HONG KONG SAR, CHINA Trends and Developments Contributed by: Ralph Sellar, Jason Cheng, Shirley Choi and Grace Jia, Slaughter and May
to review the evidence or findings of, or reasons given by, the Mainland courts. In that case, a part of the enforcement ruling of an Intermediate People’s Court was registered, after the court rejected the argument that it was not an “order of payment” or was simply a “ruling given in respect of an interim measure”. The new regime provides a more comprehensive, efficient, and accessible framework for the recipro- cal enforcement of civil and commercial judgments in Hong Kong and Mainland China, subject to statu- tory requirements and exclusions. It is expected that mutual enforcement between Hong Kong and Main- land China will continue to feature, if not become an increasingly important factor, in considering any dis- pute resolution mechanism to be provided in commer- cial contracts. Indeed, where a commercial organi- sation is contracting with a Mainland China-based counterparty, a Hong Kong jurisdiction clause would offer clear advantages over other jurisdiction clauses (such as Singapore or England and Wales jurisdiction clauses) from an enforcement perspective. Continued Scrutiny of the Hong Kong Courts’ Approach to Winding-Up Petitions Where the Contract is Subject to an Arbitration Clause In the last few years, there has been significant debate in a number of jurisdictions about how the courts should approach winding up petitions when the rele- vant debt instrument is subject to an arbitration clause (the question being whether the company courts should defer any dispute – including the enforcement of a debt – to arbitration). In the 2024 case of Re Simplicity , the Hong Kong Court of Appeal proposed a “multifactorial” approach when deciding whether to stay or dismiss a winding- up petition in favour of arbitration. This appeared to settle the position, albeit attracting some commen- tary from commercial lenders that the test was too “debtor friendly”. However, shortly after the decision in Re Simplicity , the Privy Council in Sian Participation proposed a more stringent standard in holding that a winding-up petition should not be stayed or dismissed unless the debt is genuinely disputed on substantial grounds, regardless of an arbitration clause. A slight divergence has therefore emerged in Hong Kong and other common law jurisdictions, albeit there is a lack
of evidence that this divergence has had any practical impact on the outcome of relevant winding-up peti- tions. In this update, we recap the background and the cur- rent status of Hong Kong law and consider whether there are likely to be further developments to the law in Hong Kong. The traditional approach Traditionally, a creditor will be entitled to a winding- up order unless the petition debt is subject to a bona fide dispute on substantial grounds. In determining whether a dispute is “substantial”, an insolvency court will consider whether the debtor’s defence has a rational prospect of success – ie, it will examine the substantive merits of the defence as to whether a debt is due, even where the underlying contract contains an arbitration clause. However, concerns arose that this approach risked undermining parties’ agreement to arbitrate by allow- ing courts to conduct a summary merits review. The Lasmos Shift (2018) In Lasmos Ltd v Southwest Pacific Bauxite ( HK ) Ltd [2018] HKCFI 426, the Court of First Instance adopted a new approach. Where a debt is subject to an arbitra- tion agreement, unless there are “wholly exceptional circumstances”, the court should generally stay or dismiss the winding-up petition if: • the debtor disputes the debt; • there is an arbitration agreement; and • the debtor has taken steps to commence arbitra- tion. This approach drew heavily on the English Court of Appeal’s position (in Salford Estates ( No . 2 ) Limited v Altomart Limited [2014] EWCA Civ 1575) that requiring a court to consider the bona fide of a dispute which is subject to arbitration would be “anomalous” and “contrary to public policy” given the parties’ agree- ment to arbitrate.
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