First case in Hong Kong: Court refused to grant anti-suit injunction restraining winding up of a Cayman company in the Cayman Islands

INTRODUCTION

In the case of Hyalroute Communication Group Limited v Industrial and Commercial Bank of China (Asia) Limited [2025] HKCFI 2417, the Court of First Instance of the High Court dismissed one of the first-ever Hong Kong applications for an anti-suit injunction to restrain foreign winding-up proceedings in favour of an arbitration. In what Mr. Recorder William Wong SC described as an “interesting and novel application”, the judgment adds a new chapter to the evolving saga following the Hong Kong Courts’ decision in Re Guy Lam and the English Privy Court’s decision in Sian Participation and shed light on the interplay between winding-up proceedings and arbitration in the context of cross-border disputes.

DLA Piper Hong Kong represented the Defendant and successfully resisted the anti-suit injunction application. The DLA Piper team was led by Kevin Chan (Partner), assisted by KC Tai (Of Counsel) and Winsome Lai (Associate).

 

BACKGROUND

The Plaintiff is a company incorporated in the Cayman Islands. In July 2018, the Plaintiff’s subsidiaries (MFOCN and GTIHG) as borrowers entered into a Term Facility Agreement (“TFA”) with, amongst others, the Defendant as lender and the Plaintiff as guarantor. Pursuant to the TFA, the Defendant advanced a loan of USD100 million to MFOCN.

The TFA contains an arbitration clause which mandates that “any 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” in the Hong Kong International Arbitration Centre (“HKIAC”).

Cognizant of the risks of investing in Myanmar, the Defendant had also entered into an insurance contract providing coverage for specific risks, such as war and civil disturbance, and restrictions on transfer of currency (“Covered Risks”). The TFA provided that if a default was caused by the Covered Risks, the Plaintiff could suspend its obligations as guarantor in relation to default caused by the Covered Risks by making an application to the Defendant for the Defendant to make a claim to the insurer.

According to the Plaintiff's case, due to a military coup d’état in Myanmar on 1 February 2021, MFOCN suffered heavy losses and was subject to severe currency transfer restrictions, leading to default of repayment under the TFA. The Plaintiff argued that its obligation as guarantor under the TFA suspended as it had made a Covered Risk application to the Defendant.

On 27 November 2024, the Defendant served a statutory demand on the Plaintiff, claiming for, inter alia, the outstanding debt of USD93,417,803.73 due under the TFA.

On 16 December 2024, the Plaintiff applied for an anti-suit injunction in Hong Kong seeking to restrain the Defendant (as creditor) from presenting any winding-up petition against it in the Cayman Islands, on the ground that the dispute shall be resolved by way of arbitration in the HKIAC commenced by the Plaintiff.

 

ISSUE

One complication that arose in the present proceedings is how Hong Kong Courts interpret the effect of foreign winding-up proceedings. Following Re Guy Lam, the Hong Kong Court’s position is that winding-up proceedings will be stayed in favour of arbitration unless there is abuse, whereas English law following Sian Participation requires a debtor to show the usual bona fide dispute on substantial grounds to justify the creditor going through arbitration.

If a foreign court views itself, pursuant to Sian Participation or otherwise, as able to proceed with winding-up without substantially determining the dispute, does the Hong Kong court apply the foreign court's position or does it apply Re Guy Lam? Should the Hong Kong Courts restrain a winding-up proceedings in foreign jurisdictions (in this case, the Cayman Islands) which have adopted the approach in Sian Participation in favour of Hong Kong arbitration?

 

DECISION OF THE CFI

The Court of First Instance dismissed the Plaintiff’s anti-suit injunction against the Defendant and held that:

The starting point is to look at the arbitration clause itself. Applying Hong Kong law, Mr. Recorder William Wong SC interpreted the clause - “any dispute, controversy or claim arising in any way out of or in connection with [the TFA] … shall be referred to and finally resolved by” HKIAC arbitration as imposing a positive obligation on the parties to have all disputes under the TFA finally resolved by arbitration, as well as a negative obligation precluding parties from having disputes finally resolved in a non-contractual forum.

The core issue therefore is whether the Defendant’s intended presentation of the Cayman winding-up petition would be in breach of the arbitration clause, i.e. whether the Cayman winding-up proceedings would have the effect of "finally resolving" the dispute on the Plaintiff's indebtedness under the TFA, which constitutes a breach of the contractual agreement between the parties.

The Plaintiff argued, inter alia, that the question should be answered purely based on Hong Kong law, which takes precedence over Cayman law regardless of the position under Cayman law. Given that Hong Kong law views winding-up proceedings as determining rights and obligations, the Defendant’s intended winding-up proceedings in the Cayman Islands could have the effect of finally resolving the dispute, which is in breach of the TFA.

The Defendant argued, inter alia, that the question should instead be viewed through the lens of res judicata and estoppel. The Cayman winding-up proceedings would only qualify as a final determination of the dispute and hence in breach of the TFA if it would constitute res judicata and give rise to an estoppel over the dispute. The Defendant also demonstrated, in lieu of expert evidence on Cayman law, that English law recognises that winding-up petition or winding-up orders “[do] not resolve or determine anything about the petition debt” and would not constitute final determination of a substantial dispute over the debt.

The Court held that the Defendant’s legal propositions are “correct and in accordance with common and commercial sense” and accepted that the intended Cayman winding-up proceedings would not have the effect of finally resolving the dispute under the TFA and hence would not be in breach of the TFA. The Court also considered that the concepts of res judicata and estoppel are "necessarily engage[d]" by using the term "finally resolved" in the arbitration clause. Therefore, the approach of considering whether the Cayman winding-up proceedings would give rise to an estoppel was in accordance with parties' bargain.

Notably, the Court also held that, while strong cause is needed to depart from the dispute resolution clause, an anti-suit injunction could be refused where the merits of the defence is so bad that it borders on the frivolous or abusive. The Court accepted that the Plaintiff's defence on the underlying merits was so "hopeless and frivolous" that it would be "abusive".

Accordingly, the Plaintiff’s anti-suit injunction application was dismissed.

 

KEY TAKEAWAYS

The present proceedings arose against the growing divergence between how Hong Kong and other parts of the common law world mediate the interplay between the courts' winding-up jurisdiction and contractual parties' freedom to commit their disputes to arbitration.

The judgment in Hyalroute v ICBC is a welcomed decision which provides a commercially sensible solution. This also appears to be the first decision in Hong Kong addressing whether an anti-suit injunction should be granted to restrain foreign winding-up proceedings in favour of an arbitration. Going forward, parties to arbitration agreements should be aware that where winding-up proceedings are sought to be restrained as it finally determines a dispute that should be arbitrated, the Hong Kong Courts will only apply the Re Guy Lam approach if the relevant winding-up proceedings are in Hong Kong. If it concerns foreign winding-up proceedings, the Court will consider how the foreign jurisdiction views its own proceedings. Parties should also be aware that the Court will be sensitive to the precise and express terms of the arbitration agreement. The starting point remains: what is the scope of the parties' agreement to arbitration, and does it cover the proceedings that are sought to be restrained.

The full judgment can be viewed here.