Read the full judgment text of CACV 393/2021 on BabelCite. This Court of Appeal judgment was delivered on 30 August 2022 before Hon Barma JA, G Lam JA, Chow JA.
Insolvency – bankruptcy petition – exclusive jurisdiction clause – whether a creditor's bankruptcy petition based on a disputed debt is engaged by an exclusive jurisdiction clause in favour of a foreign court – whether the same approach applied to stay of ordinary actions brought in breach of an exclusive jurisdiction clause should be extended to winding-up and bankruptcy petitions – application of Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589 and Re Southwest Pacific Bauxite (HK) Ltd (Lasmos) [2018] HKCFI 426 – Credit and Guaranty Agreement dated 11 July 2017 governed by New York law with exclusive jurisdiction of New York courts – loans of US$29.5 million to CP Global Inc guaranteed by appellant Lam – events of default and replacement of receivers in April 2020 – statutory demand and bankruptcy petition presented in Hong Kong for US$48.6 million – Lam commenced proceedings in Texas and New York disputing the debt and alleging waiver, estoppel, breach of covenant of good faith and conspiracy – whether the judge below erred in dismissing the petition on the basis that the Exclusive Jurisdiction Clause did not prevent the petition from proceeding – held, the Exclusive Jurisdiction Clause is engaged – a bankruptcy petition founded on a disputed debt arising out of the Agreement falls within the wording 'all legal proceedings arising out of or relating to' the Agreement – determination by the Hong Kong court that the debtor has raised no bona fide dispute on substantial grounds amounts to a summary determination of substantive rights – the modern approach in ordinary actions (Donohue v Armco Inc [2001] UKHL 64; The Pioneer Container [1994] 2 AC 324; Euromark Ltd v Smash Enterprises Pty Ltd [2013] EWHC 1627; Deltatre SpA v Hong Kong Sports Industrial Development Ltd [2018] HKCFI 1942; Shanghai Gopher Asset Management Co Ltd v China Base Group Ltd [2021] HKCFI 3216) should be applied to winding-up and bankruptcy petitions – where the debt is disputed and is subject to an exclusive jurisdiction clause in favour of another forum, the petition should not proceed in the absence of strong reasons, pending determination in the agreed forum – the court is not bound to stay or dismiss the petition but retains discretion and the statutory class remedy is unaffected – the merits of the debtor's defence are not a relevant factor when determining whether to give effect to the exclusive jurisdiction clause – adopting such an approach does not impermissibly fetter the creditor's statutory right to petition, since the right is contractual in nature and a creditor may voluntarily surrender it – on the facts, the Agreement conferred exclusive jurisdiction on the New York courts, the clause was emphasised in capital letters and re-affirmed in each amendment, Lam had commenced New York proceedings in compliance with the clause, and there was no insolvency beyond Tor's claim and no other creditor – Tor had not advanced any strong reason to depart from the parties' bargain – held, appeal allowed, bankruptcy order set aside, and Tor's petition dismissed rather than stayed, as it is generally undesirable to leave insolvency petitions hanging for lengthy periods and no other creditor was willing to be substituted – order nisi that Tor pay Lam's costs of the appeal, no order as to costs below – Chow JA agreed with the result but on the narrower ground that the Judge had adopted a wrong approach to the exercise of her discretion, leaving it open to the Court of Appeal to exercise the discretion afresh taking into account wider considerations – Barma JA agreed with G Lam JA.
Legal issues: Whether an exclusive jurisdiction clause is engaged by a creditor's bankruptcy/winding-up petition based on a disputed debt · Whether the approach to stay of ordinary actions based on an exclusive jurisdiction clause should apply to winding-up and bankruptcy petitions · Whether the merits of the debtor's defence should be considered before giving effect to an exclusive jurisdiction clause · Whether giving effect to the Exclusive Jurisdiction Clause fetters a creditor's statutory right to present a bankruptcy or winding-up petition · Whether the petition should be dismissed rather than stayed
Outcome: Appeal allowed. Bankruptcy order set aside and Tor's petition dismissed.
Cited by 12 cases · Cites 23 cases