In Dickson Valora Group (Holdings) Co Ltd v Fan Ji Qian [2019] HKCFI 482, the Hong Kong Court of First Instance has granted an anti-suit injunction restraining mainland Chinese court proceedings commenced by Fan Ji Qian on the ground that the dispute should be referred to arbitration. Although Fan was not a signatory to the contract containing the arbitration clause, he had nevertheless sought to enforce a contractual right under that agreement, such that he was also bound by any conditions integral to the exercise of this right (including the agreement to arbitrate).

This decision shows that an arbitration agreement can, in certain circumstances, bind third parties. This is something which should be considered when drafting agreements which purport to confer a benefit on non-signatories, particularly if it is intended that third parties exercising rights under the contract should also be bound by the arbitration provisions.

Background

Moravia CV and Dickson Holdings Enterprise Co Ltd (DHE), owned by Fan, had set up a joint venture company, Dickson Valora Group (Holdings) Co Ltd (Dickson Valora) to pursue a real estate project in Mainland China. The three parties entered into a Shareholders Agreement, which contained a Hong Kong arbitration clause. The parties later entered into the Addendum, which provided that Fan was entitled to a success fee as long as Dickson Valora successfully completed the land development and was able to pay after the sales income. In June 2018, Fan commenced an action in the Shenzhen Qianhai Cooperation Zone People’s Court against Dickson Valora, claiming the success fee pursuant to the Addendum.  The Qianhai Court granted a freezing order over Dickson Valora’s assets. Dickson Valora then challenged the jurisdiction of the Qianhai court, contending that the matter was subject to arbitration. The Qianhai court rejected the challenge.

The Court of First Instance judgment

Dickson Valora, in turn, sought an anti-suit injunction from the Hong Kong Court to restrain Fan from pursuing the Qianhai proceedings and commencing similar proceedings in Mainland China. The questions before the Hong Kong Court were (i) whether the arbitration clause in the Shareholders Agreement was incorporated into the Addendum; (ii) whether the arbitration agreement bound Fan even though he was not a party to the Shareholders Agreement or the Addendum; (iii) whether the Qianhai Court’s judgment rejecting Dickson Valora’s jurisdictional challenge constituted an issue estoppel against Dickson Valora and (iv) whether there were strong reasons not to grant the anti-suit injunction.

On the first issue, the Court answered in the affirmative. The Addendum was complementary and not standalone. It was part and parcel of the Shareholders Agreement, and commercial sense dictated that a single dispute resolution clause (i.e. the arbitration clause) governed the parties’ relationships throughout.

On the second issue, the Court held that as Fan was asserting his right to the success fee, the conditions integral to this right (i.e. the Hong Kong arbitration clause) bound him. Applying the principles of equity, Fan was not allowed to act in a manner inconsistent with the arbitration clause and this did not depend on him being a party to the contract.

As regards issue estoppel, the judge noted that, pursuant to section 3 of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance (Cap 46), the Hong Kong court will not recognise and enforce a foreign judgment in breach of a dispute resolution agreement. Commencing the Qianhai proceedings was contrary to the Hong Kong arbitration clause. As such, the Qianhai Court’s judgment was unenforceable and did not bar the Hong Kong court from deciding any of the issues before it.

The Court additionally dismissed an argument that a two-month delay was “unconscionable”. Likewise it rejected arguments that the Companies were guilty of abuse of process and having “two bites of the cherry”, by applying for the anti-suit injunction in Hong Kong only after their jurisdictional challenge in the Mainland had failed.

For further information, please contact Briana Young, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

Simon Chapman
Simon Chapman
Partner, Hong Kong
+852 2101 4217
May Tai
May Tai
Partner, Hong Kong
+852 2101 4031
Kathryn Sanger
Kathryn Sanger
Partner, Hong Kong
+852 2101 4029
Martin Wallace
Martin Wallace
Of Counsel, Hong Kong
+852 2101 4134
Briana Young
Briana Young
Professional Support Consultant, Hong Kong
+852 2101 4214