Hong Kong courts again demonstrate a pro-arbitration stance –  High Court grants anti-suit injunction against overseas court proceedings

Summary

Once again, the Hong Kong courts have demonstrated their pro-arbitration stance. In Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi1 , the Court of First Instance has upheld an injunction in favour of a shipowner to restrain another party pursuing court proceedings in Turkey on the ground that such proceedings were in breach of an agreement to arbitrate in Hong Kong.

The case confirms the primacy of valid agreements to arbitrate in Hong Kong and that the courts will usually grant injunctive relief to restrain foreign proceedings brought in breach of an agreement to arbitrate in Hong Kong, unless there are strong reasons for not doing so. The case comes on the back of a number of recent pro-arbitration rulings by the Hong Kong courts2 .

Facts

The plaintiff is the registered owner of the vessel “Ever Judger” (the ship). The Turkish defendant was the purchaser of a large quantity of steel wire rods from (ultimately) a Chinese steel mill company that, in turn, was part of the group of companies that owned the ship. The port of destination was in Turkey. Not unusually, the charterparty contained an  English governing law clause providing for “arbitration in Hong Kong in accordance with the Hong Kong Arbitration Ordinance” (the arbitration clause). The relevant bills of lading incorporated the arbitration clause.

A dispute arose as to the condition of the steel rods on arrival at the port of destination. As a result, the defendant commenced court proceedings in Turkey and obtained a court order there for the ship’s arrest. The ship was released on payment of security into court in Turkey.

After obtaining security, the defendant filed points of claim in order to pursue their substantive claim in the Turkish courts. The plaintiff’s lawyers asserted that the arbitration clause required all disputes be arbitrated in Hong Kong and that the court proceedings in Turkey should be withdrawn. The plaintiff’s lawyers gave notice of arbitration to the defendant. The defendant insisted that the Turkish courts had jurisdiction.

The plaintiff obtained an ex parte (without notice) anti-suit injunction in the Hong Kong courts restraining the defendant’s pursuit of the Turkish court proceedings. The issue for determination by the court was whether that injunction should be extended indefinitely at a full hearing between the parties or whether the defendant could show good reason why it should not be extended.

The defendant argued that the anti-suit injunction should not be continued because (among other things): (i) the Turkish courts were already considering the issue of jurisdiction; (ii) the Hong Kong courts should deny the plaintiff relief because it had allegedly colluded with the Chinese steel mill company to issue clean bills of lading, although the cargo was damaged; (iii) related court proceedings were already afoot in the Turkish courts (including, between the defendant and its insurer) and there was a risk of overlap with arbitration in Hong Kong; (iv) the plaintiff had submitted to the jurisdiction of the Turkish courts; and (v) the plaintiff had been guilty of delay in seeking an injunction.

The court found in favour of the plaintiff on all points, in an interesting judgment that sets out the basic principles involved.

Decision

The court held there were no strong reasons for not applying the principle that, as a matter of Hong Kong law, the courts should ordinarily grant an injunction to restrain the pursuit of foreign proceedings brought in breach of an agreement to arbitrate in Hong Kong. Therefore, the starting point was that the plaintiff was entitled to an anti-suit injunction in the exercise of the court’s powers3 .

The court was not prepared at this stage (based on affidavit evidence only) to impute bad motive on the part of the plaintiff concerning the issue of clean bills of lading.

As for the concern that Turkish court proceedings had already been started and the risk of inconsistent findings, the court noted that even if the anti-suit injunction was refused there would still be two sets of proceedings in Turkey (against the shipowner and against the defendant’s insurers) and it was far from clear that they would be consolidated.

As to whether the plaintiff had already submitted to the jurisdiction of the Turkish courts, the court noted that this issue was still to be determined by the Turkish courts and the plaintiff had been careful to reserve its right to challenge the jurisdiction. In any event, the court noted that the anti-suit injunction did not amount to an assertion of a superior jurisdiction over the Turkish courts; rather, it sought to uphold the parties’ agreement to arbitrate in Hong Kong.

Finally, for good measure, the court did not find any delay on the part of the plaintiff in applying for the anti-suit injunction. Indeed, the plaintiff had written to the defendant to request that the Turkish proceedings be withdrawn within a matter of weeks of the defendant filing its points of claim and had applied for the anti-suit injunction within a matter of days of receiving the defendant’s reply.

The outcome represents a success on all points for the plaintiff.

Comment  

The judgment is difficult to fault and is wellreasoned. Moreover, the principles involved will be familiar to many common law lawyers (at least, those in common law jurisdictions that provide for anti-suit injunctions). Ultimately, what defeated the defendant’s opposition to the anti-suit injunction was the fact that it had agreed to arbitrate in Hong Kong and there was no good reason to deviate from that starting point. As the court noted:

“It is to be recalled that the principle is that parties should generally be held to their contract, and that is reflected in the requirement that a party must show strong reason before the court will refuse an anti-suit injunction sought against him on the basis of an arbitration clause”.4

In granting the anti-suit injunction the court was (in effect) giving force to the promise in the arbitration agreement to arbitrate in Hong Kong5 . The Hong Kong court was at some pains to observe that it was not asserting jurisdiction over the Turkish courts as a matter of discretion or as the result of a balancing exercise.

In any event, an anti-suit injunction is not directed at the foreign court but rather personally towards the party to whom it applies; as the court noted, its effectiveness depends on a defendant being amenable to the jurisdiction of the Hong Kong courts eg, a business presence and/or assets in Hong Kong.

Most of the other points in the case are of secondary interest and (based on the facts) do not appear very persuasive. For example, the evidence that the plaintiff had allegedly come to court with “unclean (“grimy”) hands” so as to disentitle it from injunctive relief seems to have been a stretch, as was the defendant’s argument that the plaintiff had somehow delayed in seeking the anti-suit injunction.