Hong Kong’s District Court has refused to grant an injunction to restrain an arbitrator from acting in an arbitration, on the grounds that there was already another identical application before the court scheduled for hearing and that there was no urgency for granting an “interim-interim” injunction.
In the recent case of AIG Insurance Hong Kong Ltd v Lynn McCullough and William McCullough  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.
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:
- 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
- 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.
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  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.
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.
In Castlemil Infant (HK) Supplies Co Ltd v Care N Love Development Ltd  HKDC 1419, the Hong Kong District Court granted a mandatory injunction, having found that the plaintiff’s underlying tort claims did not fall within the scope of the parties’ arbitration agreement. Continue reading
In a decision dated 24 August 2018, the English Commercial Court (the “Court“) dismissed Dreymoor Fertilisers Overseas PTE Ltd’s (“Dreymoor“) application to continue an injunction preventing the enforcement of an order of a U.S. court granting discovery under section 1782 of the United States Code (the “Order“). The Order required one of Dreymoor’s employees to be deposed and produce evidence for use in various international proceedings by Eurochem Trading GMBH (“ECTG“) against Dreymoor. Dreymoor argued that enforcing the Order would constitute unconscionable conduct as it would interfere with its preparation for arbitration proceedings against ECTG.
The Court accepted that the enforcement of orders such as the Order could potentially be unfair, as they would effectively provide an opportunity to cross-examine the same witness twice. However, whether to injunct the enforcement of such an order required a careful case-by-case analysis. Based on various case-specific factors, the Court decided that it would not be unconscionable to allow ECTG to enforce the Order and dismissed Dreymoor’s application to continue the injunction.
In the most recent decision in the Sabbagh family feud, Sabbagh v Khoury & Ors  EWHC 1330 (Comm), the English Commercial Court ordered the stay of parallel Lebanon-seated arbitration proceedings. This was despite the tribunal in that case having found that it had jurisdiction to hear it. In granting the interim injunction to restrain the pursuit of the arbitration proceedings, Mr Justice Knowles was quick to acknowledge the significance of a court that is not the supervisory court granting an injunction to prevent parties prosecuting a foreign arbitration.
The English Commercial Court (the Court) in Ecobank Transnational Inc v Tanoh  EWHC 1874 (Comm) refused to restrain the enforcement of two foreign judgments because of unnecessary delay. The application was made on the basis that the subject matter of both judgments fell within the scope of an arbitration agreement.
Although the Court dismissed the request, the judgment confirms the English courts’ jurisdiction to grant injunctive relief post-judgment (in relation to judgments of non-EU countries at least). It also gives helpful guidance on what factors the English courts will take into account in exercising their discretion to grant an anti-enforcement injunction.
The judgment confirms the risks of letting foreign proceedings play out and seeking to neutralise any unfavourable judgment at the enforcement stage only. The Court highlighted that where the applicant does not apply, pre-judgment, for an anti-suit injunction in relation to the substantive proceedings it will need to provide a good reason for the delay. Anti-enforcement injunctions are not therefore to be considered an ‘after the event’ alternative to anti-suit relief.
On 23 April 2014, the Tanzanian High Court ordered both parties in on-going ICSID arbitration proceedings, Standard Chartered Bank (Hong Kong) Limited (SCB HK) and the Tanzania Electric Supply Company (Tanesco), to refrain from “enforcing, complying with or operationalising” a decision made by the Tribunal in those ICSID proceedings on 12 February 2014.
This injunction was granted on an ex-parte basis. It is a clear breach of the ICSID Convention and of Tanzania’s international law obligations. If it is not reversed, it will be of significant concern to other international investors in Tanzania, and will likely discourage new investment.
The Singapore Court of Appeal has set aside an interim injunction granted by the High Court against a Maldivian state-owned corporation (“MACL“), by which MACL had been restrained from interfering with the operation of the Maldives airport by the relevant concession holder (“GMIAL“), a joint venture entity partly owned by the India-based infrastructure group, GMR. (A copy of the decision can be found here).
In deciding the injunction application, the Court of Appeal had to consider the question of whether it had the power to grant an injunction – in light of the fact that MACL was a state-owned corporation; and whether the circumstances of the case justified grant of an injunction.
The Court of Appeal rejected MACL’s claim to state immunity and found that it had jurisdiction to grant an injunction. In reaching this conclusion, the Court of Appeal laid particular emphasis on the fact that MACL had waived any right it may have had to sovereign immunity and that in any event the transaction with GMIAL was purely contractual and commercial in nature and therefore no sovereign immunity was available.
However, in the exercise of its discretion, it found that GMIAL had not demonstrated that the balance of convenience lay in favour of an injunction. The substantive dispute was referred to arbitration.
The decision has been met with some disappointment inside India by those who see it as lessening Singapore’s attraction as an arbitral seat. This appears to be an unfair reading. The ultimate decision of the Singapore Court of Appeal involved a balancing of the competing interests of the parties, coupled with recognition of the limits of the court’s powers in purporting to restrain actions in a foreign jurisdiction. The Court also concluded that it would be possible, albeit not easy, for expert evidence to be used to assess the monetary value of any harm caused to GMIAL; in other words, monetary damages would be an adequate remedy if GMIAL succeeded on its arbitration claim.