Contested Points of Foreign Law in the Winding-Up Context: Grand Court Provides Guidance

INTRODUCTION

In recent years, several cases from common law jurisdictions have considered the treatment of foreign law issues in the context of contested winding up petitions.

There is a standard fact-pattern: a putative creditor seeks to wind up a company on the basis of a debt arising from a contract governed by foreign law. The debtor company disputes the debt and contends that the winding up proceedings are an inappropriate forum for the resolution of foreign law issues, which are treated as disputes of fact.[2] When the debtor company resists the making of a winding up order, the question arises: should the court inquire into the merits of the foreign law dispute and, if so, how involved should that inquiry be?

There has been a range of judicial responses to this question. In the English case of Glocin Ltd v Bancibo SE, ICC Judge Barber held that the existence of a substantial disagreement between experts on material issues going to liability under the laws of the Czech Republic was “of itself” a reason why the matter was “entirely unsuitable for disposal by way of [winding up] petition”.[3]

Conversely, in Re Primus Investments Fund L.P., the Grand Court of the Cayman Islands made a winding up order following an in-depth analysis of the strengths of competing expert opinions on Hong Kong law. Parker J rejected the submission that winding up proceedings were unsuitable for the assessment of expert evidence on foreign law, or that the inability to cross-examine the experts precluded the Grand Court from assessing the merits of the points of contention expressed in their written opinions.[4]

It is against the backdrop of these diverging judicial approaches in the two jurisdictions that China Export & Credit Insurance Corp v Hyalroute Communication Group Ltd falls to be considered. The issue was whether the Petitioner had standing to pursue a winding up petition in reliance upon a debt based on three guarantee agreements governed by the laws of the People’s Republic of China (PRC).

 THE FACTS OF THE CASE

Hyalroute Communication Group Ltd (Company) is the Cayman Islands-incorporated parent of a subsidiary, Cambodia Fibre Optic Communication Network Co. Ltd (Subsidiary). The Subsidiary obtained a loan from China Development Bank (Bank) pursuant to three PRC law-governed facility agreements (Agreements).[5]

For its part, the Company entered into three PRC law-governed guarantee agreements (Guarantees) with the Bank. The Bank then insured its exposure under the Agreements and Guarantees by entering into insurance policies (Policies) with the Petitioner.[6]

Following the 2021 military coup in Myanmar, the Subsidiary defaulted. The Bank called on the Guarantees but the Company defaulted too.[7] In due course the Bank was duly compensated for its losses by the Petitioner pursuant to the Policies.[8]

The Petitioner presented a winding up petition against the Company in the Cayman Islands, based on the outstanding balance due under the Guarantees.[9] In doing so, the Petitioner relied on subrogation rights which it said arose under PRC law following the insurance payout it made to the Bank.

THE ISSUES BEFORE THE GRAND COURT

The Company disputed the Petitioner’s standing to present the winding up petition. It challenged the scope of the Petitioner’s statutory subrogation rights under PRC insurance law, and asserted that the alleged debt was partly time-barred under PRC limitation law.

Competing expert opinions on PRC law were adduced. Amongst other issues, the experts disagreed as to whether the Policies between the Bank and the Petitioner should be classified as ‘credit insurance’ or ‘guarantee insurance’. This characterisation was said to have implications for whether Article 60 of the PRC Insurance Law (Art 60) applied;[10] and whether under Art 60, the Petitioner’s subrogation rights were limited to bringing a claim against the principal debtor (the Subsidiary), rather than against the Company as guarantor. The Company’s position was that the Petitioner’s rights were so limited; accordingly, the Petitioner had no rights as against the Company.[11] The Petitioner submitted that this approach was “commercially absurd and illogical”.[12]

DECISION OF THE GRAND COURT

After reciting the well-established principles on contested winding up petitions summarised by Norris J in the English case of Angel Group Ltd v British Gas Trading Ltd,[13] Asif J made a number of observations on foreign law expert evidence. Asif J accepted the Company’s submission that:[14]

“the proper question for the court on a winding up petition is not which side’s foreign law evidence is to be preferred, but rather whether the expert evidence is reasonably credible and whether what is said gives rise to a genuine and substantial dispute as to the respondent’s liability for the debt in question”.

Rather than resolving the questions of foreign law, Asif J considered whether the issues raised in the expert evidence were credible (as opposed to fanciful), such that the debt was genuinely disputed on substantial grounds.

Applying this approach, Asif J concluded that a number of the points made by the Company’s foreign law expert could not properly be dismissed “as being incredible, or hopeless or fanciful”.[15] The Judge refused to discount the arguments advanced by the Company’s foreign law expert on the basis that the expert was from a relatively small firm. The Judge took both sides’ expert reports at “face value”,[16] and noted the existence of genuinely held differences in view.

Asif J found that the experts’ disagreement on the interpretation and application of Art 60, and in particular, whether Art 60 limits the exercise of rights of subrogation to the primary obligor (here, the Subsidiary), and excludes claims against guarantors (here, the Company), was sufficient to establish a bona fide dispute on substantial grounds.

LIMITS OF THE WINDING-UP JURISDICTION

The Hyalroute decision provides a reminder on the potential limits of the winding up jurisdiction for cross-border enforcement. Where liability depends on contested issues of foreign law, supported by credible expert evidence, this may suffice to establish a substantial dispute preventing the making of a winding up order.

As a practical matter, this is particularly likely to be the case where the foreign law issue does not arise from a common law jurisdiction with which the Cayman Islands court will be familiar, and the judge has limited scope to make assumptions as to the foreign law’s content and effect.[17]

Here, whilst Asif J critically considered the expert reports before the Court, in the context of the summary winding up procedure, he ultimately decided that he was unable to fully resolve the impact of PRC law and dismissed the petition.[18]

KEY TAKEAWAYS

• Foreign law questions pose a challenge for prospective petitioners: is the issue sufficiently clear-cut that it can be resolved summarily? If it can be, the petitioner may elect to proceed with filing the petition. However, Hyalroute provides an example of where the issue was not sufficiently clear-cut.

• Presentationally, lengthy competing expert reports of the sort adduced in Hyalroute are likely to convey the impression that the dispute has at least a degree of merit.

• It should be noted that the Cayman Islands court may be prepared to adopt a more robust approach where the foreign law question arises in a common law context.

• Ultimately, each case will turn on the content of the foreign law evidence, and the credibility of the points raised.

[1] China Export & Credit Insurance Corp v Hyalroute Communication Group Ltd [2026] CIGC (FSD) 37 (Judgment).

[2] Lawrence Collins and Jonathan Harris (eds), Dicey, Morris & Collins on the Conflict of Laws (16^th ed, Sweet & Maxwell, 2022) (Dicey, Morris & Collins), Rule 2 and paragraph 3-004: the foreign law in question must be pleaded and proved as a fact to the satisfaction of the judge by expert evidence; as a consequence, any disputes are to be treated as disputes of fact.

[3] Glocin Ltd v Bancibo SE [2022] EWHC 1858 (Ch) at [81].

[4] Re Primus Investments Fund L.P. (unrep, FSD 76 of 2020 (RPJ), 16 June 2020) (Primus Investments) at [71].

[5] Judgment at [5].

[6] At [5].

[7] At [7].

[8] At [9].

[9] At [12].

[10] An English translation of the text of Article 60 is: “Where an insurance accident is caused by damage to the insured subject matter by a third party, the insurer, from the date of payment of insurance indemnity to the insured, is subrogated to the insured’s right to claim compensation from the third party, within the amount of the indemnity paid”.

[11] At [23].

[12] At [25.4].

[13] Angel Group Ltd v British Gas Trading Ltd [2012] EWHC 2702 (Ch), [2013] BCC 265 at [22], as subsequently endorsed by Trower J in Integral Law ltd v Jason [2020] EWHC 3698 at [13].

[14] This followed the well-established test set out by Hildyard J in Coilcolour Ltd v Camtrex Ltd [2015] EWHC 3202 (Ch) at [32].

[15] Judgment at [30].

[16] At [28].

[17] As PRC law is not a common law system, there is no presumption of similarity between PRC law and Cayman Islands: see Dicey, Morris & Collins, Rule 2(3) and paragraphs 3-026 and 3-027.

[18] Subject to giving other creditors an opportunity to apply to be substituted, see [31] of the Judgment.

[19] Primus Investments at [72]-[85].

[20] For example, pursuant to PD 2 of 2024, parties and practitioners before the Grand Court are encouraged to refer to the editorial notes of the Hong Kong White Book in interpreting and applying the Cayman Islands Grand Court Rules.

[21] See for example, FS Cairo (Nile Plaza) LLC v Brownlie [2022] AC 995, [2021] UKSC 45 at [126]. We discussed the application of the presumption of similarity in this prior article, which considered a Hong Kong judgment applying Cayman Islands law – in a dispute also involving HyalRoute.