Not Bound by Sian: Hong Kong Court stays winding up and bankruptcy petition in favour of arbitration
In the recent decision of Re Mega Gold Holdings Ltd, the Hong Kong Court of First Instance declined to follow the Privy Council’s BVI decision Sian Participation Corp (In Liquidation) v Halimeda International Ltd which clarified the approach to winding-up petitions in the context of agreements to arbitrate. This is even with the Privy Council issuing a Willers v Joyce direction to the courts of England and Wales to also be bound.
In Re Mega Gold, Recorder Khaw SC considered the effect of an arbitration clause on winding up and bankruptcy proceedings and, as a matter of stare decisis, applied the Hong Kong Court of Appeal’s decisions in Guy Kwok-Hung Lam v Tor Asia Credit Master Fund LP and Re Simplicity & Vogue Retailing (HK) Co Ltd which were not applied by the Privy Council.
In Guy Lam, the Court of Appeal held that, where there is an expressed jurisdictional clause, the court should generally stay or dismiss winding-up petitions, absent countervailing factors such as the risk of insolvency affecting third parties and where the debt dispute borders on being frivolous or abusive. Guy Lam was subsequently applied in Re Simplicity, where Kwan VP held that the approach in Guy Lam is equally applicable to arbitration clauses and that the debtor is required to demonstrate a genuine intention to arbitrate.
This latest decision by the Hong Kong court shows a stark difference between the approach taken by the Hong Kong and the BVI court. As a matter of BVI law, the correct test for the court to apply in exercising its discretion to make a liquidation order in circumstances where there is an arbitration agreement between the parties is whether the debt is disputed on genuine and substantial grounds.
This divergence between the two decision is a timely reminder of the principles of stare decisis and the autonomy of a country’s domestic court.
