Bank v. Guarantor and Others

HCCT 112/2025

[2026] HKCFI 1818

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 112 OF 2025

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REASONS FOR DECISION

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Background

1.On 7 August 2025, the Plaintiff (“Bank”) applied for leave of the Court to enforce an arbitral award made on 25 June 2025 by the Shenzhen Court of International Arbitration (“Award”). Under the Award, the 1^st Defendant was to pay to the Bank a sum representing a principal loan of XXXXXXXXXXX, interest and costs, whereas the 2^nd Defendant was ordered to be jointly and severally liable, as guarantor of the 1^st Defendant under a written Guarantee Contract (“Guarantee”), to pay the debt of the 1^st Defendant. Leave to enforce the Award as a judgment of the Court was granted by an order of 28 August 2025 (“Enforcement Order”).

2.On 8 October 2025, the 2^nd Defendant (“Guarantor”) applied to set aside the Enforcement Order, on the ground that it was unable to present its case, the arbitral procedure was not in accordance with the parties’ agreement, and/or it would be contrary to public policy to enforce the Award.

3.At the conclusion of the hearing of the Guarantor’s summons, the setting aside application was dismissed with costs on indemnity basis, and the following sets out the reasons for my dismissal. In my judgment, the Guarantor has absolutely no grounds to set aside the Enforcement Order, and it is surprising that the legal advisors of the Guarantor, being a listed company in Hong Kong, had seen it fit and proper to advise it to pursue the application, when the legal authorities are clearly against the Guarantor. This is particularly disappointing, given the observations made in CNG v G&G [2024] 2 HKLRD 152, at para 2 of the judgment, as to the duties of legal professionals.

Procedure ground

4.The complaint is that the arbitration agreement contained in the underlying contract mandated amicable discussions to take place between the Bank and the Guarantor as a prerequisite to arbitration, but that no such discussions had taken place. According to the Guarantor, the procedure of the Arbitration did not accord with the parties’ agreement.

5.Clause 15.2 of the Guarantee states that “any dispute arising out of or in connection with (the contract) shall be settled by the guarantor and the lender through amicable discussions, failing which the parties agree… to apply to the Shenzhen Court of International Arbitration for arbitration”. It was submitted that such language shows that the amicable discussions between the Bank and the Guarantor are mandatory. The Guarantor claims that the Bank might have conducted discussions with other defendants as borrowers in relation to the loans, but there had been no amicable discussions between the Bank and the Guarantor, pursuant to the Guarantee at all.

6.First and foremost, as Counsel for the Bank rightly contended, it has been clearly found in C v D (2023) 26 HKCFAR 216, that pre-arbitration negotiations and discussions, and whether any pre-condition or condition precedent to arbitration had been fulfilled to affect the validity of the arbitration and the award made thereunder, are issues which go to the admissibility of a claim, rather than the jurisdiction of the tribunal. Accordingly, it is within the permit of the tribunal to find whether such conditions precedent to arbitration had been fulfilled, and the Court does not review the correctness of the tribunal’s finding on the admissibility of the claim. There is no appeal against such finding to the courts, unless the parties have expressly and clearly provided for the contrary.

7.In this case, the Bank and the Guarantor are in dispute as to the facts, and the evidence filed by the Bank is that there had been discussions and meetings between the Bank and the Guarantor, which were attended by (inter alia) the CEO and CFO of the Guarantor, on the repayment of the project loan due. It is simply unbelievable that such a high-ranking officer and director of the Guarantor would not be representing the Guarantor, with the interests of the Guarantor at heart, when he was conducting the negotiations with the Bank and the other Defendants/borrowers.

8.More significantly, the Guarantor never raised with the Tribunal this disputed issue of the procedure, as to whether the alleged condition precedent of amicable negotiations had been fulfilled before the commencement of the Arbitration. Even if there was any defect in the procedure as is now alleged, by not raising it with the Tribunal in the hearing of the Arbitration, and keeping this up its sleeve until its opposition to enforcement, the Guarantor is in breach of its duty of good faith in the Arbitration, and has deprived the Tribunal of the opportunity to rectify the breach complained of. On the authorities, the Guarantor has clearly waived the right to complain and is estopped from raising this now as a ground to resist enforcement of the Award (Hebei Import and Export Corp v Polyteck Engineering Co Ltd (1999) 2 HKCFAR 111).

9.The first ground accordingly fails.

Inability to present case ground

10.The Guarantor claims that it was not given a reasonable opportunity to be heard on an allegedly “critical” issue in the Arbitration, as to whether the Guarantor had the authority to enter into the Guarantee, and whether the Guarantee was legally ineffective by reason of the Guarantor’s lack of authority. However, despite this being now alleged as an issue of such importance as to be critical to the outcome of the Arbitration, the Guarantor (which was of course legally represented in the Arbitration) never applied to adduce the relevant and necessary evidence on Cayman law, which it claims to be the law governing its authority to enter into the Guarantee. The Guarantor complained that it made “brief oral submissions during the Arbitration, that the issue of whether the board resolutions authorizing the entry into the Guarantee were valid is a question of Cayman law, being the law of the place of incorporation of (the Guarantor)”. According to the Guarantor, the Tribunal did not deal with this issue during the hearing and directed the parties to provide written submissions on the proper law after the hearing.

11.However, as it was the Guarantor which alleged that the Guarantee was made without due authority under Cayman law, it was surely incumbent on the Guarantor to raise this properly and in good time in the Arbitration, and to adduce the necessary expert evidence on Cayman law, if it is alleged to be relevant.

12.It is not the Guarantor’s case that it had ever asked the Tribunal for expert evidence to be adduced on Cayman law, or on any other relevant law, but that the Tribunal had refused its application. The Guarantor cannot sit on its hands and expect the Tribunal to take the initiative of asking the parties to adduce evidence on the claims they make. Nor is the Guarantor entitled to expect and wait for the Tribunal to issue directions on its own accord on any foreign law evidence to be adduced.

13.The Guarantor only complains of the fact that when it made oral submissions that it had no authority under Cayman law, the Tribunal then in response invited submissions to be made by the parties on this point after the hearing. Pursuant to this, the Bank submitted (and the Guarantor claims that this was the first time the Bank did so) that the law governing the Guarantor’s authority was in fact Hong Kong law. Having received such submissions, the Guarantor submitted on its part that the authority issue was a matter of Cayman law, but did not seek any further time to adduce any evidence on Hong Kong law, or Cayman law, as may be required to respond to the Bank’s submissions.

14.In all these circumstances, I fail to see how the Guarantor can be heard that it was unable to present its case. For its own reasons, it made the choice only to raise the lack of authority under Cayman law at the last minute, and never made any application in good time in the course of the Arbitration for leave to adduce the necessary expert evidence to establish its own case of lack of authority. Far from being deprived of the opportunity to be heard, it had only itself to blame for not taking the opportunity which was open to it to present its case on the alleged lack of authority.

15.Nor has the Guarantor shown how it has been prejudiced by the defect complained of, and how the Tribunal’s decision could have been different if the Guarantor had been given the opportunity to adduce evidence on Cayman law. There is no explanation, let alone any evidence adduced at the hearing before this Court, as to how the validity of the board resolution relied upon by the Bank and the Tribunal can be shown to be invalid or ineffective under Cayman law, and why the Guarantor did not have authority under Cayman law to enter into the Guarantee. In the absence of any serious prejudice being shown, the complaint of the Guarantor not being able to present its case on Cayman law is not made out as a ground to justify the Court’s exercise of its discretion to refuse enforcement of the Award.

Public policy ground

16.The Guarantor raised novel issues in this case as to how enforcement of the Award would be contrary to the public policy of Hong Kong.

17.On behalf of the Guarantor, Counsel referred to the policy of the National Financial Regulatory Administration and the People’s Bank of China, and claims that banks and financial institutions on the Mainland had been directed, in 2022, to provide support to real estate enterprises on the Mainland, and to support the real estate sector on the Mainland. The Guarantor also referred to the fact that on the Mainland, announcements had been made by officials and the authorities concerning banks’ management of loans, indicating a policy of official support for the economy and investment.

18.Counsel and the Guarantor even referred to the guidelines issued by the Hong Kong Association of Banks and the Monetary Authority in 1999, on the “Hong Kong Approach to Corporate Difficulties” (“HKMA Guidelines”). These guidelines relate to how banks should deal with borrowers who may be experiencing financial problems, the Guarantor emphasizing that banks should be supporting such borrowers. The Guarantor referred to the fact that under the HKMA Guidelines, when it generally becomes known that a borrower may be experiencing financial problems, banks’ initial attitude should be one of support, should not issue writs demanding repayment, should instead ensure that the borrower has sufficient liquidity to continue trading, that banks should be aware of the need to work to the overall good of the banking group, and are encouraged to liaise with other financial creditors involved in any restructuring, and not try to obtain a preferred position.

19.It was highlighted that the Guarantor and the group of which it forms part (“Group”) were undergoing restructuring, which had been underway before the commencement of the Arbitration. The Group is described as one of the leading property developers on the Mainland and in Hong Kong.

20.There is however no claim that any restructuring involving the Guarantor had been approved by the Hong Kong Court or any court, and no claim that the Bank’s debt has been included in or is affected by the terms of any restructuring approved by the Hong Kong Court or any court.

21.On behalf of the Guarantor, it was simply contended that taking into consideration the public policy embodied in the HKMA Guidelines, the Bank’s conduct of commencing the Arbitration in pursuit of its claim was not consistent with the Guidelines, and that it would be contrary to the public policy of Hong Kong to enforce the Award made in the Arbitration.

22.I reject such claim. The HKMA Guidelines are simply general guidelines to banks. As Counsel for the Bank pointed out, they are entirely voluntary in nature and do not bind any bank in Hong Kong. I do not accept that there is any public policy recognized in Hong Kong, against which it can be concluded that the Bank should be restrained from pursuing its claim against the Guarantor.

23.The announcements and the alleged policy of the Mainland likewise have no effect in Hong Kong. Counsel for the Bank pointed out that the Mainland policies are likewise only suggestive, and that the precondition is that banks and financial institutions should ensure the integrity and safety of their loans extended to property developers on the Mainland. The guidelines are under the premise of ensuring the security of creditors’ rights.

24.On the contrary, there is the public policy in Hong Kong of recognizing consensual agreements made between parties, including arbitration agreements, and awards as final and binding, which are to be enforced by the Hong Kong court unless the statutory grounds set out in either section 81, 86, 89 or 95 (as may be applicable) of the Arbitration Ordinance are established.

25.It was further contended for the Guarantor that enforcement of the Award in Hong Kong would “facilitate or condone” the Bank’s breach of foreign exchange control regulations of the Mainland. According to the Guarantor, the Guarantee is an offshore guarantee securing an onshore debt on the Mainland, and is governed by the Provisions on Foreign Exchange Administration of Cross-border Guarantee and the Measures for the Registration of Foreign Debt (“Measures”). The Guarantor pointed out that the relevant Mainland authority has, since 2012, suspended processing the registration of onshore debts secured by offshore guarantees where the funds were to be used for real estate development or the construction of self-owned properties. According to the Guarantor, the Bank could not practically, and did not in this case, complete the necessary registration of the Guarantee, and such failure is a breach of the relevant Measures which would attract administrative penalties, including a reprimand, warning and a fine.

26.There is dispute as to whether or not the registration of the Guarantee has to be initiated by the Guarantor, but that is not material in this case.

27.The truth of the matter is that the Measures have no effect in Hong Kong. The Bank also adduced evidence that it always had a branch and a registered principal place of business in Hong Kong to receive the Guarantor’s payment, and that no cross-border payment or remittance is or was required. Moreover, according to the expert evidence of the Bank, any contravention of the Measures does not render the Guarantee void, as the Guarantor accepts that such breach does not invalidate the Guarantee, and only attracts administrative penalties.

28.Significantly, although the Guarantor contends in this case that enforcement of the Award is “a stepping-stone to whitewash the Bank’s breach of the PRC regulations” and the Measures, and that the Award and its enforcement amount to facilitating the avoidance of the Measures, such a material point of breach of the Measures was never raised before the Tribunal. If there was a breach of the Measures, and if making and enforcing the Award is tantamount to condoning and facilitating a breach of the Measures, this issue must surely have been raised, and should have been raised, before the Tribunal - which is the best venue to decide the question of any breach of the law and regulations of the Mainland. There is no reason at all why this issue was not raised, and is only raised before the Hong Kong court. The Guarantor has clearly waived the right to make any challenge based on the alleged breach of PRC law or regulations.

29.The above demonstrates that there is no credence to the claim now made, that the Award or its enforcement is contrary to public policy. I reject the public policy ground, as there is no palpable illegality on the face of the Award, and I see nothing shocking to the conscience of the Hong Kong Court (A v R (Arbitration: Enforcement) [2009] 3 HKLRD), and can find nothing contrary to the fundamental conceptions of morality and justice (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111, 139), to refuse enforcement of the Award.

Disposition

30.For all the above reasons, I had no hesitation to dismiss the application to set aside the Enforcement Order, with costs to the Bank on indemnity basis, with certificate for Counsel.

Mr Kenneth CL Chan and Mr Edward Lun, instructed by YM Lawyers & Co, for the plaintiff

Mr Byron Chiu, instructed by Simmons & Simmons, for the 2^nd defendant