Sit Kwong Lam v Petrolimex Singapore Pte. Ltd

Reconsidering the Lasmos approach to winding-up petitions involving arbitration clauses

For a second time in two months, the Hong Kong Court of Appeal was asked to consider the correctness of the controversial approach adopted in the case of Lasmos Limited v. Southwest Pacific Bauxite (HK) Limited (2018) HKCFI 426 in dealing with winding-up petitions involving arbitration clauses. The issue was first brought to the Court of Appeal in the case of But Ka Chon v. Interactive Brokers LLC [2019] HKCA 873, [2019] HKEC 2473 earlier in July this year. The Court of Appeal had then expressed its reservations on the Lasmos approach but did not finally decide on its appropriateness.

In the most recent case of Sit Kwong Lam v. Petrolimex Singapore Pte. Ltd [2019] HKCA 1220, the Court of Appeal once again did not find it necessary to decide on the correctness of the Lasmos approach but warned against debtors' opportunistic attempts to invoke the Lasmos approach in future.

This article will provide an update of the latest position and what you should know if you are considering to issue statutory demands or insolvency proceedings for debt recovery in Hong Kong or if you have been served with these proceedings and your contracts are governed by arbitration clauses.

The Lasmos approach

In Lasmos, the Honorable Justice Harris substantially departed from previous Hong Kong authorities and held that save for exceptional cases, a creditor's winding-up petition should “generally be dismissed” where three requirements are met: -

If a company disputes the debt relied on by the petitioner; The contract under which the debt is alleged to arise contains an arbitration clause that covers any dispute relating to the debt; and The company takes the steps required under the arbitration clause to commence the contractually mandated dispute resolution process (which might include preliminary stages such as mediation) and files an affirmation in accordance with rule 32 of the Companies (Winding-Up) Rules, Cap 32H, demonstrating this. Before Lasmos, the debtor had to show that the petitioning debt was bona fide disputed on substantial grounds to dismiss an insolvency petition. The effect of this new approach is that the company is entitled to have the petition dismissed where there is an arbitration clause as long as the three requirements are met.

In But Ka Chon v Interactive Brokers LLC [2019] HKCA 873, the Court of Appeal did not find it appropriate to decide whether the...