{"id":55072,"date":"2026-03-03T09:34:05","date_gmt":"2026-03-03T09:34:05","guid":{"rendered":"https:\/\/my.legal500.com\/developments\/?post_type=legal_developments&p=55072"},"modified":"2026-03-03T09:34:05","modified_gmt":"2026-03-03T09:34:05","slug":"arbitration-in-hong-kong-vs-winding-up-proceedings-in-foreign-jurisdictions-hyalroute-v-icbc-asia-2","status":"publish","type":"legal_developments","link":"https:\/\/my.legal500.com\/developments\/thought-leadership\/arbitration-in-hong-kong-vs-winding-up-proceedings-in-foreign-jurisdictions-hyalroute-v-icbc-asia-2\/","title":{"rendered":"Arbitration in Hong Kong VS Winding-up Proceedings in Foreign Jurisdictions: Hyalroute v ICBC Asia"},"content":{"rendered":"

Introduction<\/strong><\/p>\n

In a recent decision, the Hong Kong Court examined the interplay between arbitration agreements and cross-border insolvency proceedings.<\/p>\n

This decision highlights the divergence between Hong Kong\u2019s pro-arbitration stance, whereby winding-up proceeding will be stayed in favour of arbitration unless there is abuse (see Re Guy Kwok Hung Lam<\/em> (2023) 26 HKCFAR 129<\/strong>) 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<\/em> [2024] UKPC 16<\/strong>).<\/p>\n

<\/p>\n

Facts<\/strong><\/p>\n

Hyalroute Communication Group Limited (\u201cHyalroute\u201d<\/strong>), 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 \u201cBank\u201d<\/strong>), from presenting any winding-up petition against it in the Cayman Islands.<\/p>\n

The dispute arose from a Term Facility Agreement (\u201cTFA\u201d<\/strong>), under which Hyalroute guaranteed a US$100 million loan to its subsidiaries. A 2021 military coup in Myanmar disrupted one subsidiary\u2019s operations, which hindered the subsidiaries\u2019 repayments under the TFA. \u00a0To mitigate risks, the Bank secured a MIGA Insurance, which covered war and currency restrictions, with premiums paid by Hyalroute and its subsidiaries. \u00a0Under the TFA, Hyalroute may make a Covered Risk Application to suspend its guarantee obligations. \u00a0Hyalroute claimed that it had made such application in February 2021 and its liabilities were suspended as a result.\u00a0 Despite this, the Bank served a statutory demand pursuant to the Cayman law. \u00a0Hyalroute argued that the dispute fell within the TFA\u2019s arbitration clause, which mandates that \u201c[a]ny dispute, controversy or claim arising in any way out of or in connection with [the TFA] \u2026 shall be referred to and finally resolved<\/u> by binding arbitration \u2026\u201d at the HKIAC.<\/p>\n

Analysis<\/strong><\/p>\n

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<\/em> [2019] 2 HKLRD 313<\/strong>).\u00a0 Contractual anti-suit injunctions, as sought in this case, focus on enforcing the parties\u2019 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<\/em>.<\/p>\n

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.<\/p>\n

The critical issue is, whether the Cayman winding-up proceedings would have the effect of finally resolving<\/u> the dispute on Hyalroute\u2019s indebtedness, thereby breaching the arbitration clause.\u00a0 The concept of \u201cfinal resolution\u201d of a dispute means that the process is capable of giving rise to an estoppel in relation to the precise issues decided.<\/p>\n

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.\u00a0 Therefore, the Bank\u2019s intended presentation of the Cayman winding-up petition would not breach the TFA.<\/p>\n

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<\/em><\/strong>), winding-up proceedings determine parties\u2019 rights and obligations, which could have the effect of \u201cfinally resolving\u201d. Therefore, the Bank\u2019s intended winding-up proceedings in the Cayman Islands would be in breach of the TFA.<\/p>\n

The Hong Kong Court decided that the Bank\u2019s contention is correct and accord with common and commercial sense. \u00a0Lacking 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.\u00a0 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 \u201cfinally resolve\u201d the dispute within the meaning of the arbitration clause. The Bank\u2019s intended presentation of a Cayman winding-up petition would not amount to any breach of the TFA.<\/p>\n

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.\u00a0 The MIGA insurance policy was also terminated in 2022 due to unpaid premiums, hence there could not be any suspension of guarantee obligations.<\/p>\n

As such, the Hong Kong Court dismissed Hyalroute\u2019s 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.<\/p>\n

Key Takeaways<\/strong><\/p>\n

The Hyalroute<\/em><\/strong> decision offers critical insights for navigating arbitration and insolvency in cross-border contexts:<\/p>\n

    \n
  1. Foreign Law Considerations<\/strong>: The ruling clarifies that Hong Kong courts will not automatically apply Re Guy Lam<\/em><\/strong>\u2019s 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\u2019s law to determine the proceedings\u2019 effect, even if the arbitration agreement is governed by Hong Kong law.<\/li>\n
  2. Drafting arbitration clauses<\/strong>: Parties are reminded to draft arbitration clauses with precision.\u00a0 In this case, the phrase \u201cfinally resolved\u201d was pivotal, limiting the clause\u2019s application to proceedings that determine disputes with res judicata<\/em> or estoppel. Explicit references to \u201cinsolvency proceedings\u201d 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.<\/li>\n<\/ol>\n

    If you have any inquiries, please feel free to contact us for more information<\/p>\n

    Managing Partner: Ian Lo<\/a><\/p>\n

    Email: IanLo@incehk.com<\/p>\n

    Partner: Anderson Siu<\/a><\/p>\n

    Email: AndersonSiu@incehk.com<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-55072","legal_developments","type-legal_developments","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments\/55072","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/legal_developments"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=55072"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}