To injunct or to not injunct – and if so, where at? That is the question that many face when foreign just and equitable winding-up proceedings have been taken out, despite the presence of an arbitration clause governing the contractual dispute. Can one bypass arbitration in order to save costs and time?
As mentioned in our earlier article, the case of X v Y [2025] HKCFI 4796 serves as useful guidance for litigants when facing such a dilemma.
Grant of Anti-Suit Injunction
Citing Bank A v Bank B [2024] 5 HKLRD 250, the Court stated that it would generally, under the Arbitration Ordinance and High Court Ordinance, grant an anti-suit injunction to restrain litigation proceedings if such continuation would breach an arbitration agreement in place between the parties. Strong reasons would be required to displace such a prime facie right.
The Court also confirmed that there is no requirement that the claimant of an injunction application should first make an application to the foreign court for a stay of foreign proceedings, before seeking an anti-suit injunction in HK.
Due to HK’s pro-arbitration stance, HK courts will give effect to the parties’ contractual agreement as far as possible. This is not a blanket stance, as it will ultimately depend on the terms of the arbitration agreement – for example, if drafted widely, the relevant arbitration agreement clause would govern the existence, validity, interpretation, performance, breach and termination of the agreement.
Division in Power – BVI Courts and Arbitral Tribunal
Critically, the Court also considered the difference in powers between BVI Courts and arbitral tribunals being appointed to adjudicate disputes.
With reference to BVI law (as the Defendant was seeking to wind up a BVI company on just and equitable grounds and appoint liquidators over the same), the appointed BVI law experts agreed that the recent Privy Council case of FamilyMart China Holding Co Ltd (Respondent) v Ting Chuan (Cayman Islands) Holding Corporation (Appellant) [2023] UKPC 33 would be followed by the BVI Courts.
In FamilyMart, the issue was concerned with whether any part of a petition to wind up a company on just and equitable grounds is susceptible to arbitration. When determining whether a matter should be referred to arbitration, the Privy Council held that the court must first determine what matters are raised in the court proceeding, and then determine in relation to each such matter, whether it falls within the scope of the arbitration agreement.
In that case, it was held that the following issues had to first be determined by an arbitral tribunal because it fell within the scope of the parties’ arbitration agreement, unless the parties waived such a right:
- Whether the petitioner had lost trust and confidence in the conduct and management of the company’s affairs as a result of lack of probity; and
- Whether the relationship between the petitioner and respondent had irretrievably broken down.
Accordingly, a mandatory stay of the winding-up petition was granted. It is only after a determination of such substantive disputes can a Cayman court then grant the remedies under section 95 of the Companies Act, for example:
- Whether it is just and equitable that the company should be wound up;
- Whether a share buy-out should be ordered as an alternative relief; and
- Whether a winding up order should be made if the alternative relief of a share buy-out is inappropriate.
The nuances of the division in power between the BVI Courts and an arbitral tribunal mean that applicants need to carefully consider the remedies that it is seeking during arbitration proceedings.
Skipping the pre-requisite first step may appear to be a calculated gamble on accelerating the process and saving costs, but if deemed to be improper and an abuse of process, it will lead to parties incurring even more costs without being able to gain any substantive relief until much later.
Conclusion
It is important that parties seek proper legal advice before proceeding, as the proper route will ultimately depend on the scope of the arbitration agreement, as well as the relevant jurisdiction.
Please contact us if you would like to seek guidance on how to navigate such disputes.