Herbert Smith Freehills successfully acts for the Petitioner in a Court of Appeal case examining the role of arbitration clauses in winding up proceedings

Herbert Smith Freehills secured another victory for the Petitioner in the high-profile Court of Appeal case Simplicity & Vogue Retailing (HK) Co., Limited [2024] HKCA 299. This appeal followed the Petitioner's successful winding up petition against the Company (see our blog post here) and was brought by the Company on the basis of an arbitration clause contained in the underlying bond instrument and the guarantee.

The long-awaited Court of Appeal decision held that the principles regarding exclusive jurisdiction clauses laid down in the landmark decision by the Court of Final Appeal in Re Guy Kwok Hung Lam [2023] HKCFA 9 (see our blog post here) also apply to arbitration clauses. In applying the principles, the Court of Appeal upheld the first instance decision and found that there was no dispute in respect of the petition debt. Even if there was, the Company's defence bordered on the frivolous or abuse of process and would have met the high threshold for the exception to the general rule that disputes falling within the scope of an arbitration clause should be resolved by arbitration. The Court of Appeal also underscores the need for a debtor relying on an arbitration clause as a ground of opposition in insolvency proceedings to demonstrate a genuine intention to arbitrate, which the Company failed to do in this case.

This case marks a significant development in this area of law and helpfully clarifies the circumstances under which a debtor should be prevented, where there is no valid defence to a debt or genuine intention to arbitrate, from using arbitration clauses as a tactic to obstruct or impede insolvency proceedings.

We will publish a more detailed blog post on this case shortly. For further information, please contact Jojo Fan, Partner, Trevor Ho, Senior Associate, Siqi Huang, Associate or your usual Herbert Smith Freehills contact.