Novel Anti-Suit Injunction Application Fails: Hong Kong Courts Decline To Halt Cayman Liquidation Proceedings In Favour Of Arbitration, But The Court Of Appeal Leaves The Door Open In Future

The context for the case

In recent years, several high-profile cases from common law jurisdictions have considered the relationship between arbitration and insolvency proceedings and debated whether these two types of processes involve competing policy aims and, if they do, how to reconcile them.

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 containing an arbitration agreement^.[1] The debtor company disputes the debt and contends that the dispute must be arbitrated. Often the company’s newfound enthusiasm for alternative dispute resolution follows a period of obfuscation and evasion. When the company applies to stay the winding up, the question arises: should the court inquire into the merits of the dispute and, if so, how involved should that inquiry be.

There have been diverging legal positions, with a notable spilt between the approach of the BVI,^[2] English^[3] and Cayman Islands^[4] courts on the one hand, and the Hong Kong^[5] and Singaporean^[6] courts on the other. In order to stay or strike out winding up proceedings, the former jurisdictions apply the test of requiring the company to show that the debt is disputed in good faith on substantial grounds. In contrast, the Hong Kong and Singaporean courts give greater weight to the existence of the arbitration clause and will ordinarily stay the winding up proceedings in favour of arbitration unless the company’s defence is frivolous or abusive.

It is against the backdrop of these diverging legal positions that Hyalroute Communication Group Ltd v Industrial and Commercial Bank of China (Asia) Ltd arises. The issue before the Court of First Instance (HKCFI),^[7] and then on appeal in the Court of Appeal (HKCA),^[8] was whether a Hong Kong court would grant an interim anti-suit injunction to prevent a putative creditor from applying to wind up a company in another jurisdiction, such as the Cayman Islands, which does not give the same weight to the existence of arbitration clauses as Hong Kong does.

The facts of the case

Hyalroute Communication Group Ltd (Company) is incorporated in the Cayman Islands. It is the parent and guarantor of a subsidiary that obtained a loan from Industrial and Commercial Bank of China (Asia) Ltd (Bank) pursuant to a Term Facility Agreement (TFA). The loan proceeds were used to fund an infrastructure project in Myanmar. Following the 2021 military coup in that country, the subsidiary’s operations were disrupted. Repayments were missed. The Company was prima facie liable as guarantor.

The Bank issued a statutory demand in the Cayman Islands. The Company responded by disputing the debt.^[9] It further argued that the alleged dispute was subject to an arbitration clause in the TFA, which mandated that disputes be resolved through HKIAC arbitration.

Rather than making an application in the Cayman Islands to stay the winding up proceedings, as would have been standard, the Company, no doubt motivated by the divergence of approaches identified above, sought a novel anti-suit injunction in Hong Kong to prevent the Bank from filing Cayman Islands winding up proceedings.

The HKCFI decision

The HKCFI, in a judgment issued by Mr Recorder William Wong SC, began by restating the uncontroversial propositions that (i) “whether foreign winding-up proceedings are in breach of an arbitration clause is a matter of proper construction of the terms of the clause”, ^[10] and (ii) a party pursuing foreign proceedings in breach of an arbitration clause is liable to be restrained by an anti-suit injunction.^[11]

The Court’s attention then turned to considering the nature of the foreign proceedings themselves. It explained that, if a party commences legal proceedings to have disputes finally resolved in a non-contractual forum, that would be in breach of the arbitration clause. However, if the foreign proceedings do not have the effect of finally resolving the dispute, then the obligation under the arbitration clause to refrain from resolving disputes in another forum is not engaged.^[12] There is therefore no breach of the arbitration clause, and no basis on which to grant an anti-suit injunction.

Here, the question of whether Cayman Islands winding up proceedings have the effect of finally resolving a dispute required consideration of whether those proceedings gave rise to res judicata. This required consideration of Cayman Islands law.^[13] That was because Hong Kong law, which governed the arbitration clause in this case, would not regard Cayman Islands proceedings as finally determining a dispute if Cayman Islands law itself did not consider that those proceedings had that effect.^[14]

The Court therefore proceeded to consider whether, as a matter of Cayman Islands law, winding up proceedings gave rise to res judicata. The answer to this question was straightforward: a creditor’s winding up petition does not determine the petitioner’s claim to be owed money.^[15] That occurs later during the liquidation claims process.

Pulling the threads together, because Cayman Islands winding up proceedings would not finally resolve the dispute under Cayman Islands law, those proceedings would not give rise to res judicata under Hong Kong law. It followed that there would be no final determination of the dispute, no breach of the arbitration clause, and no basis on which to grant an anti-suit injunction.

The Court additionally considered that there were other reasons to decline to grant the anti-suit injunction. In particular, even under the approach now adopted in Hong Kong, if the company’s position is frivolous or abusive, the Court can refuse to dismiss or stay a winding up petition in favour of arbitration.^[16] In this case, the Court was “firmly of the view that the Plaintiff’s defence on the underlying merits is hopeless and frivolous.”^[17]

For these reasons, the Company’s application for an anti-suit injunction was dismissed. An application for an interim injunction pending appeal was also dismissed, but a short case management stay was allowed to facilitate an urgent application to the HKCA.

HKCA Decision

Unsatisfied with the outcome, the Company renewed its application for an interim anti-suit injunction pending appeal to the HKCA. In a short but important decision, the HKCA dismissed the Company’s application and denied the application. Two particular grounds of appeal were considered.

First, the Company argued that the Recorder erred in adopting a narrow interpretation of the arbitration clause that only disputes that would be finally resolved in a non-contractual forum would fall foul of the arbitration clause. The Company contended that the words “finally resolved” simply meant that the outcome of the arbitration is intended to produce a conclusive resolution of the dispute.^[18] Without providing reasons, pending the hearing of a full appeal, the HKCA held that this ground of appeal was reasonably arguable.^[19]

Second, the Company argued that the merits of the dispute were not engaged in determining whether to grant the injunction. The Court gave this argument short shrift (and ultimately therefore dismissed the appeal). While the Hong Kong approach was such that an anti-suit injunction “would normally be granted in respect of winding-up proceedings brought in breach of an arbitration agreement in the absence of strong reasons”, the Court noted that the “lack of any bona fide dispute to the petitioning debt may constitute an abuse of process as well as strong reason not to grant an [anti-suit injunction]. It is a matter of discretion of the court.”^[20] It explained that “the court does not consider its exercise of discretion to grant an [anti-suit injunction] in a vacuum”, and that the merits of the proceedings (or contemplated proceedings) alleged to give rise to a breach of the arbitration clause “must be considered”. Here, those proceedings were the threatened Cayman Islands winding up proceedings – and the HKCA agreed with the Recorder’s conclusion that the Company’s defence to those proceedings was “hopeless and frivolous”.^[21]

Key Takeaways

There are three key takeaways from the Hyalroute decisions. First, the HKCA’s decision leaves the door open for the possibility that the Hong Kong courts might grant anti-suit injunctions to prevent the filing of Cayman Islands winding up proceedings in future. The HKCA’s acceptance that the HKCFI’s construction of the standardly-worded arbitration clause was arguably erroneous means that we will need to await a future appeal to obtain a full determination as to whether, and in what circumstances, such an anti-suit injunction would be granted. In the meantime, while there remains a possibility that the Hong Kong courts will intervene to prevent creditors seeking to wind up companies in offshore courts, creditors should, in appropriate cases, consider the possibility of seeking an anti-anti-suit injunction in the relevant offshore jurisdiction to preserve access to the offshore courts.^[22]

Second, cutting the other away, the HKCA’s decision firmly establishes that the merits of a purported defence will be relevant to the exercise of the Hong Kong courts’ discretion. Where a defence is frivolous or abusive, an anti-suit injunction will be refused. It follows that the potential clash of approaches between Hong Kong and the Cayman Islands only arises in the zone where the company’s defence is better than frivolous or abusive but not clearly in good faith on substantial grounds. It is only in that zone where a company may be able to obtain relief in Hong Kong but where that same relief would not be available in the Cayman Islands.

Third, and separate from the arbitration/winding up issue, an interesting aspect of the HKCFI’s decision was the Court’s willingness to make findings of foreign law on the basis of legal submissions rather than on the basis of expert evidence from qualified foreign practitioners. The Court recognised that “pragmatic considerations as to time and costs” were relevant^.[23] That was particularly so in this case where “the sole finding which this Court has to make in relation to Cayman law is an area of law which the Hong Kong Courts are very familiar with.”^[24] The Cayman Islands courts are often required to consider matters arising under foreign law. The Hong Kong Court’s pragmatic approach to the consideration of foreign legal issues, which is consistent with commentary in the UK Supreme Court’s decision in Brownlie v FS Cairo (Nile Plaza) LLC,^[25] may prove to be persuasive, particularly in cases where the foreign legal issue is likely to be a familiar one to the Cayman Islands courts.

[1] Most often in the form of a dispute resolution provision contained within a commercial contract. We generally use the term “arbitration clause” in this article.

[2] In Sian Participation Corp v Halimeda International Ltd [2024] UKPC 16, [2024] 3 WLR 937 (Sian Participation) the Privy Council (in an appeal from the BVI) declined to follow the English Court of Appeal case of Salford Estates (No 2) Ltd v Altomart Ltd [2014] EWCA Civ 1575, [2015] Ch 1575 (Salford Estates) and held that the usual test will apply, whether or not there is an arbitration clause in play: Sian Participation at [88]-[98]. In other words, to obtain a stay, the company must show that the debt is disputed on genuine and substantial grounds: Sian Participation at [99]. Appleby’s BVI team acted for the successful respondent in Sian Participation. We considered the decision in more detail here.

[3] While the Privy Council in Sian Participation was considering an appeal from the BVI (and was therefore concerned with BVI law), the Board issued a Willers v Joyce direction to confirm that Salford Estates was wrongly decided as a matter of English law, see Sian Participation at [124]-[126].

[4] From a Cayman Islands perspective, Sian Participation confirmed that the approach that had already been adopted in this jurisdiction was the correct one: Re BPGIC Holdings Ltd [2023 (2) CILR 464] at [21]-[29]. We considered the decision in more detail here. See also Re NaaS Technology Inc [2025] CIGC (FDS) 28 at [51]-[62].

[5] In Re Simplicity & Vogue Retailing (HK) Co Ltd, the Hong Kong Court of Appeal favoured a line of authority holding that where a petition debt arises from a contract containing an arbitration clause, absent countervailing factors, the parties ought to be held to their contractual bargain to arbitrate: Re Simplicity & Vogue Retailing (HK) Co Ltd [2024] 2 HKLRD 1064 (Re Simplicity). Countervailing factor may include where there is a risk of insolvency affecting third parties or where the dispute borders on frivolous or an abuse of process: Re Simplicity at [38]-[39]. In reaching this conclusion, the Court of Appeal applied by analogy the Court of Final Appeal’s decision in Re Lam Kwok Hung Guy (2023) 26 HKCFAR 119 (Guy Lam), which considered exclusive jurisdiction clauses. This put to bed, for the time being, competing views of first instance judges as to whether Guy Lam applied in the arbitration context: Re Simplicity & Vogue Retailing (HK) Co Ltd [2023] HKCFI 1443 (where Linda Chan J did not apply Guy Lam by analogy) and Re Shandong Chenming Paper Holdings Ltd [2023] HKCFI 2065 (where Harris J favoured applying Guy Lam by analogy).

[6] See AnAn Group (Singapore) Ptw Ltd v VTB Bank [2020] SGCA 33 and the cases following it.

[7] Hyalroute Communication Group Ltd v Industrial and Commercial Bank of China (Asia) Ltd [2025] HKCFI 2417 (HKCFI Decision).

[8] Hyalroute Communication Group Ltd v Industrial and Commercial Bank of China (Asia) Ltd [2025] HKCA 936 (HKCA Decision).

[9] In particular, it claimed that its obligations under the TFA were suspended because protections under a MIGA insurance policy (provided by a World Bank affiliate to protect against political risk) were engaged.

[10] HKCFI Decision at [52].

[11] At [64].

[12] At [71].

[13] At [75] and [77].

[14] At [98]-[100].

[15] At [114]-[125].

[16] At [133], citing Re Simplicity at [47].

[17] At [136].

[18] HKCA Decision at [17].

[19] At [18].

[20] At [21].

[21] At [26]-[29].

[22] For a recent example of an anti-anti-suit injunction being granted in an insolvency-related context, see Greensill Bank AG v Insurance Australia Limited [2025] FCA 1241.

[23] At [111].

[24] At [112].

[25] Brownlie v FS Cairo (Nile Plaza) LLC [2021] UKSC 45, [2021] 3 WLR 1011 at [148]. Brownlie has been cited with approval in the Cayman Islands, albeit in other contexts, see for example Aspect Properties, Japan Godo Kaisha v Cheng [2022 (1) CILR 685] at [53] and [99]; Taiping Trustees Ltd v Valley Stone Industry Fund Ltd (unrep., 29 January 2024, Doyle J) at [2].