31 July 2020
The correct approach that should be adopted by the Court to deal with a winding-up petition based on a debt arising out of a contract containing an arbitration clause is a vexed question: see e.g. our earlier commentary on Re Asia Master Logistics Limited  HKCFI 311 (“Asia Master”) and AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company)  SGCA 33.
The case of [C] v. [D]  HKCFI 1596 demonstrates that the resolution of this important issue can have broader implications and may have a bearing on whether a Court would be prepared to grant an anti-suit injunction to restrain a party from presenting a winding up petition based on an arbitration clause.
[C] is a British Virgin Islands company. [D] was a Cayman Islands company. They entered into an agreement whereby [C] would sell and [D] would purchase shares in a company. Under the agreement, [D] also had the right to require [C] to buy back the shares. The agreement also contains an HKIAC arbitration clause.
[D] decided to exercise its right provided under the buyback clause. However, [C] did not take any steps to buy back the shares. As such, [D] instituted proceedings in the BVI on 4 March 2020 seeking an order to wind up [C]. The substantive hearing of the BVI proceedings was adjourned to 13 July 2020.
In the meantime, [C] issued and served a notice of arbitration seeking inter alia declarations that [D] was not entitled to require [C] to purchase any shares from [D] and that [C] was not obliged to purchase any shares from [D]. [C] also applied for an interim anti-suit injunction in Hong Kong in relation to the hearing of the BVI proceedings on 13 July 2020.
The sole question for the Court to decide was whether an interim anti-suit injunction should be granted in relation to the hearing of the BVI proceedings on 13 July 2020.
The Court declined to grant the interim anti-suit injunction for a number of reasons including (1) the injunction was highly intrusive, (2) this would bring the BVI proceedings to a halt which would lead to a waste of resources, (3) [D] did not have enough time to respond to the application, and (4) the urgency was self-induced.
What is interesting for present purposes is [D]’s argument that the principles relied upon by [C] for anti‑suit injunction based on a breach of the arbitration agreement are not in fact applicable.
Relying on the decision in Asia Master, [D] argued that in commencing and pursuing an application for winding up in the BVI, [D] was not seeking to have any dispute arising out of or in connection with the Agreement resolved by way of arbitration and is therefore not acting in breach of the arbitration agreement. The Court opined that this may or may not be right at the end of the day, but all of this demonstrated that the matter is not so plainly in [C]’s favour such that an interim injunction ought to be granted.
The case of [C] v. [D] again demonstrates the need for a higher court to clarify how one should deal with a winding-up petition based on a debt arising out of a contract containing an arbitration clause. The resolution of this question will determine whether creditors can present a winding-up petition and will also have a bearing on whether companies can apply for an anti-suit injunction in Hong Kong to restrain a creditor from presenting a winding up petition elsewhere.