HONG KONG COURT GRANTS INTERIM ANTI-SUIT INJUNCTION IN FAVOUR OF ARBITRATION TO RESTRAIN COURT PROCEEDINGS INVOLVING THIRD PARTY

In GM1 and GM2 v KC [2019] HKCFI 2793, the Hong Kong Court of First Instance granted an interim anti-suit injunction restraining mainland Chinese court proceedings involving a third party, and clarified the jurisdiction basis for doing so.

The decision reflects the long-standing pro-arbitration approach of the Hong Kong courts and confirms that arbitration clauses are not to be interpreted narrowly, but may cover claims against the non-contracting affiliates or associates of a contracting party. The decision also reiterates that in considering an application for an anti-suit injunction, the question for the Court remains whether or not its jurisdiction is invoked, and the fact that the foreign Court would assume jurisdiction and refuse to stay the foreign proceedings is not relevant.

Background

GM1 and KC entered into a guarantee (Guarantee) which contained an arbitration clause in favour of arbitration in Hong Kong administered by the Hong Kong International Arbitration Centre.

KC later commenced legal proceedings in the Court of Suzhou (Mainland Proceedings) against GM1 and GM2, the latter being an affiliate of GM1 who was not a party to the Guarantee. In parallel, there were pending arbitration proceedings between GM1 and KC pursuant to the Guarantee, and related arbitration proceedings between GM1 and a wholly-owned subsidiary of KC.

GM1 and GM2 sought an anti-suit injunction from the Hong Kong Court to restrain KC from pursuing the Mainland Proceedings and commencing further proceedings in breach of the arbitration agreement, and an “interim-interim” injunction in the same terms pending the substantive hearing of the injunction application.

Decision on interim-interim injunction

The Court did not determine the substantive interim injunction application, only the “interim-interim” injunction.

In the present application, the questions before the Hong Kong Court were:

  1. whether the Court had power to grant an interim anti-suit injunction in favour of an arbitration in Hong Kong under section 45 of the Arbitration Ordinance (AO);
  2. whether the proper course would be to leave it to the Mainland Court to recognise and enforce the arbitration agreement (including determining the validity of the arbitration clause); and
  3. whether the Court can grant an anti-suit injunction in relation to proceedings commenced against a third party such as GM2.

On the first issue, the Court confirmed that it has power under AO section 45 to grant an interim anti-suit injunction. The objects of the AO are to facilitate fair and speedy resolution of disputes by arbitration without unnecessary expense and enforce arbitration agreements. Specifically, the Court has power under AO section 45 to grant interim measures which, pursuant to AO section 35, include an order to “maintain or restore the status quo pending determination of the dispute“. An anti-suit injunction is to enforce the positive promise of a party to arbitrate disputes and the negative right not to be vexed by foreign proceedings, and is therefore in line with AO section 35 to maintain such status quo pending determination of the dispute. The Court therefore had the power to grant an anti-suit injunction under AO section 45.

On the second issue, the Court held that the following grounds were not grounds to refuse the anti-suit injunction / not stay the Mainland Proceedings:

  1. that the Mainland Court may insist on its own jurisdiction and would not have granted a stay of the proceedings;
  2. that it may not be possible for KC to discontinue or withdraw from the Mainland Proceedings after its case had been accepted by the Mainland Court; and
  3. that the existence and validity of the arbitration clause was disputed.

As a matter of principle, the arbitral tribunal can decide on its own competence and jurisdiction, and, as the supervisory court, the Hong Kong Court has jurisdiction to review the findings of the tribunal on its own jurisdiction. The Court further noted that, if GM1 and GM2 later sought enforcement of the award in the Mainland, it would be open to the Mainland Court to review at that point in time the validity of the arbitration agreement and resist enforcement on that basis.

On the third issue, the Court held that anti-suit relief may be granted against a third party if the arbitration agreement can be construed to cover claims not only against the contracting party, but also against the non-contracting affiliates or associates of the contracting party. This is based on the principle in Giorgio Armani SpA v Elan Clothes Co Ltd [2019] HKCFI 530 that rational businessmen would have wanted the disputes with affiliates of the contract to be decided in the same forum in the same manner of dispute resolution. The Court did not decide decisively on the third issue, but it was satisfied that there was a serious question to be tried in the adjourned substantive hearing for the interim injunction application as to whether KC’s claims against GM2 in the Mainland Proceedings should be dealt with by the same arbitral tribunal based on the specific circumstances in relation to the existence, validity and binding effect of the Guarantee and its arbitration agreement.

For these reasons, the Court concluded that it was within the jurisdiction of the Court, and that it was just and fair to grant the interim injunction pending the conclusion of the substantive hearing of the injunction application.

Comment

This decision demonstrates the Court is prepared and equipped to grant an anti-suit injunction to restrain a party from pursuing non-arbitral proceedings even against a third party, to the extent that such proceedings are covered by the arbitration agreement. The fact that the foreign Court may insist on its jurisdiction and refuse to stay the foreign proceedings is no bar to the Hong Kong Court granting an anti-suit jurisdiction.

This case also serves as a helpful reminder that parties should carefully consider the implications of parallel proceedings and seek legal advice for each particular case if necessary.

May Tai
May Tai
Managing Partner, Greater China
+852 2101 4031

Kathryn Sanger
Kathryn Sanger
Partner, Hong Kong
+852 2101 4029

Simon Chapman
Simon Chapman
Partner, Hong Kong
+852 2101 4217

 

High Court grants anti-suit injunction, having found that the parties to an insurance policy had agreed to arbitration despite a Service of Suit clause

In Hiscox Dedicated Corporate Member v Weyerhaeuser Co [2019] EWHC 2671 (Comm), the High Court (the English Court) continued an anti-suit injunction against the defendant (Weyerhaeuser), having been satisfied to a high degree of probability that the parties had agreed to submit their dispute to London arbitration.

The central question was one of contractual interpretation: whether, on a true interpretation of the relevant excess insurance policy (the Policy), the ‘service of suit’ clause entitled the insured, Weyerhaeuser, to pursue its substantive claim against its Insurers before the District Court in the State of Washington (the US Court), or whether Weyerhaeuser was compelled to arbitrate.

While this case illustrates the importance of clear drafting when incorporating an arbitration clause in any context, in an insurance context the decision emphasises the importance of ensuring consistency, to the extent possible, in dispute resolution clauses that are used within a tower of insurance to minimise the risk of disputes.

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HONG KONG: COURT GRANTS ANTI-SUIT INJUNCTION TO RESTRAIN FOREIGN PROCEEDINGS IN BREACH OF AN ARBITRATION AGREEMENT UNDER AN INSURANCE POLICY

In the recent case of AIG Insurance Hong Kong Ltd v Lynn McCullough and William McCullough [2019] HKCFI 1649, the Hong Kong Court of First Instance (CFI) considered the effect of an arbitration agreement under an insurance policy and, in particular, the circumstances in which an anti-suit injunction may be granted to restrain a party from pursuing foreign proceedings.

The CFI held that, as a matter of Hong Kong law, a party is not entitled to found a claim on rights arising out of an insurance policy without also being bound by the dispute resolution provisions in the policy. The CFI went on to hold that an anti-suit injunction will ordinarily be granted to restrain such a claimant from pursuing proceedings in a non-contractual forum unless there are strong reasons to the contrary.

The full judgment is available here.

BACKGROUND

The underlying facts of the case relate to an accident which took place whilst Mrs Lynn McCullough and Mr William McCullough were on holiday in the Caribbean in 2015. During that holiday, Mrs McCullough suffered a fall from a zip line, owned and operated by Rain Forest Adventures (Holdings) Ltd, Rain Forest Sky Rides Ltd and Rain Forest Tram Ltd (together, Rain Forest), and was rendered permanently quadriplegic.

AIG Insurance Hong Kong Ltd (AIG) had previously issued a Directors’ and Officers’ Liability Insurance Policy to Rain Forest (the Policy). The Policy covered Rain Forest (as the policyholder) and its directors, including a Mr Harald Joachim von der Goltz. The Policy referred any disputes arising under the Policy to arbitration in Hong Kong under the rules of the Hong Kong International Arbitration Centre (HKIAC).

On 15 January 2016, the McCulloughs commenced a claim in the Florida courts against several defendants, including Rain Forest, alleging negligence in the operation of the zip line excursion. They sought damages for the injuries that Mrs McCullough sustained.

On 14 July 2016, the McCulloughs filed a Second Amended Complaint adding Mr von der Goltz as a defendant, who subsequently gave notice to AIG that he was seeking an indemnity under the Policy as a director of the policy holder. The claim was rejected by AIG on the basis that claims resulting from a bodily injury were excluded under the Policy.

On 24 April 2018, a dispute resolution agreement was entered into by the McCulloughs and the Rain Forest defendants now including Mr von der Goltz. This agreement was approved by the Florida court which referred the matter to arbitration. The arbitration award was subsequently issued on 28 May 2018 and judgment was entered into on 12 July 2018 in favour of the McCulloughs against, among others, Mr von der Goltz, in the sum of US$ 65.5 million.

On 20 August 2018, the McCulloughs filed the Third Amended Complaint adding AIG as a defendant. The Third Amended Complaint contained a “common law tort claim available under Florida law against [AIG] for having failed to act in good faith in handling, litigating, and settling the US Proceedings, resulting in an excess judgment (i.e. judgment in excess of Policy limits) being entered into against the insured, Mr. von der Goltz” (the Bad Faith Claim). The nature of the Bad Faith Claim was that if AIG had honoured the Policy and provided Mr von der Goltz with US$ 5 million in coverage (i.e. the Policy limit), it would have been possible for him to have settled the McCulloughs’ claim. It was submitted that this failure by AIG exposed Mr von der Goltz to a liability of US$ 65.5 million and as a result, he had a claim against AIG for this amount. The right to claim directly against AIG for the US$ 65.5 million was said to be based on the McCulloughs being judgment creditors of Mr von der Goltz.

In the instant case, there were two applications before the CFI:

  1. An application from AIG for a continuation of an ex parte injunction originally issued on 18 December 2018 by DHCJ Simon Leung restraining the McCulloughs from pursuing proceedings in the Florida courts against AIG on the basis that the Policy provides that all disputes regarding coverage under the Policy should be settled by arbitration in Hong Kong under the HKIAC Rules; and
  2. An application from the McCulloughs for, amongst other things, (1) a declaration that the CFI should not exercise any jurisdiction that it may have; and (2) an order staying the action in the Hong Kong courts in favour of the proceedings in the Florida courts.

AIG’s position was that the underlying issue of coverage under the Policy should be determined by arbitration in Hong Kong under the HKIAC rules, irrespective of whether or not the McCulloughs were the insured under the Policy.

The McCullough’s position was that their cause of action against AIG was a freestanding tortious claim and that, as non-parties to the Policy, they cannot be compelled to arbitrate it.

Accordingly, the principal question for the CFI to decide was whether the proceedings commenced by the McCulloughs in the Florida courts, despite the McCulloughs not being parties to the Policy, amounted in substance to a claim to enforce the Policy such that the McCulloughs were bound by the agreement to arbitrate as set out in the Policy.

DECISION

The CFI accepted the position of AIG that the dispute was to be resolved in accordance with the dispute resolution procedure provided for in the Policy, namely by arbitration in Hong Kong under the HKIAC rules, and exercised its equitable jurisdiction to grant an anti-suit injunction restraining the McCulloughs from pursuing proceedings in the Florida courts.

The CFI held that the relevant issue for the purposes of determining whether the anti-suit injunction should be granted was whether there was coverage under the Policy: “Such issue is clearly contractual, since it determines the liability of the insurer to the insured under the terms of the policy“. The CFI went on to hold that the establishment of coverage is a pre-condition to the Bad Faith Claim against AIG and, as a matter of Hong Kong law, the governing law of the Policy, AIG is entitled to have it determined in accordance with the contractual procedure.

In this regard, the CFI followed the principle applied in Qingdao Huiquan Shipping Company v Shanghai Dong He Xin Industry Group Co Ltd [2018] EWHC 3009 (Comm) that a party “is not entitled to found a claim on rights arising out of a contract without also being bound by the forum provisions of that contract“.

The CFI concluded that an anti-suit injunction will ordinarily be granted to restrain a claimant from pursuing proceedings in a non-contractual forum unless there are strong reasons to the contrary, whether the claimant is a party to the policy or not. The basis of the CFI’s decision was that a dispute resolution provision is an essential part of the contractual basis upon which coverage arises under an insurance policy, and a party seeking to enforce a policy cannot do so free of its contractual dispute resolution mechanism.

COMMENTS

This case serves as a useful reminder of the Hong Kong courts’ desire to give effect to an arbitration agreement wherever appropriate, albeit on this occasion in somewhat unusual circumstances. In so doing, the CFI has further reinforced Hong Kong’s reputation as a pro-arbitration jurisdiction.

In making its decision, the CFI has helpfully confirmed that an anti-suit injunction to restrain a party from pursuing proceedings in a non-contractual forum will ordinarily only be denied if there are strong reasons not to grant it. Accordingly, the Court has emphasised the high bar that the counter-party has to meet in order to resist such an injunction.

An article in which Simon Chapman and Naomi Lisney examined this decision, which was published on Lexis®PSL Arbitration on 15 August 2019, can be found here.

May Tai
May Tai
Managing Partner, Greater China
+852 2101 4031
Simon Chapman
Simon Chapman
Partner, Hong Kong
+852 2101 4217
Kathryn Sanger
Kathryn Sanger
Partner, Hong Kong
+852 2101 4029
Madhu Krishnan
Madhu Krishnan
Registered Foreign Lawyer (England & Wales)
+852 2101 4207

 

ENGLISH COURT GRANTS ANTI-SUIT INJUNCTION ORDERING THE DEFENDANT TO DISCONTINUE ITS CLAIM IN A NEW YORK COURT UNDER A D&O INSURANCE POLICY

In a recent case, the English High Court (the Court) granted XL Insurance Company (XL) a final anti-suit injunction restraining Peter Little (PL) from pursuing litigation proceedings against XL in the District Court of the Southern District of New York (the New York proceedings), on the basis that PL was bound by the arbitration agreement mandating London-seated arbitration in the directors’ and officers’ (D&O) insurance policy (the Policy) issued by XL to PL’s former employer, Barclays PLC (Barclays).

While this decision does not advance the law in this area, it highlights a key advantage of choosing London as the arbitral seat, particularly in sectors where claims are likely to be brought by parties who had not themselves entered into the arbitration agreement. Continue reading

ENGLISH HIGH COURT GRANTS INJUNCTION TO BLOCK JORDANIAN PROCEEDINGS SEEKING TO INVALIDATE AN ARBITRATION AGREEMENT

On 1 March 2019 the English court granted the claimant, ACT, a permanent anti-suit injunction against proceedings issued in  Jordan (the Jordanian Proceedings) by the defendant, Soletanche (in Aqaba Container Terminal (PVT) Co v Soletanche Bachy France SAS). The Court found that the subject matter of the Jordanian proceedings fell within the scope of an arbitration clause agreed between ACT and Soletanche. Soletanche had relied in the validity of that arbitration clause in earlier ICC proceedings to claim damages from ACT (albeit unsuccessfully). It was therefore just in all the circumstances to issue an anti-suit injunction to prevent breach by Soletanche of the agreement to arbitrate and to halt its efforts to invalidate that agreement through the Jordanian Proceedings.

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HONG KONG COURT GRANTS ANTI-SUIT INJUNCTION TO BIND THIRD PARTY TO ARBITRATION AGREEMENT

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.

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Absence of a bilateral or multilateral treaty for enforcement of judgments between UK and Lebanon leads to English Court issuing anti-suit injunction in favour of arbitration

In the case of Perkins Engines Company Limited v Mohammed Samih Hussein Ghaddar & Ghaddar Machinery Co. S.A.L [2018] EWHC 1500 (Comm) the English Court was asked to issue an anti-suit injunction against court proceedings brought in Lebanon. The relevant dispute resolution clause between the parties provided for English court jurisdiction to the extent that “reciprocal enforcement procedures” exist between the United Kingdom and Lebanon, failing which, disputes were to be submitted to arbitration. The Court found that the ordinary and natural meaning of the words required the existence of a multilateral/ bilateral treaty facilitating reciprocal enforcement of judgments in the United Kingdom and Lebanon. Since no such treaty existed, an anti-suit injunction should be granted against the Respondents in respect of proceedings they had brought in Lebanon.

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West Tankers principle unaffected by Recast Brussels Regulation; mandatory foreign jurisdictional rules do not encroach on scope of widely worded arbitration clause

In Nori Holdings Limited et al v PJSC Bank Okritie Financial Corporation [2018] EWHC 1343 (Comm) the English court has applied the Recast Brussels Regulation, finding that the West Tankers principle remains applicable and, as a consequence, refused to grant an anti-suit injunction in relation to parallel EU court proceedings.

At the same time, it found alleged Russian mandatory jurisdictional rules referring an insolvency dispute to the Moscow Arbitrazh Court insufficient to displace the wide and general wording of an arbitration clause, with the result that it granted an anti-suit injunction in relation to non-EU proceedings. Continue reading

English High Court grants an anti-suit injunction and confirms that the choice of arbitral seat is “analogous to an exclusive jurisdiction clause”

In Atlas Power v National Transmission and Despatch Company Ltd [2018] EWHC 1052 the English High Court granted a final anti-suit injunction to permanently restrain a national grid company owned by the Government of Pakistan (“NTDC“) from challenging an LCIA Partial Final Award in Pakistan (or anywhere other than England and Wales).

The injunction was granted on the “entirely straightforward” basis that the seat of the arbitration was London.  Phillips J rejected NTDC’s arguments that the courts of Pakistan had concurrent jurisdiction or that the seat of the arbitration was Lahore, Pakistan, and confirmed that an agreement on the seat of the arbitration is also an agreement on the forum for any challenges to an award.  Continue reading

The English Court of Appeal substitutes one anti-suit injunction for another (more limited one)

The English Court of Appeal is the latest court to weigh in on this long-running dispute spanning multiple jurisdictions between Messrs Emmott and Wilson, relating to an agreement to establish a “quasi-partnership”. Following an appeal brought by Mr Emmott against the High Court’s decision (which we reported here), the question for the Court of Appeal was whether to uphold the anti-suit injunction granted by the High Court preventing Michael Wilson & Partners, Limited (“MWP”) from pursuing proceedings in the Australian courts in light of the London-seated arbitration agreement between them.

The Court of Appeal allowed the appeal in part, issuing a substitute injunction against MWP advancing only the claims which the court deemed to be vexatious and oppressive in undermining the arbitration agreement and process.  This judgment helpfully clarifies the circumstances in which the English Court will issue an anti-suit injunction in order to safeguard the integrity of an English-seated arbitral process, and confirms that the court will not permit arbitral proceedings or awards to be undermined by parties against whom adverse findings have been made. However, it also demonstrates that the question of whether proceedings fall within the scope of an arbitration agreement can be a complex and controversial one.

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