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Dayang v. Asia Master Logistics Endorsed by the Privy Council: Second Life to the Triable Issue Standard in Hong Kong?

20 Jun 2024  |  Author: Cyrus Chua

In Sian Participation v. Halimeda International [2024] UKPC 16, Lords Briggs and Hamblen, delivering judgment on behalf of the Board, endorsed the traditional approach to winding-up petitions. Their Lordships confirmed that a debtor’s duty to show that the debt is genuinely disputed on substantial grounds (“Triable Issue Standard”) remains undiluted even if the contract from which the debt arose contains an arbitration clause.

The Board’s reasoning, echoing that of DHCJ William Wong SC in Dayang v. Asia Master Logistics [2020] 2 HKLRD 423 (endorsed at §§82, 98), can be summarised as follows:

  1. A winding up petition does not resolve any dispute or enforce payment of the debt (at §88). Creditors must still prove the debt in the liquidation process, and liquidator remains free to challenge the debt both as to liability and quantum (at §33).
  2. There is no breach of the arbitration clause (both its proscriptive and prescriptive obligations) by bringing a winding up petition since nothing is resolved in that process (at §89). The Companies Court’s use of the Triable Issue Standard in a winding up petition does not contravene party autonomy as it is employing only a light touch approach that does not lead to a judgment or anything similar (at §96).
  3. Party autonomy is not violated by the Triable Issue Standard because “seeking a liquidation is not something which the creditor has promised not to do” and by ordering a liquidation the court is not resolving anything about the debt (at §92).

It will be interesting to see whether the Board’s decision would be followed in Hong Kong, where the leading appellate authority remains the Court of Final Appeal’s decision in Re Guy Kwok Lam (2023) 26 HKCFAR 119. In that case, the court disapplied the Triable Issue Standard when the debt is subject to an exclusive jurisdiction clause – an approach since extended to arbitration clauses in Re Shandong Chenming [2024] HKCA 352.

One possibility, foreshadowed in Sian Participation, might be to interpret the outcome of Re Guy Kwok Lam as turning on construction. As Lords Briggs and Hamblen noted at §66:

[Does] the bringing of the petition, or the resolution of issues within the petition proceedings, involve a breach of the exclusive jurisdiction clause? This will depend on the proper interpretation of the exclusive jurisdiction clause. The reason for granting a stay in relation to such clauses is the parties’ contractual bargain – pacta sunt servanda. If there is no breach of the clause then there is no basis for a stay. As with arbitration agreements, most generally worded exclusive jurisdiction clauses are concerned with dispute resolution and the determination of disputed rights and obligations.” (Emphasis added)

It is worth recalling that the exclusive jurisdiction clause in Re Guy Kwok Lam was framed very broadly, requiring “all legal proceedings arising out of or relating to this Loan Agreement” to be submitted to the exclusive jurisdiction of the New York courts. Since bankruptcy proceedings constitute one such “legal proceeding,” it is understandable why Re Guy Kwok Lam was decided as it was: where the exclusive jurisdiction clause explicitly encompasses bankruptcy proceedings, it would arguably be a breach for a creditor to initiate bankruptcy proceedings when the debt remains disputed. But the same is not true for standard arbitration clauses and exclusive jurisdiction clauses that do not typically refer to winding up or bankruptcy proceedings. In such cases, the approach suggested by the Court in the Dayang case and the Privy Council might well present a compelling alternative.

Written by Mr Cyrus Chua from Des Voeux Chambers.

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