Since the landmark cases of Re Guy Lam and Sian Participation (see our blogposts here and here), there has been a clear divergence in how Hong Kong and English law approach the interaction between insolvency and arbitration (see further blogpost here). Under Hong Kong law (following Re Guy Lam), if the contract under which a debt arises is subject to an arbitration clause, the Courts will generally uphold the parties' agreement to arbitrate, unless there are countervailing factors such as abuse (see our blogpost on Re Simplicity here). In contrast, under English law (following Sian Participation, a Privy Council decision), a creditor's petition will only be dismissed or stayed in favour of arbitration, if the debtor can establish a bona fide dispute regarding the debt on substantial grounds.
The recent case of Hyalroute Communication Group Ltd [2025] HKCFI 2417 arises against this divergence, and marks the first-ever application before the Hong Kong Courts for an anti-suit injunction seeking to restrain a creditor from presenting a winding-up petition against the company in the Cayman Islands, in favour of a Hong Kong arbitration clause.
Ultimately, the Hong Kong Court of First Instance ("CFI") dismissed the anti-suit injunction on the basis that the intended winding-up in the Cayman Islands would not breach the Hong Kong arbitration agreement. The reason being that winding-up proceedings, as a matter of Cayman law, would not "finally resolve" the underlying dispute within the meaning of the arbitration clause. There would, therefore, be no breach of the arbitration clause and no reason to restrain any winding-up petition.
Background
The Plaintiff is a company incorporated in the Cayman Islands ("Hyalroute"). Hyalroute's subsidiary, a fibre optic communications company in Myanmar ("MFOCN"), entered into a Term Facility Agreement ("Facility Agreement") with the Defendant bank, where the Defendant bank was the lender and Hyalroute was the guarantor. The following events occurred:
- In August 2018, MFOCN requested a loan of US$100 million under the Facility Agreement, making MFOCN liable for repayment, guaranteed by Hyalroute.
- To manage investment risks in Myanmar, the Defendant bank entered into an insurance contract in 2018 to cover specific risks including war, civil disturbance, and currency transfer restrictions. Under the Facility Agreement, Hyalroute's guarantor obligation would be suspended if it applied to the Defendant bank for any default caused by a covered risk.
- In February 2021, a military coup in Myanmar and subsequent financial restrictions caused extensive damage to MFOCN's infrastructure and revenue. It became impossible for MFOCN to repay the loan under the Facility Agreement.
- Hyalroute claimed that it had applied to the Defendant bank for a covered risk ten days after the coup began, although the evidence was unclear. Hyalroute argued that its guarantor obligations were suspended, and that it was not liable for the loan repayment.
- In October 2022, the insurance contract was terminated because Hyalroute failed to pay premiums on time, ending any suspension.
- In November 2024, the Defendant bank served a statutory demand against Hyalroute pursuant to the Cayman Companies Act.
- As the Facility Agreement contained an arbitration clause (see below), in December 2024, Hyalroute applied to the CFI for an anti-suit injunction to prevent the Defendant bank from presenting a winding-up petition in the Cayman Islands, and commenced arbitration against the Defendant bank at the Hong Kong International Arbitration Centre.
The arbitration clause under the Facility Agreement stated (with emphasis added):
"43.1 Arbitration
(a) Any dispute, controversy or claim arising in any way out of or in connection with this Agreement (including (i) any issue regarding contractual, pre-contractual or non-contractual rights, obligations or liabilities and (ii) any issue as to the existence, validity, breach or termination of this Agreement) (a "Dispute") shall be referred to and finally resolved by binding arbitration administered by the Hong Kong International Arbitration Centre ("HKIAC").
...
(c) The seat of the arbitration shall be Hong Kong. This arbitration agreement shall be governed by the laws of Hong Kong..."
Issues
It is well-established that a pursuit of foreign proceedings in breach of an arbitration agreement would be liable to be restrained by an anti-suit injunction. The central question considered by the CFI in this case was whether the Defendant bank's intended presentation of a winding-up petition in the Cayman Islands would breach the arbitration clause under the Facility Agreement. Specifically, whether the winding-up proceedings in the Cayman Islands would have the effect of "finally resolving" the parties' dispute within the meaning of the arbitration clause, regarding Hyalroute's indebtedness under the Facility Agreement.
Decision
The CFI found as follows:
- The starting point is to look at the arbitration clause. It is clear from the express language that the clause imposes a positive obligation on the parties to have their disputes under the Facility Agreement "finally resolved" by arbitration, as well as a negative obligation preventing the parties from having their disputes finally resolved in a non-contractual forum.
- Next, is the question of whether winding-up proceedings in the Cayman Islands would "finally resolve" the dispute within the meaning of the arbitration clause, and whether Cayman or Hong Kong law applies.
- Although the arbitration agreement is governed by Hong Kong law, the CFI concluded that it must also refer to Cayman law in order to consider the effect of a winding-up proceeding in the Cayman Islands under the arbitration clause (because Hong Kong law cannot state that Cayman winding-up proceedings "finally resolve" the dispute if Cayman law states otherwise). Whether or not those proceedings in turn breaches the arbitration clause is a matter of Hong Kong law.
- In terms of understanding what "finally resolved" means, the CFI was of the view that the requirement of finality must incorporate the concepts of res judicata (a matter judged) and estoppel.
- The CFI adopted a pragmatic approach by considering Cayman law cases and legal principles adduced through submissions from both sides, as opposed to relying on formal expert evidence from a Cayman law expert. The CFI found the materials on this point to be clear and was of the view that the Hong Kong Courts are capable of understanding the relevant legal principles in other common law jurisdictions. The CFI concluded that, under Cayman law, the adjudication of a winding-up petition is only a determination of a threshold issue (i.e. whether there is a genuine dispute on substantial grounds regarding a debt), and not a determination of any substantive issues in the dispute. The intended winding-up petition therefore would not "finally resolve" the dispute within the meaning of the arbitration clause.
- Further, in Sian Participation, the Privy Council ruled that under English and BVI law, a creditor's winding-up petition does not resolve or determine anything about the petition debt including the existence or amount of the debt. Any disputes regarding the debt are not addressed in the petition. Since previous cases have shown that Cayman law aligns with BVI law on this matter, the CFI concluded that the Privy Council would decide the point in the same way for Cayman law.
- As such, the CFI was satisfied that the winding-up proceedings in the Cayman Islands would not have the effect of "finally resolving" the dispute within the meaning of the arbitration clause. As such, bringing the Cayman proceedings would not be in breach of the arbitration clause, and there would be no reason to restrain the presentation of any winding-up petition.
- The CFI also noted that another reason not to grant the anti-suit injunction is the Plaintiff's frivolous defence in the underlying debt dispute. In Re Guy Lam, the Court of Final Appeal clarified that even if a dispute resolution clause applies to insolvency proceedings, there is no automatic stay or dismissal. Courts need a strong reason to depart from the dispute resolution clause and have discretion to consider various factors, including a defence that borders on being frivolous or an abuse of process (such as the defence raised in Re Simplicity which the Court found to be wholly without merit). The CFI stated that anti-suit injunctions should be treated the same as stay applications. In this case, the CFI found Hyalroute's defence to be hopeless and frivolous, especially since Hyalroute could not specify when it made the covered risk application to the Defendant bank. Moreover, any suspension of liability would have ended when the insurance contract was terminated. Therefore, it was abusive for Hyalroute to rely on its defence in the debt dispute to prevent the Defendant bank from invoking the Cayman Court's winding up jurisdiction.
Comment
This latest decision sheds light on how the Hong Kong Court would handle a request to restrain winding-up petition presented in foreign jurisdictions where the underlying dispute resolution clause is in favour of arbitration. In particular and in considering such a request, the Court would consider whether the foreign jurisdiction would follow the approach in Sian Participation.
However, parties with contracts subject to an arbitration clause and governed by Hong Kong law should still note that the Hong Kong Courts may not automatically restrain foreign insolvency proceedings in favour of arbitration. It would ultimately depend on the effect of the foreign insolvency proceedings on the main underlying dispute, and how the arbitration clause is specifically drafted.
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.
