Expert commentary: anti-suit injunction - the position in Hong Kong

This article was authored by legal director Edward Liu and associate Geoffrey Lai of Hill Dickinson, Hong Kong and first appeared in Arbitration Law on 01 August 2019. 

The Hong Kong Court of First Instance has, in Dickson Valora Group (Holdings) Co Ltd and Another -v- Fan Ji Qian [2019] HKCFI 482, clarified the grounds upon which an anti-suit injunction will be granted in Hong Kong. The case is discussed by Edward Liu and Geoffrey Lai of Hill Dickinson, Hong Kong.

The dispute 

The dispute arose out of a joint venture investment scheme between a group of Mexican investors and a PRC investor, i.e. Mr Fan, the defendant. In 2010, Mr Fan and the Mexican investors agreed to set up a joint venture company in Hong Kong (JV Company, the first claimant) via their respective corporate vehicles (a Hong Kong company with the name of DHE on Mr Fan’s side and a Netherlands company with the name of Moravia on the Mexican investors’ side). 

The JV Company held a PRC subsidiary (JV Subsidiary, the second plaintiff) for investing in a real estate project in China.

DHE, Moravia and the JV Company entered into a number of agreements for the investment project. Among the agreements, three agreements were relevant to the dispute: 

• Shareholders’ agreement – which contained a jurisdiction clause providing that Hong Kong law should govern the agreement and parties should resolve disputes in relation to the agreement by arbitration in HKIAC under the HKICAA Rules (the arbitration clause) 
• Supplementary agreement – which provided for a ‘success fee’ of US$3 million payable to DHE upon fulfilment of certain conditions 
• Addendum of supplementary agreement – which caused Moravia to become the majority shareholder of the JV Company and provided for a ‘success fee’ of US$3 million for each of three named individuals (the two Mexican investors of Moravia and Mr Fan)

The relationship between Mr Fan and the Mexican investors eventually broke down. In late 2012/early 2013, Moravia, being the majority shareholder of the JV Company, caused the JV Company to: (1) forfeit and cancel the shares held by DHE in the JV Company; and (2) capitalise Moravia’s loan by allotting to it 28,750,000 shares. 

The Qianhai proceedings 

In June 2018, Mr Fan commenced an action in the Shenzhen Qianhai Co-operation Zone People’s Court (Qianhai court) against the JV Company and the JV Subsidiary to claim the ‘success fee’ of US$3 million under the addendum (Qianhai proceedings). He successfully obtained from the Qianhai court a freezing order and an execution order respectively. The JV Company and the JV Subsidiary only first became aware of the Qianhai proceedings, the execution order and the freezing order around 27 August 2018. 

The JV Company and the JV Subsidiary subsequently lodged a challenge to the jurisdiction of the Qianhai court by referring to the arbitration clause; this jurisdictional challenge was, however, rejected. 

The application for anti-suit injunction 

In November 2018, the JV Company and the JV Subsidiary (collectively referred to as the ‘claimant companies’ below) commenced proceedings to seek an anti-suit injunction against Mr Fan. The injunction was to restrain Mr Fan from pursuing the Qianhai proceedings and any other similar proceedings in mainland China. 

The claimant companies relied on the arbitration clause in the shareholders’ agreement to pursue their application for the anti-suit injunction. The claimant companies relied on the court’s approach based on the principles established in the English Court of Appeal case Aggeliki Charis Compania Maritima SA -v- Pagnan SpA (The Angelic Grace) [1995] 1 Lloyd’s Rep 87. According to the Angelic Grace principles, in cases between parties to an arbitration agreement, the court will ordinarily grant an anti-suit injunction to restrain a party from suing in a noncontractual forum, unless there are strong reasons to the contrary. 

To decide whether to grant the anti-suit injunction, the court had to consider and rule on four issues:

• Whether the arbitration clause in the shareholders’ agreement was incorporated into the addendum of supplementary agreement
• Whether the Angelic Grace principles applied in the present case as Mr Fan was not a party to the shareholders’ agreement or the addendum of supplementary agreement
• Whether the Qianhai court’s judgment of rejecting the claimant companies’ jurisdictional challenge gave rise to an issue estoppel against the claimant companies
• If the Angelic Grace principles apply, whether there were strong reasons not to grant the injunction 

The court granted the anti-suit injunction and ordered Mr Fan to pay the claimant companies’ costs. 

Issue one – was the arbitration clause incorporated into the addendum? 

The court ruled that the addendum of supplementary agreement was subject to the arbitration clause in the shareholders’ agreement. The ruling was founded on the following findings: 

• The addendum of supplementary agreement was an appendix or a subsidiary addition to the supplementary agreement (i.e. the addendum substituted a provision on success fees in place of that in the supplementary agreement). The supplementary agreement was expressly intended to ‘complement’ the shareholders’ agreement. The addendum of supplementary agreement and the supplementary agreement were not standalone documents and were to be read as part and parcel of the shareholders’ agreement
• Neither the supplementary agreement nor the addendum of supplementary agreement contained separate general provisions, such as choice of law or dispute resolution. It was plain that the general provisions in the shareholders’ agreement were intended to govern these later two documents of a supplemental nature
• It would be uncommercial and unrealistic to suppose that the parties intended that their disputes under the shareholders’ agreement and the addendum of supplementary agreement respectively would be resolved in different forums by different modes of adjudication under different governing laws
   

 Issue two – were the Angelic Grace principles applicable? 

The court ruled that the Angelic Grace principles applied in the present case and an injunction should be granted to restrain Mr Fan from acting inconsistently with the inherent condition (i.e. the arbitration clause) that formed part of the basis for his right to claim (i.e. the promise of success fees), unless there were strong reasons for not doing so. 

The court acknowledged that DHE but not Mr Fan was a party to the contract. Despite this, the court found that even if Mr Fan was neither a party to the contract nor an assignee of DHE’s rights under the contract, his rights to the success fee were derived from the promise made by the claimant companies to DHE, which was subject to the arbitration clause. In pursuing proceedings in mainland China against the claimant companies, Mr Fan was seeking to claim a benefit under the contract without recognising the condition to which it was plainly subject. As such, the court should grant the anti-suit injunction to protect the claimant companies’ right to prevent a claim against them based on their contractual obligations being pursued otherwise than by the contractually agreed mode, specifically arbitration in Hong Kong. 

Issue three – was there an issue estoppel? 

The court ruled that the claimant companies’ contentions were not barred by any relevant issue estoppel arising from the judgment of the Qianhai court, as the judgment should not be recognised and enforced in Hong Kong pursuant to sections 3 and 4 of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance (Cap 46) (the Ordinance). 
The court accepted that sections 3 and 4 of the Ordinance applied in this case for the reasons that:

• The decision of the Qianhai court rejecting the claimant companies’ jurisdictional challenge was a judgment given by a court of an overseas country
• The Qianhai proceedings were brought contrary to the arbitration agreement under which the dispute in question was put forward (i.e. Mr Fan’s claim for the success fee)
• The claimant companies, as the persons against whom the judgment was given, did not agree to the bringing of the proceedings in the Qianhai court, nor did they counterclaim in those proceedings or otherwise submit to the jurisdiction of that court pursuant to section 4 of the Ordinance
• The court in Hong Kong was not bound by the decision of the Qianhai court

Issue four – were there any special circumstances against the grant of injunction? 

The court did not find any discretionary factor that suggested an anti-suit injunction should not be granted. The court rejected submissions made by counsel for Mr Fan that there was a delay in the application and it was abusive in applying for an injunction only after having failed in the jurisdictional challenge in mainland China, for the following reasons: 

• There was only a two-month gap between the claimant companies’ learning of the Qianhai proceedings and their issuance of application for anti-suit injunction in Hong Kong. No prejudice has been suffered by Mr Fan as a result of the time taken, except for the costs incurred in the jurisdictional challenge, which was adequately met by the claimant companies’ offer to compensate him
• The claimant companies would be regarded under the mainland law as having accepted the Qianhai court’s jurisdiction unless they raised a jurisdictional challenge promptly within the time allowed for filing their defence

Comment 

The decision fortifies the Hong Kong courts’ continuing pro-arbitration stance. As the judge stated in the present case, arbitral agreements and processes require the support and protection of the courts. To achieve this, the jurisdiction to grant an anti-suit injunction serves as an important supervisory means to compel parties to observe the arbitration agreement and to avoid parallel proceedings in foreign jurisdictions in breach of the arbitration agreement. This intervention by the court is not only crucial in providing the necessary support to the development of arbitration, but more importantly, to promote legal certainty and avoid conflicts between an arbitration award and a court judgment. 

It is also important for parties to business transactions to incorporate well-drafted and consistent dispute resolution clauses into the often multiple agreements/contracts in connection with the same business project. This promotes business efficacy and avoids any complications that may stem from disputes regarding the mode and venue for adjudicating any disputes. 

As a final remark, one should not see the granting of an anti-suit injunction by the Hong Kong court (to restrain a party from pursuing a claim in overseas court in breach of an arbitration agreement) as an intrusion or obstruction of the judicial sovereignty of the overseas court (as the judge pointed out at para 61 of his judgment). The purpose of an anti-suit injunction is to give effect to a pre-agreed arbitration agreement, and to preclude an obstructive party from deploying ‘forum shopping’ tactics. The injunction inserts no binding effect on the overseas court but is directed at the obstructive party only. 

It is expected that the Hong Kong courts will continue to support Hong Kong as a pro-arbitration jurisdiction and will not hesitate in disapproving conduct of dishonouring parties’ consensus to resolve their disputes via arbitration.