HONG KONG SAR, CHINA Trends and Developments Contributed by: Ralph Sellar, Jason Cheng, Shirley Choi and Grace Jia, Slaughter and May
Clarification by the Hong Kong Court of Appeal (2024) In Re Simplicity & Vogue Retailing ( HK ) Co ., Limited [2024] HKCA 299 and Re Shandong Chenming Paper Holdings Ltd [2024] HKCA 352, the Court of Appeal confirmed that the Hong Kong courts should continue to give effect to the parties’ contractual bargain to arbitrate, and set out the following principles: • The decision to stay or dismiss a winding-up peti- tion is an exercise of the Court’s discretion. • Where a dispute is subject to an arbitration agree- ment, the Court should take a “multifactorial approach” in considering the exercise of its discre- tion, taking into account factors such as: (a) the public policy of the legislative scheme for the Court’s bankruptcy jurisdiction; (b) the public policy to hold parties to their agree- ments, including their choice of forum; (c) whether there are countervailing factors (eg, risk of the insolvency affecting third parties or where the debtor’s defence borders on being frivolous or is an abuse of process); and (d) whether the Court is satisfied there is a genu- ine intention to arbitrate; even if no steps have been taken to commence an arbitration, one option is to grant a short stay for such steps, coupled with an undertaking from the debtor. • In the absence of countervailing factors, the parties ought to be held to their contract (ie, the winding- up petition ought to be dismissed or stayed so the disputed debt can be resolved in arbitration). How- ever, the Court retains the flexibility to deal with the case as the circumstances require. Divergence from English Law It is worth noting that the Hong Kong position has since diverged from the English approach following the Privy Council’s decision in the English case of Sian Par- ticipation Corp ( in liquidation ) v Halimeda International Ltd [2024] UKPC 16. In that case, the Privy Council departed from the English Court of Appeal’s decision in Salford Estates , holding that, in considering whether to stay a winding-up petition in favour of arbitration, the English courts should consider whether the debt is disputed on genuine and substantial grounds, even where the dispute is subject to an arbitration (or other exclusive jurisdiction) agreement.
The above approach applies in the English courts (and other jurisdictions bound by Privy Council decisions), but not in the Hong Kong courts. There is now an apparent divergence of approach and a perception, compared to other jurisdictions, that it could potential- ly be more challenging for creditors to petition to wind up insolvent debtors in the Hong Kong courts where the relevant debt instrument or contract contains an arbitration clause. This divergence has attracted sig- nificant commentary from practitioners. In this regard, Mr Justice Jonathan Harris of the Hong Kong High Court has recently observed that, in his view, the test in the Hong Kong decision Lasmos provides a more principled framework, balancing party autonomy and insolvency principles. The divergence has also given rise to novel ques- tions before the Hong Kong courts, including how the court should approach an application to restrain for- eign insolvency proceedings allegedly commenced in breach of an arbitration agreement where the foreign court adopts the Sian Participation approach, requir- ing the debtor to show a bona fide dispute. We anticipate that the courts will be faced with further cases testing these boundaries in 2026 and beyond. Moreover, there is no statistical evidence that this legal issue has had any material effect on lenders or the use of arbitration clauses. Indeed, lenders have typically preferred court jurisdiction clauses in debt instruments and there is little to suggest that credi- tors have been able to effectively deploy an arbitration clause as a “debt dodger’s charter” to avoid enforce- ment in Hong Kong. The Rise in International Mediation On 30 May 2025, the Convention on the Establishment of the International Organization for Mediation (the “Convention”) was signed in Hong Kong by 33 states as founding members. Established under Article 1 of the Convention, the IOMed is the first intergovernmen- tal organisation dedicated to resolving international disputes through mediation which is headquartered in Hong Kong. The establishment of the IOMed represents a signifi- cant milestone in the development of international dispute resolution. As the first body of its kind, the
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