In Top Gains Minerals Macao Commercial Offshore Limited v TL Resources Pte Ltd (HCMP 1622/2015) (“Top Gains”), Mimmie Chan J once again showed the pro-arbitration attitude of the Hong Kong judiciary by continuing an injunction granted in support of a Singapore arbitration, even though the Singapore arbitration had no connection with Hong Kong.
This case underscores one of the many under-stated advantages of international arbitration over court litigation:- arbitration users in countries that adopt the UNCITRAL Model Law regime (of which Hong Kong is one) can expect the courts in the other countries within the same regime to support their arbitrations.
Top Gains also contains useful guidance for practitioners on when the Hong Kong court will grant an interim measure (which includes injunctions) to support a foreign arbitration, in particular in the face of competing remedies under arbitral rules, such as an emergency arbitrator scheme.
The plaintiff, a Macau company, bought iron ore from the defendant, a Singapore company, under a Sales Agreement. After the Sales Agreement was signed, the price of iron ore increased substantially, which led to the defendant failing to complete the sale, so the plaintiff terminated the Sales Agreement.
The Sales Agreement provided for disputes to be referred to the “Singapore International Arbitration Center (SIAC) for arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.”
Before commencing the arbitration, the plaintiff applied to the Singapore court in June 2015 for a worldwide injunction to restrain the defendant from disposing of its assets prior to judgment, which is commonly known as a worldwide Mareva injunction. However, the Singapore court refused to grant the injunction because it was not satisfied that there was a real risk that the defendant would dissipate its assets to evade its liabilities.
Notwithstanding the Singapore court’s refusal, the plaintiff applied to the Hong Kong court on 4 July 2015 for a Mareva injunction to restrain the defendant from disposing US$2.5 million of its assets within Hong Kong only. The Hong Kong court granted this application, which was heard without the defendant’s presence. The defendant was subsequently notified of the Mareva injunction granted by the Hong Kong court.
After the Hong Kong court granted the Mareva injunction, the plaintiff submitted its request to the International Chamber of Commerce (“ICC”) for arbitration in Singapore to recover its losses arising from the defendant’s breach of the Sales Agreement.
The defendant then applied to the Hong Kong court to discharge the Mareva injunction because the plaintiff had allegedly failed to disclose material facts, made misleading submissions on law and committed various other irregularities when it applied for the Mareva injunction in the defendant’s absence.
The defendant’s application to discharge the injunction was heard by Mimmie Chan J, the Judge in charge of the Construction and Arbitration List of the High Court, who addressed many key issues relevant to arbitration users that are discussed below in turn.
1. What is the Proper Basis for Request for Injunction In Aid of Singapore Arbitration?
The plaintiff had relied on Section 21M of the High Court Ordinance (“Section 21M”) and Section 45 of the Arbitration Ordinance (“Section 45”) when it applied to the Hong Kong court for the Mareva injunction. The defendant alleged that this was misleading because Section 21M imposed a lower threshold for granting a Mareva injunction than Section 45, whereas the latter provision was the proper legal basis for the Mareva injunction.
Mimmie Chan J disagreed with the defendant because Section 21M allows the court to grant interim relief in aid of proceedings outside Hong Kong and Section 45 is just the arbitration equivalent of Section 21M. Even though Her Ladyship agreed with the defendant that Section 45 is the proper basis for the plaintiff’s application for the Mareva injunction, the plaintiff did not mislead the judge because both Section 21M and Section 45 shared common features and the Hong Kong case law relevant to Section 21M can be transposed to Section 45 by analogy.
The features which Section 45 shares in common with Section 21M, mutatis mutandis, include:
- the interim measure may be declined if it is currently the subject of arbitral proceedings and it is more appropriate for the arbitral tribunal to determine whether to grant the interim measure;
- the interim measure relates to an arbitration that give rise to an award enforceable in Hong Kong and the interim measure belongs to a type of relief that can be granted by the Hong Kong courts in aid of arbitrations; and
- the Hong Kong court must have regard to the fact that the power to grant interim relief in aid of foreign arbitrations is ancillary to the arbitration proceedings and is for the purpose of facilitating the processes of the court and arbitral tribunal which have primary control of the arbitration and which are based outside Hong Kong.
With these common features in mind, Her Ladyship considered that the conditions for grant of interim relief for foreign court proceedings under Section 21M may be transposed to Section 45 by analogy as follows.
- First, do the facts warrant the grant of the interim measure if the arbitration was based in Hong Kong? Where the interim measure requested is a Mareva injunction, the court should consider whether the plaintiff has a good arguable case against the defendant, whether there is a real risk that the defendant would dissipate its assets to avoid judgment and whether the balance of convenience lies in favour of granting the Mareva injunction.
- Second, would it be unjust or inconvenient to grant the interim measure? In this connection, the Hong Kong court should consider whether the interim measure sought is currently the subject of arbitral proceedings and whether it is more appropriate for the interim measure sought to be dealt with by the arbitral tribunal. Also, the following guidelines transposed from English case law dealing with the English equivalent of Section 21M may be relevant factors to consider.
- Does the grant of the interim measure interfere with the management of the case in the court of the seat of the arbitration or the arbitral tribunal (eg. whether it is inconsistent with or conflicts with an existing order from a court or arbitral tribunal)?
- Whether there is a policy in the courts of the seat of the arbitration not to grant the interim measure?
- Whether there is a danger that the interim measure will give rise to confusion or conflict with orders made in other jurisdictions, in particular in the seat of the arbitration or where the assets affected are located?
- If the defendant disobeys or resists the interim measure, whether it can be enforced by the plaintiff by the courts where enforcement is required?
2. Whether the Plaintiff’s Reference to Arbitration by the ICC in Singapore Was Invalid?
Section 45(5) requires that the arbitration in which the interim measure is requested must be able to give rise to an arbitral award that can be enforced in Hong Kong. The defendant argued that the arbitration would not result in an award that can be enforced in Hong Kong because the Sales Agreement provided that the arbitration should be referred to the Singapore International Arbitration Centre, but the plaintiff had referred the arbitration to the International Chamber of Commerce instead. Accordingly, such an award would not be enforceable in Hong Kong because the arbitration was not in accordance with the agreement of the parties.
Mimmie Chan J made no finding on this point because she held that this is a question to be decided in the first instance by the arbitral tribunal and neither the Hong Kong court nor the Singapore court should interfere by deciding on this issue beforehand. All the plaintiff needs to show is that there is a good arguable case that the award will be enforceable in Hong Kong, which is the case here because it is possible that such an award can be enforced notwithstanding the procedural irregularity, for example, where the defendant does not promptly complain about the procedural irregularity or the Singapore court does not set aside the arbitral award.
3. Whether the Mareva Injunction Ought to Be Discharged Because the Plaintiff Failed to Draw the Court’s Attention to Section 45(4) of the Arbitration Ordinance?
Section 45(4) of the Arbitration Ordinance provides, amongst other things, that the court may decline to grant the interim measure if it is currently the subject of arbitral proceedings and the Court considers it more appropriate for the interim measure sought to be dealt with by the arbitral tribunal. The defendant argued that the plaintiff did not draw the judge’s attention to this provision.
Although Mimmie Chan J found that the plaintiff did not draw the judge’s attention to Section 45(4), this was not a material non-disclosure. This was because the plaintiff had not yet commenced the arbitration at that time. Moreover, the plaintiff had told the judge that the ICC Arbitration Rules may permit an arbitrator to deal with the application for a Mareva injunction through the emergency arbitrator scheme under those Rules, but that emergency arbitrator scheme was unsuitable because the defendant had to be notified of the appointment beforehand and there was a real risk that the defendant would dissipate its assets to evade its liabilities if such advance notice was given.
4. Does the Failure to Disclose the Fact that the Singapore Court had Denied the Plaintiff’s Request for a Worldwide Mareva Injunction Lead to a Discharge of the Mareva Injunction?
The defendant argued that the Mareva injunction should be discharged because the plaintiff failed to disclose the material fact to the judge that the Singapore court had rejected the plaintiff’s request for a Mareva injunction. Mimmie Chan J disagreed that this was a material non-disclosure.
Although the Hong Kong court was obliged to respect the view of the Singapore court (being the court of the seat of the arbitration) and must be cautious and slow to take a different view on the same facts as to whether to grant the Mareva injunction, this is not to say that the Hong Kong court cannot take a different view. This is because the Hong Kong court has to exercise its own independent discretion under Hong Kong law on whether there was a real risk that the defendant would dissipate its assets.
5. Would the Singapore Court or the Arbitral Tribunal Have Been the Proper Forum to Grant the Mareva Injunction Instead of the Hong Kong Court?
The defendant argued that the Singapore court or the arbitral tribunal should have been the proper forum to grant the Mareva injunction. However, Mimmie Chan J disagreed because the Hong Kong court derived its power to grant the Mareva injunction sought under Section 45 since the defendant had assets in Hong Kong. However, in doing so, the Hong Kong court will respect the views of the Singapore court and be mindful that its role is ancillary to that of the Singapore court and arbitral tribunal.
Moreover, the arbitral tribunal is not necessarily more appropriate to deal with the plaintiff’s request for a Mareva injunction because:
- there was a real risk of dissipation of assets by the defendant and if the plaintiff had sought the Mareva injunction from the arbitral tribunal, the plaintiff would have been obliged to notify the defendant beforehand and this would have frustrated the purpose of the Mareva injunction;
- the arbitral tribunal would have applied the same criteria as the Hong Kong court to determine whether to grant the Mareva injunction; and
- a Mareva injunction issued by the arbitral tribunal would not be as effective as one issued by the court because the Mareva injunction issued by the court can bind third parties like banks and anyone who has notice of the terms of the Mareva injunction, but the one issued by the arbitral tribunal can only bind the parties.
This case is a good illustration of what the Hong Kong court looks for when deciding whether to grant interim measures in support of foreign arbitrations. It also gives food for thought on whether the current arbitral regime in Hong Kong would allow applications for Mareva injunctions without notice to the other party, which are the ‘bread and butter’ of litigation work and frequently seen in the court arena.
So how does the international arbitration regime in Hong Kong match up when it comes to Mareva injunctions? Section 37 of the Arbitration Ordinance, which incorporates Article 17B of the UNCITRAL Model Law, expressly provides that “a party may, without notice to any other party, make a request for an interim measure together with an application for a preliminary order directing a party not to frustrate the purpose of the interim measure requested.” Arguably, Section 37 and the other provisions on preliminary orders provides the legal framework for an applicant to ask the arbitral tribunal for a Mareva injunction without first notifying the other party.
Unfortunately, it is uncertain whether existing arbitral rules of the major arbitral institutions enable requests for preliminary orders (which include Mareva injunctions without notice to the other party). For example, Article 11.5 of the HKIAC Rules expressly prohibit parties from contacting the arbitrators without copying the other party unless the communication is to interview a potential arbitrator candidate for appointment or to discuss the suitability of candidates for the position of presiding arbitrator. Moreover, the provisions for applying for emergency relief under Schedule 4 of the HKIAC Rules expressly require that a copy of the application be served on the other party, thus frustrating a genuine effort to obtain a Mareva injunction (a excellent example of when a party would ask for emergency relief). Similarly, Article 1(2) of Appendix V of the ICC Rules of Arbitration provides that any application for emergency relief must be sent to the other party.
Are there any real differences between a Mareva injunction granted by a court and one granted by an arbitral tribunal? As Mimmie Chan J observed in her judgment, a Mareva injunction issued by an arbitral tribunal would not bind third parties. However, this limitation may not cause difficulties in practice because the party subject to the Mareva injunction would do its best to ensure that its bankers and other third parties comply with the Mareva injunction, so as to avoid incurring the wrath of the arbitral tribunal and prejudicing its own case.
The real difference between a court ordered Mareva injunction and an arbitral tribunal ordered Mareva injunction is that the court can impose penal sanctions (eg. fines, jail etc…) for any party breaching the Mareva injunction, which an arbitral tribunal cannot. Although it is an easy task for the beneficiary of an arbitral tribunal issued Mareva injunction to ask the Hong Kong court to enforce the Mareva injunction pursuant to Section 61 of the Arbitration Ordinance, this will involve some delay.
It would therefore serve the interests of the arbitration community if the HKIAC (and the ICC) can amend its arbitral rules to allow parties to apply to the arbitral tribunal for preliminary orders as a form of emergency relief. One simple amendment may be to allow applications for emergency relief to be made without notice to the other party, so that the arbitral rules will be aligned with Section 37 of the Arbitration Ordinance and Article 17B of the UNCITRAL Model Law.