Hong Kong Court Follows the Tide in Affirming its Power to Grant Anti-Suit Injunctions to Restrain Foreign Court Proceedings Brought in Breach of Arbitration Agreements
Ever Judger Holding Company Limited v Kroman Celik Sanayii Anonim Sirketi (HCCT 6/2015
In Ever Judger Holding Company Limited v Kroman Celik Sanayii Anonim Sirketi (“Ever Judger”), Godfrey Lam J of the Hong Kong Court of First Instance held that the Hong Kong courts have the power to grant an anti-suit injunction to restrain a party to a Hong Kong seated arbitration from pursuing foreign court proceedings where the subject matter falls under the arbitration agreement. However, he left open the question on whether the powers should be exercised as an interim measure or as part of its general powers to grant injunctions.
Ever Judger follows a line of recent decisions in England (see AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC  1 WLR 1889) and Singapore (see R1 International Pte Ltd v Lonstroff AG  3 SLR 166, overturned on appeal on a different point) affirming the court’s powers to grant an anti-suit injunction to restrain a party from commencing foreign court proceedings in breach of the arbitration agreement.
Ever Judger is therefore another pro-arbitration decision of the Hong Kong judiciary.
The plaintiff is a shipowner which was responsible for shipping a cargo of iron and steel products from China to Turkey. The defendant buyer is one of the largest producers of steel products in Turkey. The bill of lading incorporated the voyage charterparty. The arbitration agreement in the voyage charterparty reads:
“This contract shall be governed by English law and constructed [sic] in accordance with English law and any dispute arising out of or in connection with this contract shall be referred to arbitration in Hong Kong in accordance with Hong Kong Arbitration Ordinance.”
A dispute arose between the parties concerning damage done to the cargo during its discharge. The defendant buyer brought Turkish court proceedings in the Gebze region to recover damages from the plaintiff shipowner (“Turkish Court Proceedings”). The plaintiff shipowner challenged the jurisdiction of the Turkish Court without prejudice to the filing of its defence on the merits and had also posted security for the defendant buyer’s claim. The jurisdictional challenge is still pending before the Turkish Court. The defendant buyer then commenced litigation in the Turkish court in Istanbul to recover its losses suffered from the damaged cargo.
Meanwhile, the plaintiff shipowner served a notice of arbitration against the defendant buyer in Hong Kong and also applied to the Hong Kong court for an interim anti-suit injunction to restrain the defendant buyer from continuing the Turkish Court Proceedings.
Decision by the Court
The Source of the Power to Grant An Anti-Suit Injunction In Aid of Arbitration
Counsel for both parties agreed that the Hong Kong court had the power to grant an anti-suit injunction as an interim measure pursuant to s. 45 of the Arbitration Ordinance (Cap. 609) (read with s. 35). Notwithstanding the parties’ agreement, Lam J took the opportunity to express his views (without deciding) that the source of the Court’s power should instead be s. 21L of the High Court Ordinance (Cap. 4).
1. The relevant extracts from s. 45 (read with s. 35) of the Arbitration Ordinance and s. 21L of the High Court Ordinance read:
s 45, Arbitration Ordinance
(2) On the application of any party, the Court may, in relation to any arbitral proceedings which have been or are to be commenced in or outside Hong Kong, grant an interim measure.
(5) – (7): various restrictions on the grant of interim measures for arbitrations seated outside Hong Kong (eg. arbitral proceedings must give rise to an award enforceable in Hong Kong etc…)
(10) A decision, order or direction of the Court under this section is not subject to appeal.”
s. 35, Arbitration Ordinance
(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:
(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;
s.21L, High Court Ordinance
“The Court of First Instance may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the Court of First Instance to be just or convenient to do so.”
2. It is important to identify the source of the power because the scope of the injunctive relief is wider under the High Court Ordinance than the Arbitration Ordinance.
|s.21L, High Court Ordinance||s.45, Arbitration Ordinance|
|1||Injunction can be both interim and final||Only interim injunctions|
|2||No need for actual or contemplated arbitration proceedings||Need to have actual or contemplated arbitration proceedings|
|3||No statutory restrictions on injunctions in aid of foreign seated arbitrations||Multiple statutory restrictions on injunctions in aid of foreign seated arbitrations|
|4||Grant or refusal of injunction can be appealed||Grant or refusal of injunction cannot be appealed|
3. An anti-suit injunction to restrain foreign proceedings is unlikely to satisfy the statutory criteria for grant of interim measures.
- An anti-suit injunction may not necessarily relate to actual or contemplated arbitral proceedings. It is simply to enforce the negative covenant in an arbitration agreement that parties should not to bring their dispute before any forum other than arbitration.
- It is unclear how foreign proceedings are likely to cause current or imminent harm or prejudice to the arbitral process.
However, Lam J did not find it necessary to express a view because the appropriate source of the Court’s power would not make a difference in this case.
The Test for an Interim Anti-Suit Injunction
Lam J primarily reviewed English case law concerning the grant of anti-suit injunctions to restrain breaches of exclusive jurisdiction clauses and arbitration agreements and concluded that:
“It is clear, therefore, as a matter of Hong Kong law that the court in this jurisdiction should ordinarily grant an injunction to restrain the pursuit of foreign proceedings brought in breach of an agreement for Hong Kong arbitration, at any rate where the injunction has been sought without delay and the foreign proceedings are not too far advanced, unless the defendant can demonstrate strong reason to the contrary.”
As to what constitutes a “strong reason”, Lam J noted that this was not elaborated upon in case law and that this was a fact sensitive question. The balance of convenience between the competing forums and which forum is more appropriate for the trial are irrelevant.
In addition, as an injunction is an equitable remedy, it is subject to all the equitable defences, such as the maxim that “he who comes to equity must come with clean hands”. In this regard, Lam J held that the equitable defences are distinct from the need to show a strong reason why the anti-suit injunction should not be granted.
The defendant buyer raised three arguments to resist the anti-suit injunction, which were all rejected by Lam J.
- Firstly, the defendant buyer alleged that the doctrine of unclean hands applied. This is because the plaintiff shipowner’s master had fraudulently issued a clean bill of lading by not recording the damage caused to the cargo in the bill of lading. However, Lam J was not comfortable with making a finding of fraud on contested affidavit evidence alone and the evidence was not compelling enough to show that fraud had taken place.
- Secondly, there were parallel Turkish court proceedings between the defendant buyer and its insurers in Istanbul which would deal with the same issues on how the cargo was damaged. The defendant buyer alleged that the anti-suit injunction will lead to huge duplication at vast cost and cause a fragmentation of the dispute between the defendant buyer, insurer and the plaintiff shipowner. However, Lam J was not persuaded by these arguments.
- The Turkish Court Proceedings between the parties and the Turkish court proceedings between the defendant buyer and its insurer were taking place in different Turkish provinces under entirely different courts. There is no suggestion that the two cases could be consolidated and tried before a single court if the anti-suit injunction was refused. In this regard, the risk of inconsistent findings remains if the anti-suit injunction was not granted.
- Even if the anti-suit injunction is refused, the Hong Kong arbitration may still continue. This may lead to a rush to judgment by both parties to get either the Hong Kong arbitration or Turkish Court Proceedings decided first, so as to generate an issue estoppel against the other party for the other set of proceedings.
- The fact that the Turkish Court has not yet decided the jurisdictional challenge is not a “strong reason”. The Hong Kong court has to uphold the arbitration agreement where the defendant buyer agreed not to put the plaintiff shipowner to the expense and trouble of challenging the Turkish Court’s jurisdiction. Moreover, it would be less offensive to the Turkish Court if the Hong Kong court granted the anti-suit injunction before the Turkish Court decides to assume jurisdiction. Accordingly, a grant of an anti-suit injunction shows no disrespect or unfriendliness to the Turkish Court.
- To mitigate the prejudice arising from parallel proceedings between the Hong Kong arbitration and the Turkish court proceedings involving the defendant buyer and insurer, the plaintiff shipowner agreed to provide the arbitral award and evidential record in the Hong Kong arbitration as evidence to the Turkish court.
- Thirdly, the defendant buyer accused the plaintiff shipowner of delay in applying for an anti-suit injunction, which Lam J dismissed because:
- the plaintiff shipowner had acted swiftly by inviting the defendant buyer to withdraw the Turkish Court Proceedings a month after it started; and
- the application for anti-suit injunction was made a day after the defendant buyer indicated its refusal to withdraw the Turkish Court Proceedings.
The Order Granted
For the above reasons, Lam J ordered the continuation of the anti-suit injunction until further order on condition that the plaintiff shipowner consent to the arbitral award and evidential record being made available to the Turkish court for the proceedings between the defendant buyer and insurer. The parties were also asked to consider whether a mechanism for transfer of the security posted in the Turkish Court should be worked into the draft order.
This is an admirable judgment by Lam J where he had extensively reviewed the case authorities and distilled the relevant legal principles.
However, one wonders whether the test for restraining the foreign court proceedings should have been stricter. Consider the case where a party to an arbitration agreement commences Hong Kong court proceedings in breach of an arbitration agreement. In such cases, the Hong Kong court is obliged under Section 20 of the Arbitration Ordinance (incorporating Article 8 of the UNCITRAL Model Law) to stay such proceedings unless the arbitration agreement is “null and void, inoperative or incapable of being performed”. The test under Section 20 appears relatively stricter and narrower than the test in Ever Judger (i.e. strong reason, no delay, equitable defences etc…)
The reason behind the disparity in approach could be that comity and policy will intervene once a foreign court is involved. In that case, would it not be more appropriate for the test for restraining foreign court proceedings to be limited to comity and policy considerations and not to reasons personal to the parties themselves (eg. risk of inconsistent findings in parallel court proceedings, costs, delay, equitable defences etc…)?
Particularly, where the foreign state is a UNCITRAL Model Law jurisdiction, it is difficult to see what reasons of comity and policy there are because the foreign court is likely to restrain the proceedings before it unless the arbitration agreement is “null and void, inoperative or incapable of being performed”.
Perhaps the connection between Section 20 and the grant of an anti-suit injunction can be explored when another case comes along?