Hong Kong court upholds anti-suit injunction granted by arbitrator

The Hong Kong Court of First Instance has dismissed a challenge to an interim order granted by an arbitrator to restrain court proceedings in mainland China against non-parties to the underlying arbitration agreement (G v. N [2024] HKCFI 721).

The decision turned upon the important distinction between arbitral awards which finally dispose of substantive issues (which can be challenged before the courts, albeit on limited grounds) and interim orders made pursuant to the procedural discretion of the arbitral tribunal (which the court generally cannot and will not interfere with).

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English Commercial Court refuses to issue anti-suit injunction for Paris arbitration in the case of SQD v QYP

In SQD v QYP [2023] EWHC 2145 (Comm), the English Commercial Court refused to issue an anti-suit injunction (ASI) and anti-enforcement injunction to stop proceedings commenced by a claimant in its home country in breach of an arbitration agreement. The court reasoned that such an injunction would be inconsistent with the French courts’ approach to ASIs and the parties’ choice of Paris as the seat of arbitration. Continue reading

DIFC Court provides further guidance on anti-suit injunctions in respect of “on-shore” Dubai Court Proceedings

Summary

Nearly two years after the DIFC Court granted an anti-suit injunction in Multiplex Constructions LLC v Elemec Electromechanical Contracting LLC (which we previously discussed here), it is an established principle that the DIFC Courts will grant anti-suit injunctions where the parties are bound by an arbitration agreement and the seat of the arbitration is the DIFC.

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AUSTRALIAN FEDERAL COURT OF APPEAL ALLOWS PARTIES TO CONTRACT OUT OF MANDATORY JURISDICTION IMPOSED BY THE CARRIAGE OF GOODS BY SEA ACT 1991 (CTH)

In a recent decision, the Australian Federal Court of Appeal refused an anti-suit injunction which sought to prevent the commencement of arbitral proceedings in England, in relation to a dispute arising out of a bill of lading for cargo transported between South Australia and Queensland.

The Court determined that the ‘mandatory jurisdiction’ provision of the Carriage Of Goods By Sea Act 1991 (Cth) (COGSA), which requires parties to bring disputes arising from bills of lading before Australian Courts, does not apply to bills of lading where cargo is transported from one Australian state or territory to another (i.e., inter-State bills of lading).

The key takeaway is that parties to an inter-State bill of lading that contains an arbitration clause may be free to commence arbitral proceedings in accordance with that clause, instead of commencing proceedings before an Australian Court.

Background

Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co. KG (The BBC Nile) [2022] FCAFC 171 (Carmichael v BBC) concerned, amongst other issues, whether Australian Courts’ mandatory jurisdiction to hear disputes arising from bills of lading, conferred by section 11 of the COGSA, applies to all bills of lading without restriction, or whether that mandatory jurisdiction is limited only to bills of lading where cargo is transported from an Australian port to another country (ie not inter-State bills of lading).

In December 2019, Carmichael entered into an agreement with an unrelated party, whereby the unrelated party would manufacture and supply circa 21 tonnes of steel rails to Carmichael, to be used in the construction of a train line in Queensland. The steel rails were to be manufactured in South Australia.

Between June and December 2020, BBC, on behalf of Carmichael, made arrangements for the steel rails to be transported from South Australia to Queensland by sea.

On 17 December 2020, the steel rails were loaded aboard the vessel, the BBC Nile. A bill of lading (BOL) was issued by BBC, with Carmichael named as consignee, for the shipment of the steel rails. The BOL identified the port of loading as “Whyalla, Australia”, in South Australia, and the port of discharge as “Mackay, Australia”, in Queensland.

The BBC Nile arrived at the Port of Mackay, Queensland, on 24 December 2020. The next day, 25 December 2020, members of the crew of the BBC Nile observed that part of the cargo hold of the ship had collapsed. The steel rails were damaged to such an extent they were non-compliant with the specifications for their intended use in railway construction and were eventually sold as scrap.

On 2 August 2022, BBC notified Carmichael that it had commenced arbitral proceedings in London, in accordance with the arbitration clause contained in the BOL, in relation to the damage to the steel rails. The arbitration clause in the BOL stipulated:

  1. Law and Jurisdiction

Except as provided elsewhere herein, any dispute arising under or in connection with this Bill of Lading shall be referred to arbitration in London. The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) terms. The arbitration Tribunal is to consist of three arbitrators, one arbitrator to be appointed by each party and the two so appointed to appoint a third arbitrator. English law is to apply.

In August 2022, Carmichael commenced proceedings in the Federal Court of Australia, seeking to prevent BBC from continuing the arbitral proceedings in London. Carmichael argued, amongst other things, that the arbitral proceedings should be stayed and determined before an Australian Court, on the basis that the BOL is captured by section 11(2)(b) of the COGSA.

The Federal Court in the first instance granted an interim injunction restraining BBC from continuing the arbitral proceedings, until both Carmichael and BBC’s applications before the Court had been determined.

Decision

The Federal Court of Appeal dismissed Carmichael’s application for an anti-suit injunction, finding that section 11(2)(b) of the COGSA did not operate to capture inter-State bills of lading. In making its decision, the Court returned to fundamental principles of legislative interpretation, and traversed in detail the legislative history of the COGSA. The Court drew a distinction between bills of lading for cargo which was transported from Australia to another country, and bills of lading for cargo which was transported within Australian states and territories. In respect of the latter, the Court found that Parliament never considered, and thus never intended, for inter-State shipments to be covered by section 11 of the COGSA, observing (at [83]):

Recourse to the legislative history set out above reveals that from the Bill that led to the 1904 Act until the last of the amendments in 1998, there was simply no consideration of making the choice of law and jurisdiction invalidating provisions applicable to inter-State shipments. There is no possibility of finding as a point of historical fact that the Parliament intended such an outcome; it was simply not considered.

The Court also considered whether this legislative ‘gap’ could be filled, but ultimately found that the additional language required to do so would be “too big, or too much at variance with the language in fact used by the legislature”, noting (at [103]):

However regrettable or absurd the apparent overlooking of inter-State contracts for carriage of goods by sea is in s 11 of COGSA, the will of the Parliament as expressed in that law does not allow the Court to stretch that legislative expression far beyond the text of the Act.

Comment

The decision in Carmichael v BBC has disrupted the traditional application of the mandatory jurisdiction conferred on Australian Courts by section 11 of the COGSA, by providing a carve out for inter-State bills of lading only. It remains to be seen whether amendments to the COGSA will be made in order to rectify the legislative ‘gap’ which has resulted in this unusual decision. In the meantime, in the wake of Carmichael v BBC, parties to inter-State bills of lading will be free to arbitrate disputes in their chosen forum, without being forced to litigate before Australian Courts.

For more information, please contact Elizabeth Macknay, Partner, Ella Wisniewski, Senior Associate, and Inigo Kwan-Parsons, Solicitor, or your usual Herbert Smith Freehills contact.

Elizabeth Macknay
Elizabeth Macknay
Partner
+61 409 367 672
Ella Wisniewski
Ella Wisniewski
Senior Associate
+61 429 442 382
Inigo Kwan-Parsons
Inigo Kwan-Parsons
Solicitor
+61 457 609 017

English Commercial Court grants a final anti-suit injunction despite 13 month delay

In Africa Finance Corp and others v Aiteo Eastern E&P Company Ltd [2022] EWHC 768 (Comm), the English Commercial Court ruled that a 13 month delay in seeking an anti-suit injunction was not unreasonable given that the parties were engaged in negotiations during that period and the foreign proceedings in Nigeria had not advanced to a significant extent (in part due to the coronavirus pandemic). Although parties should continue to seek anti-suit injunctions as promptly as possible, this decision shows that courts are willing to show a degree of flexibility in determining whether delays are reasonable and therefore whether an anti-suit injunction should be granted.

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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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