of at least HK$3,000,000 in the ongoing District Court proceedings, the “Cross-claim”). The Court’s Reasons The Companies Court held that the Company could not resist the Petition with the Cross-claim for the following reasons:- (1)         The underlying policy of making costs orders payable forthwith is to deter parties from commencing unmeritorious interlocutory applications.  To uphold this policy, the Court should regard such costs orders as free-standing, and though such costs orders are not equivalent of cash, it should be as readily enforceable almost as readily cash-able as cheques.  In this case, the Company should not be allowed to use the Cross-claim to resist the Petition. (2)         There could be no injustice done to the Company if it is to be wound up, because if the Company has a valid claim against the Petitioner, the Company in liquidation could still pursue it. (3)         On the contrary, it would be unjust if the Company could resist the Petition based on the Corss-clam, as (a) it would in effect confer a right on the Company to retain the Petitioner’s money as a security for its Cross-claim, and (b) the Costs Orders, being free-standing and supposed to be readily enforceable, have nothing to do with the Cross-claim, in the sense that even if the Company eventually succeeds in its claim in the District Court, the Company would still have to pay the Costs Orders. Having said that, the Companies Court also indicated that its decision was made based on the present facts, and that there may be different considerations if, e.g. the District Court main proceedings are not ongoing but finally concluded, or the receiving party may be to blame for not enforcing any immediately payable costs orders earlier. In view of this case, company debtors should note that the existence of a cross-claim against the petitioner generally would not constitute a valid ground to oppose a winding-up petition presented based on costs orders payable forthwith.  As such, it is advisable for company debtors to settle any costs orders payable forthwith as soon as possible to avoid winding-up petitions being presented against them.  In case of any doubt, legal advice should be sought. If you have any inquiries, please feel free to contact us for more information Managing Partner: Ian Lo Email: [email protected] Partner: Anderson Siu Email: [email protected]

Overview of Reverse Takeovers (“RTOs”) With the prevalence of backdoor listings in recent years whereby investors acquire control of a listed issuer primarily for its listing status, the Hong Kong Stock Exchange (“HKEX”) has highlighted the associated risks of market manipulation, particularly when new businesses are commenced after a takeover but insufficient information is disclosed publicly, particularly in relations to its business sustainability. This may lead to increased risks for existing minority shareholders and undermine investors’ confidence in Hong Kong’s capital markets. Although the SFC’s Takeovers Code already provides detailed provisions requiring new controlling shareholders, as offerors, to make a mandatory general offer, issues arise post-acquisition when the listed issuer commences a new area of business or carry out a substantial acquisition on a new business area initiated by the new controlling shareholder. In these cases, HKEX may consider the transaction as RTO by the listed issuer, the consequence of which is that the listed issuer must re-issue a listing document containing disclosure information matching that required for a new listing application, as well as the requirement to appoint a sponsor to conduct due diligence. The procedure must be approved by the HKEX Listing Committee, and the RTO must be conditional on shareholders’ approval at a general meeting. This article explores the key rules and cases on RTO to assist investors as new controlling shareholders as well as listed issuer to understand the legal implications of changing listed companies’ principal businesses and launching new operations. What constitutes RTO? Bright Line Test Generally, HKEX views the following transactions as RTOs ("Bright Line Test"): Transactions that involve a change in control (i.e. 30%) of the listed issuer (except at the subsidiary level); and a very substantial acquisition (i.e., acquisition where the applicable percentage ratio of the size test is 100% or more) occurs at the time of, or within 36 months of the change in control of the listed issuer. Principle-Based Test In addition to the Bright Line Test, if HKEX considers that the transaction is one or a series of transactions intended to achieve the listing of acquired assets while circumventing the new listing requirements (“Principle-Based Test”), it will also be treated as RTO even if there has not been a change in control. In assessing the Principle-Based Test, HKEX will consider the following factors: Size of acquisition relative to the issuer: Whether after the issuer undertakes an acquisition of significant size, its existing principal business will become immaterial after the transaction; Acquisition resulting in a fundamental change in the issuer’s principal business: Whether the issuer acquires a target business that is completely different from its existing business and that target business is substantially larger than its existing business; Fundamental change refers to acquisitions that are not part of the issuer’s business strategies or is unrelated to the issuer’s existing business, (i.e. transactions that do not involve expansion or diversification of existing businesses, or acquisitions that are inconsistent with the issuers’ size and resources); Nature and scale of the issuer’s business before the acquisition: Whether the scale of the issuer’s existing business is small, and the issuer would in substance be changed to operating the new target business after acquisition; Quality of the acquisition targets: Whether the target business is itself suitable for listing, such as acquisitions of early exploration companies or businesses that contravene laws and regulations; Change in control or de facto control of the listed issuer: Whether there is a change in the controlling shareholder, single largest substantial shareholder who is able to exercise effective control, directors and/or senior management; and Events and transactions which together with the acquisition form a series of transactions and/or arrangements to circumvent the RTO Rules: Whether the transactions and arrangements form a part of the series by taking place in reasonable proximity to each other (normally within a 36-month period) or are otherwise related. Restrictions on Disposal The Listing Rules also impose restrictions on disposal or distribution in specie (or a series of disposals or distributions) that involves all or a material part of the issuer’s existing business at the time of, or within 36 months from the change in control. The restrictions on disposal are intended to supplement the Bright Line Test to prevent investors from re-sequencing RTO transaction by acquiring a new business before disposing its original business, thereby circumventing the Bright Line Test. Additionally, the Listing Rules impose prohibitions on large-scale issuances of securities for cash that involve or lead to a change in control or de facto control of the listed issuer, when the proceeds are used for acquisitions and/or to launch new businesses that are expected to be significantly larger than the issuer's existing principal businesses. II. Compliance Requirements of RTO Where a transaction is ruled as RTO, the listed issuer will be treated as if it were a new listing applicant. Rule 14.54(1) requires that: The acquisition target(s) must meet the suitability listing requirements (Rule 8.04) and the new listing track record requirements (Rule 8.05, 8.05A or 8.05B); and The enlarged group must meet all the new listing requirements under Chapter 8 of the Listing Rules (except Rule 8.05). Where HKEX considers that a series of transactions and/or arrangements constitute RTO or an extreme transaction, the entire series of acquisitions should, as a whole, meet the new listing requirements of Rule 8.05. The issuer is required to provide sufficient information to HKEX to demonstrate that the acquisition targets can meet Rule 8.05, including financial information of the targets based on accountant’s report or audited financial information. RTO must be made conditional on approval by shareholders in general meeting and any shareholder and his close associates who have a material interest in the transaction will be required to abstain from voting on the relevant resolution. III. Recent Listing Decisions on RTOs Discloseable Transaction amounting to RTO (Case 1 of HKEX-GL104-19) In sample case 1 of HKEX-GL104-19, HKEX deemed a discloseable transaction to be RTO. This is contrary to the common accepted view that RTO applies only to very substantial acquisition or at least a major transaction under the Listing Rules. Company A, a hotel business operator, proposed to acquire a majority stake in the target company that was newly formed to carry out a natural gas project. The target company has signed contracts but has yet to commence operations or record revenue. The acquisition was a disclosable transaction based on the size test. HKEX considered that the acquisition was an attempt to circumvent new listing requirements under the Principle-Based Test under Rule 14.06B: i. The target company’s projected profitability would be significantly larger than Company A’s existing business; ii. The target company’s natural gas business was different from, and unrelated to, Company A’s existing business; iii. The acquisition would lead to a fundamental change in Company A’s principal business given the target company’s significant size of business; and iv. The target company had not generated any revenue. 2) Target Company Meeting New Listing Requirements (Case 15 of HKEX-GL104-19) In sample case 15 of HKEX-GL104-19, Company A operates a property leasing and education equipment business, contributing over 95% of its revenue in recent years. Company A proposed to acquire a target company from Company X (who has been Company A’s controlling shareholder for over three years). The target company primarily engages in financial leasing and factoring services in the PRC, and it is 10 to 35 times the size of Company A’s existing business. While HKEX considered the proposed acquisition would have the effect of achieving a listing of the target company’s business, it agreed to classify the transaction as an extreme transaction, rather than a RTO, as: 3) i. The target company could meet the new listing requirements (Rule 8.05(1)) and the suitability for listing requirement; and ii. Company A met the eligibility criterion set out in Rule 14.06C(1)(a) as it had been under control of Company X for more than 36 months and the proposed acquisition would not result in a change in control of Company A. 3) No Fundamental Change to Principal Business – (Case 11 of HKEX-GL104-19) In sample case 11 of HKEX-GL104-19, Company A, a listed company, operated port terminals in the PRC and proposed a merger with the target company which also operated port terminals in the PRC. The target company is controlled by Company X and Company X is the controlling shareholder of Company A. About a year ago, Company Y acquired 51% equity interest in Company X which constituted a change in control of Company A. The proposed merger would constitute RTO under the Bright Line Test as it was a very substantial acquisition from Company X (being an associate of Company Y) within 36 months of Company Y gaining control of Company A through Company X. Ultimately, HKEX agreed that the proposed merger was not a backdoor listing of new business by the incoming controlling shareholder as: The proposed merger would not result in a fundamental change to Company A’s principal business, and was in line with Company A’s strategies to expand its port terminal business; and The proposed merger represented an internal restructuring of the port-related businesses held under Company X which controlled Company A and the target company before the proposed merger and would continue to do so after the merger. There was no injection of asset or business from Company Y. 4) Conspiracy to defraud over secret backdoor listing – (HKSAR v Chim Pui-chung & Chim Kim-lun & Wong Poe-lai [2024] HKDC 2085) In July 2013, Chim Pui Chung and his son Ricky Chim, who were respectively the substantial shareholder and chairman of Asia Resources Holdings Limited (“Asia Resources”), and businessman Ma Zhonghong agreed to a secret backdoor listing arrangement to sell Asia Resources to Ma. It was also agreed among the trio that Ma would pay Chim Pui Chung a sum of approximately HK$210 million to control 70% to 75% of the issued share capital of Asia Resources and Ricky Chim as the chairman of Asia Resources would use his powers to procure placing of HK$535.5 million convertible notes of Asia Resources to nominees of Ma, including Wong Poe Lai. In HKSAR v Chim Pui-chung & Chim Kim-lun & Wong Poe-lai [2024] HKDC 2085, Chim Pui-chung, Ricky Chim and Ma were jointly charged with two counts of conspiracy to defraud, contrary to common law and may be penalised under section 159C(6) of the Crimes Ordinance (Cap. 200). Ma and Wong were jointly charged with one count of dealing with property known or reasonably believed to represent proceeds of an indictable offence, contrary to section 25(1) of the Organized and Serious Crimes Ordinance (Cap. 455). The Court held that whilst shell acquisition transactions were common in the financial market and not inherently illegal, Ricky Chim had not disclosed the real purposes for issuing convertible bonds at two board meetings he chaired in late July and early August 2013, which eventually caused the board to pass the resolution without taking into account all relevant factors.  Further, Chim Pui Chung and Ricky Chim had also dishonestly concealed from HKEX the purpose of the capital-raising, causing HKEX to approve the publication of the relevant announcements and circulars, thereby depriving HKEX of its ability to properly perform its regulatory role. On 3 February 2025, Chim Pui Chung, Ricky Chim and Wong were sentenced to imprisonment for 34 months, 37 months and 24 months, respectively. In addition, each of Chim Pui Chung and Ricky Chim was also disqualified from being a company director for 3 years. Key Takeaways The current Listing Rules on RTO, together with enforcement actions taken by HKEX and the Securities and Futures Commission demonstrate that the Listing Rules are not intended to unduly restrict legitimate business expansion or diversification by listed issuers, provided such activities occur over a reasonable period and are accompanied by appropriate disclosure, as well as legal compliance. With the Hong Kong capital market now showing robust momentum, listed companies should exercise caution in transactions involving significant changes to shareholdings or principal businesses to avoid inadvertently triggering the RTO provisions and breaching the disposal restrictions. Early legal and regulatory advice are recommended to navigate these requirements successfully so as to balance growth initiatives with compliance obligations. For further guidance on navigating RTO and Listing Rules, contact Ince & Co to ensure compliance and strategic alignment with this evolving landscape. Feel free to contact Partner Kevin Woo for more details. email: [email protected]

Introduction In a recent decision, the Hong Kong Court examined the interplay between arbitration agreements and cross-border insolvency proceedings. This decision highlights the divergence between Hong Kong’s pro-arbitration stance, whereby winding-up proceeding will be stayed in favour of arbitration unless there is abuse (see Re Guy Kwok Hung Lam (2023) 26 HKCFAR 129) and the creditor-friendly approach in the UK and other common law jurisdictions, whereby the debtor is required to show the usual bona fide dispute on substantial grounds to compel arbitration (see Sian Participation Corp (In Liquidation) v Halimeda International Ltd [2024] UKPC 16). Facts Hyalroute Communication Group Limited (“Hyalroute”), a company incorporated in the Cayman Islands, applied to the Hong Kong Courts for an anti-suit injunction to restrain a creditor, Industrial and Commercial Bank of China (Asia) Limited (the “Bank”), from presenting any winding-up petition against it in the Cayman Islands. The dispute arose from a Term Facility Agreement (“TFA”), under which Hyalroute guaranteed a US$100 million loan to its subsidiaries. A 2021 military coup in Myanmar disrupted one subsidiary’s operations, which hindered the subsidiaries’ repayments under the TFA.  To mitigate risks, the Bank secured a MIGA Insurance, which covered war and currency restrictions, with premiums paid by Hyalroute and its subsidiaries.  Under the TFA, Hyalroute may make a Covered Risk Application to suspend its guarantee obligations.  Hyalroute claimed that it had made such application in February 2021 and its liabilities were suspended as a result.  Despite this, the Bank served a statutory demand pursuant to the Cayman law.  Hyalroute argued that the dispute fell within the TFA’s arbitration clause, which mandates that “[a]ny dispute, controversy or claim arising in any way out of or in connection with [the TFA] … shall be referred to and finally resolved by binding arbitration …” at the HKIAC. Analysis It is well-established that foreign proceedings in breach of a valid and binding arbitration agreement or exclusive jurisdiction clause will be ordinarily restrained unless strong reasons to the contrary are shown by the defendant (Giorgio Armani SpA v Elan Clothes Co Ltd [2019] 2 HKLRD 313).  Contractual anti-suit injunctions, as sought in this case, focus on enforcing the parties’ agreement to arbitrate. In non-contractual anti-suit injunctions, where no contractual breach is involved, the focus would then be shifted to whether the foreign proceedings are vexatious, oppressive, or inconsistent with the principles of forum non conveniens. The arbitration clause in the TFA imposes (1) a positive obligation on the parties to have disputes within the scope of the clause (i.e. dispute, controversy or claim arising in any way out of or in connection with the TFA) finally resolved by arbitration; and (2) a negative obligation on the parties to preclude them from having disputes finally resolved in a non-contractual forum. The critical issue is, whether the Cayman winding-up proceedings would have the effect of finally resolving the dispute on Hyalroute’s indebtedness, thereby breaching the arbitration clause.  The concept of “final resolution” of a dispute means that the process is capable of giving rise to an estoppel in relation to the precise issues decided. The Bank contended that in considering this issue, the Court should consider Cayman law; and under Cayman law, winding-up proceedings do not resolve the substantive debt dispute.  Therefore, the Bank’s intended presentation of the Cayman winding-up petition would not breach the TFA. In contrast, Hyalroute argued that as Hong Kong law is the governing law under the TFA, Hong Kong law should take precedence over Cayman law regardless of the position under Cayman law; and under Hong Kong law (Re Guy Lam), winding-up proceedings determine parties’ rights and obligations, which could have the effect of “finally resolving”. Therefore, the Bank’s intended winding-up proceedings in the Cayman Islands would be in breach of the TFA. The Hong Kong Court decided that the Bank’s contention is correct and accord with common and commercial sense.  Lacking expert evidence on Cayman law, the Hong Kong Court directly considered the relevant materials on Cayman law and applied its own knowledge and reasoning of the common law to analyse the position.  The Hong Kong Court found that under Cayman law, the Cayman Court in winding-up proceedings only determine the threshold question of whether a debt is bona fide disputed on substantial grounds, but not the substantive dispute itself. Thus, such proceedings do not “finally resolve” the dispute within the meaning of the arbitration clause. The Bank’s intended presentation of a Cayman winding-up petition would not amount to any breach of the TFA. Additionally, the defence relied by Hyalroute about the suspension of its guarantee obligations under the TFA were found to be frivolous and abusive. There was no finding that any formal Covered Risk Application was made, and there were only informal discussions.  The MIGA insurance policy was also terminated in 2022 due to unpaid premiums, hence there could not be any suspension of guarantee obligations. As such, the Hong Kong Court dismissed Hyalroute’s application for an anti-suit injunction, as there was no breach of the arbitration agreement, and Hyalroute failed to demonstrate any strong reasons for granting the injunction. Key Takeaways The Hyalroute decision offers critical insights for navigating arbitration and insolvency in cross-border contexts: Foreign Law Considerations: The ruling clarifies that Hong Kong courts will not automatically apply Re Guy Lam’s pro-arbitration stance to foreign winding-up proceedings. When assessing whether foreign proceedings breach an arbitration agreement, Hong Kong courts may consider the foreign jurisdiction’s law to determine the proceedings’ effect, even if the arbitration agreement is governed by Hong Kong law. Drafting arbitration clauses: Parties are reminded to draft arbitration clauses with precision.  In this case, the phrase “finally resolved” was pivotal, limiting the clause’s application to proceedings that determine disputes with res judicata or estoppel. Explicit references to “insolvency proceedings” should be included if so intended, especially in cross-border contexts involving offshore jurisdictions. Ambiguities may limit enforceability of such clause against winding-up petitions. If you have any inquiries, please feel free to contact us for more information Managing Partner: Ian Lo Email: [email protected] Partner: Anderson Siu Email: [email protected]