CURATED
20 January 2022

Hong Kong Court Stayed Winding-up Petition In Favour Of HKIAC Arbitration

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Stephenson Harwood

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On 22 November 2021, the Hong Kong Court of First Instance stayed a winding-up petition brought by China Europe International Business School against Hong Kong-registered CEIBS Publishing Group, in which it has a 40% shareholding.
Hong Kong Litigation, Mediation & Arbitration
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China Europe International Business School (中欧国际工商学院) v. CEIBS Publishing Group and others (the "Petition")

On 22 November 2021, the Hong Kong Court of First Instance stayed a winding-up petition brought by China Europe International Business School (the "School") against Hong Kong-registered CEIBS Publishing Group (the "Publishing Company"), in which it has a 40% shareholding.

The School helped to set up the Publishing Company in 2007 in partnership with a Chinese venture capitalist for the purpose of publishing products under the School brand. A share purchase agreement concluded in that year included a "quitclaim" provision, under which the School relinquished its rights over intellectual property used by the Publishing Company.

On 20 August 2020, the School commenced litigation against the Publishing Company in the HK court seeking that the "quitclaim" provision was not binding on the School and the Publishing Company did not provide any consideration in exchange for the rights and interest under the quitclaim.

On 23 November 2020, the Publishing Company submitted a notice of arbitration against the School, accusing it of breaching the School's share purchase agreement by disputing the validity of the quitclaim.

On 8 January 2021, the School filed a winding up petition on just and equitable grounds. The Publishing Company contended that the substance of the disputes in the Petition falls within the ambit of the arbitration agreements contained in the share purchase agreement.

Judge Linda Chan applied the following principles: (1) Hong Kong is a pro-arbitration jurisdiction; (2) in construing the scope of an arbitration clause, the Court will start from the presumption of a "one-stop method of adjudication", covering all disputes between the parties to a given contract; (3) although winding up proceedings do not fall within s.20 of the Arbitration Ordinance (Cap. 609), the Court has inherent jurisdiction to grant a stay of a petition presented on just and equitable grounds in favour of arbitration; (4) in considering whether to grant a stay, the Court will first "identify the substance of the dispute between the parties and ask whether or not the dispute is covered by the arbitration agreement"; and where the substance of the dispute falls within the arbitration clause, the Court may require the parties to have their dispute be determined by arbitration, before the Court considers whether to grant a winding up order (Re Quiksilver Glorious Sun JV Ltd [2014] 4 HKLRD 759 , §§14-15, 21-23, per Harris J).

Judge Linda Chan rejected submissions made on behalf of the School that since the jurisdiction to grant a stay is a discretionary one, the general principles in relation to case management stays are relevant.

One of the arguments raised against the stay was that some respondents to the Petition were non-parties to the arbitration agreements. In this regard, the court referred to the approach of the English Court of Appeal Fulham Football Club (1987) Ltd v Richards [2012] Ch 333, i.e. the question of whether an issue was arbitrable was not necessarily determined by the limitations on the tribunal's powers to make orders affecting non-parties (which is derived from the contractual basis of arbitration). The fact that an arbitrator cannot make a winding-up order affecting third parties does not mean that it is impossible for the members and a company to agree to submit their disputes, inter se as shareholders, to arbitration.

In conclusion, the Judge agreed to the approach described in Fulham Football Club and held that the substance of the disputes raised in the Petition fell within the scope of the arbitration agreements and this was an appropriate case to exercise the discretion to stay the Petition pending determination of the disputes in the arbitration.

Takeaways

  • In an application for a case management stay, where the plaintiff is not bound by any arbitration agreement and is therefore entitled to bring the action as of right, the court will require very good reasons and compelling circumstances to grant a stay.
  • By contrast, in an application for stay of a petition in favour of arbitration, where the petitioner is bound by an arbitration agreement, the Court is being asked to give effect to that agreement by requiring the petitioner to refer the dispute to arbitration.
  • Once it is shown by the party seeking a stay that the substance of the dispute falls within the scope of the arbitration agreement, the burden then shifts to the petitioner to satisfy the Court as to why it should be allowed to act in breach of the arbitration agreement by pursuing the dispute in Court.
  • The question whether it is just and equitable to wind up the company does not arise unless and until the petitioner has discharged the burden of proving its case as pleaded in the petition (Note: company may be wound up by court if the court is of the opinion that it is just and equitable that the company should be wound up under s.177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) ("CWUMPO").
  • There is nothing objectionable for the tribunal first to resolve the disputes raised in the arbitration, and at a later stage for the Court to consider the findings and determinations made by the tribunal in deciding whether or not the company should be wound up.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

CURATED
20 January 2022

Hong Kong Court Stayed Winding-up Petition In Favour Of HKIAC Arbitration

Hong Kong Litigation, Mediation & Arbitration

Contributor

Stephenson Harwood logo
Stephenson Harwood is a law firm with over 1100 people worldwide, including more than 180 partners. Our headquarters are in London, with eight offices across Asia, Europe and the Middle East. Our market leading international arbitration practice in Hong Kong is supplemented by local law capability in Singapore and PRC.
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