In some jurisdictions (notably Mainland China and Australia), local law does not give effect to the incorporation of arbitration clauses into bills of lading.  Shipowners may be able to obtain an anti-suit injunction from the courts of the place of arbitration to restrain the pursuit of foreign proceedings brought in breach of the arbitration clause.  However, the longer the delay in seeking an injunction, the more likely it is to be refused, as illustrated by a recent case in Hong Kong1.

Background

The dispute arose out of alleged misdelivery of cargo in China.  Bank of China (the "Bank") as holder of the bill of lading, arrested the vessel "ZAGORA" to obtain security for its claim.  As commonly happens in Mainland China, despite the incorporation of a Hong Kong arbitration clause, the Bank also commenced substantive proceedings in respect of its claim in the Qingdao Maritime Court.  

After eventually accepting service of the Qingdao proceedings, the shipowners filed a challenge to the Court's jurisdiction on the basis of the arbitration clause.  That was rejected, and the shipowners filed an appeal.  Before the appeal was decided, the shipowners made an application to the Hong Kong Court for an anti-suit injunction on the grounds that the Qingdao proceedings had been brought in breach of the arbitration clause.  By the time the injunction application was heard in Hong Kong, the Shandong Higher People's Court had rejected the shipowners' appeal and affirmed that the Qingdao Maritime Court had jurisdiction to determine the claim.  

The Decision

As in England and many other jurisdictions, the Hong Kong Courts are strongly supportive of arbitration.  Accordingly, as a general rule, anti-suit injunctions are readily granted to restrain a party from pursuing foreign court proceedings in breach of a valid arbitration agreement.  A recent example of this in Hong Kong is Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi2, a bill of lading case about which I published an arbitration update available here.

However, the Hong Kong Court's approach is qualified by two considerations:

  • the injunction must be sought without delay, and
  • the foreign proceedings must not be too far advanced.

On the facts of this case, the Judge took into account three main factors in relation to delay:

  • a period of 8 months between September 2014 and May 2015 when the Judge found that the shipowners were evading service of the Qingdao Maritime Court proceedings,
  • a further delay of 4 months between the shipowners accepting service of the Qingdao proceedings and issuing the application in Hong Kong for an anti-suit injunction, and
  • the fact that the time bar for commencing arbitration expired in December 2014, about 3.5 months after the Qingdao proceedings were commenced.

However, the Judge rejected the Bank's argument that they suffered prejudice as a result of the expiry of the time bar.  Although the Bank did not have a copy of the charterparty, it would have seen from the terms on the reverse of the bill of lading that the law and arbitration clause of the charterparty was incorporated.  However, the Bank took no steps to check the position by obtaining a copy of the charterparty.  The Judge held this to be unreasonable.   

Having disposed of the issue of prejudice, the shipowners argued that delay by itself is irrelevant to the granting of an anti-suit injunction.  Such an argument ran counter to recent English authorities, in particular Essar Shipping Ltd v Bank of China Ltd3  (a strikingly similar case which we have already blogged here), and a Court of Appeal judgment on the related subject of anti-enforcement injunctions4.

After reviewing the English authorities, the Judge confirmed that Hong Kong took the same approach, and that "the need to act promptly is well-established on the authorities".

While this may give rise to some uncertainty, the Judge commented that, "in practice, it is not very difficult to recognize delay where it exists".  In assessing whether there has been a lack of promptness, time begins to count against the innocent party once he is aware of the foreign proceedings brought in breach of an arbitration agreement.  In this case, the delay of 12 months from the commencement of the Qingdao proceedings was in the Judge's view "both inordinate and culpable", and he declined to grant the injunction on the ground of delay alone.

The Judge also took into account the expiry of the time bar for commencing arbitration.  There had been ample time for the shipowners to have applied for an injunction in the 3.5 month period between the commencement of the Qingdao proceedings and the expiry of the time bar.

While Hong Kong (and English) judges are not overly sensitive to the feelings of foreign courts5, judicial comity remains a factor.  Delay is relevant in this context also, in particular if one of the reasons for the delay is the fact that the innocent party is challenging the foreign court's jurisdiction in that court.  As the English Court of Appeal stated in the Ecobank case:

"an applicant should act promptly and claim injunctive relief at an early stage; and should not adopt an attitude of waiting to see what the foreign court decides.  In The Angelic Grace, Leggatt LJ said that it would be patronising and the reverse of comity for the English court to decline to grant injunctive relief until it was apparent whether the foreign court was going to uphold the objection to its exercising jurisdiction and only to do so if and when it failed to do so."  

Comment

It is clear from recent decisions that in both Hong Kong and England a party facing a claim brought in breach of an arbitration clause must apply for an anti-suit injunction as quickly as possible.

If necessary, this should be done at the same time as raising a challenge to jurisdiction in the foreign court itself.  It is certainly no excuse for delay to say that one was waiting for the foreign court to rule on its own jurisdiction.

In particular, shipowners should be careful not to allow the usual one year time bar under bills of lading to expire before applying for an injunction.