Max Cross Partner
Dayang (HK) Marine Shipping Co, Ltd v. Asia Master Logistics Ltd 
In Dayang (HK) Marine Shipping Co, Ltd v. Asia Master Logistics Ltd  HKCFI 311, the Hong Kong Court of First Instance declined to dismiss a winding-up petition where a debtor was unable to show the existence of a bona fide dispute on substantial grounds, notwithstanding the presence of an arbitration clause in the underlying contract.
Dayang (HK) Marine Shipping Co., Limited (the “Shipowner”), and Asia Master Logistics Limited (the “Charterer”), entered into a charterparty whereby the Shipowner chartered its vessel, MV “Aoli 5” (the “Vessel”) to the Charterer for a period of 40 days +/- 10 days. The Charterparty was on the NYPE 93 form.
The Charterparty provided for disputes to be resolved by arbitration in Hong Kong under English law.
The Charterer failed to pay a number of instalments of hire due under the Charterparty. The Shipowner served a statutory demand in respect of the sums due and, when the demand went unsatisfied after the required period of 21 days, presented a winding-up petition.
The Charterer did not deny the existence of the debt, but did raise an alleged counterclaim. The counterclaim had several aspects, relating both to the physical state of the Vessel and the conduct of the Master and crew.
The Charterer was not able to quantify its counterclaim, nor, therefore, to say whether it would be of such a size as to extinguish the debt due to the Shipowner.
It was submitted by the Charterer that the dispute should be dealt with by way of arbitration, pursuant to the arbitration clause contained in the Charterparty. The Charterer accordingly asked the Court to dismiss the winding-up petition in order to allow that to happen.
The interaction between winding-up petitions and arbitration agreements in underlying contracts has been the subject of several decisions in recent years, both in Hong Kong and in other common law jurisdictions. It is clear that a winding-up petition should be dismissed where the debt is disputed in good faith and on substantial grounds. There have, however, been differing views as to how this should be applied where the contract underlying the debt contains an arbitration clause.
The two schools of thought on this issue are referred to in this decision as the “Traditional Approach” and the “Lasmos Approach”.
The Lasmos Approach
The decision in Lasmos Limited v. Southwest Pacific Bauxite (HK) Limited  HKCFI 426 (“Lasmos”) stated that a winding-up petition should generally be dismissed where:
- The contract underlying the debt contains an arbitration clause which covers any dispute relating to the debt;
- The debtor takes steps to commence arbitration accordingly; and
- The debtor files an affirmation demonstrating this.
The Traditional Approach
The Traditional Approach differs from the Lasmos Approach in that it maintains the requirement for the debtor to show a bona fide dispute on substantial grounds. If the petitioner is clearly right then there is no bona fide dispute and a winding-up order will be made, regardless of any arbitration clause in the underlying contract.
In this case, the Court followed the Traditional Approach.
The judgment sets out that whilst the parties’ freedom of contract must be protected, the extent to which contractual rights ought to be protected by the Court depends on the scope of those rights and obligations. In particular, an arbitration clause imposes an obligation to have disputes that fall within its scope determined, or resolved, by arbitration.
However, the Court has discretion to make a winding-up order, and this discretion would be fettered under the Lasmos approach.
The Court therefore made a winding-up order against the Charterer, finding:
- To dispute the existence of a debt, the debtor cannot simply deny the debt, but must show there is a bona fide dispute on substantial grounds.
- The Court maintains its discretion regardless of whether or not there is an arbitration agreement.
- Commencing arbitration proceedings is not sufficient proof of a bona fide dispute, but may constitute relevant evidence.
- Where a creditor petitions for a winding-up order on a debt where there is a bona fide dispute based on substantial grounds, it risks being liable to pay the debtor's costs on an indemnity basis (and potential liability for the tort of malicious prosecution).
With the above in mind, the Court undertook a substantive review of the Charterer’s alleged counterclaim in this case, quickly reaching the view that “…on any analysis, the Debt is not being disputed in good faith on substantial grounds.” Accordingly, the Court made the Winding-up Order sought in relation to the Charterer.
This decision is a clear victory for the Traditional Approach over the Lasmos Approach and is thus very much a creditor-friendly decision. It remains to be seen whether this will mark the end of the Lasmos Approach, but it certainly seems to be losing favour, at least in Hong Kong.
This significantly strengthens a creditor’s hand, making the statutory demand and winding-up petition route attractive, even where the underlying contract contains an arbitration clause. Debtors can no longer be confident that they will be able to defeat such a petition simply by pointing at the arbitration clause and taking some very basic steps to commence arbitration and show that they have done so.
Notwithstanding the above, creditors should also be mindful that a winding-up petition should not be used as a means to apply improper pressure on a counterparty where there is a genuine dispute. The Courts remain highly critical of such tactics and have emphasised their willingness to penalise them in costs.
This article was co-authored by Sophie Forsyth, Legal Assistant.
新闻 / Ince celebrates one year since Scotland office opening
23-11-2022 / 保险, 航运, 房地产
We are pleased to be celebrating one year since opening our first Scottish office in the city of Glasgow. Stefanie Johnston, dual-qualified Partner and Head of Scotland, has worked tirelessly over the last year to develop our offering through the opening of an Ince office in what is arguably an established Scottish market. Starting from the ground up, Stefanie and her team have successfully gained an admirable reputation in the region and further afield in the maritime, insurance, real estate and regulatory sectors.
新闻 / Shipping E-brief November 2022
17-11-2022 / 航运
The Shipping E-Brief is a publication providing you with key information on legal decisions and developments in shipping and related business areas.
新闻 / Appeals from arbitration: is reform required?
15-11-2022 / 航运
In September 2022, the UK Law Commission published a consultation paper with provisional recommendations for updating the Arbitration Act 1996 (the Act 1996). Amongst other things, the Law Commission considered whether any changes need to be made to: (i) s.67 of the Act 1996, which deals with jurisdictional challenges to arbitral awards; and (ii) s.69 of the Act 1996, which deals with appeals on points of law.
新闻 / Owners not in breach of charter and entitled to claim demurrage
09-11-2022 / 航运
CM P-MAX III Limited v. Petroleos Del Norte SA (MT Stena Primorsk)  EWHC 2147 (Comm) This recent laytime and demurrage dispute demonstrates that an owner can legitimately refuse orders where such orders may jeopardise the safety of a vessel.
新闻 / Court of Appeal finds owner should have accepted non-contractual performance
09-11-2022 / 航运
Mur Shipping BV v. RTI Ltd  EWCA Civ 1406 A majority of the Court of Appeal has held that the Owner under a contract of affreightment (COA) should have accepted payment of freight in Euros, rather than the US dollars provided for in the COA. Its refusal to do so meant that the Owner could not rely on the force majeure clause in the COA, in circumstances where US sanctions might have restricted US dollar transfers from or on behalf of the Charterer.
新闻 / “Due” means due!
03-11-2022 / 航运
Ceto Shipping Corporation v. Savory Inc (Victor 1)  EWHC 2636 (Comm) The Court in this case had to construe a purchase option clause in a bareboat charter. Specifically, it considered whether the fact that the charterer had not fulfilled certain payment obligations under the charter because it was disputing them in good faith meant that the owner was not obliged to transfer title to the vessel at the end of the charter period.