The High Court of Hong Kong has recently granted an anti-suit injunction restraining parallel proceedings in the courts of PRC brought by an unsuccessful party to an arbitration award obtained in Hong Kong.1
The decision reinforces the Hong Kong court's continuing pro-arbitration stance and its support of the arbitral process to control the use of parallel proceedings as a cross-border litigation tactic even after an arbitral award has been obtained by a successful party.
Use of anti-suit injunctions
The use of anti-suit injunctions is becoming an increasingly common method of restraining a party from launching parallel proceedings in a foreign jurisdiction and frustrating the intended effects of an arbitration agreement. An anti-suit injunction allows the court to uphold not only the positive rights and obligations contained in an arbitration agreement, but also the 'negative' obligation whereby both parties expressly or impliedly promise to refrain from commencing proceedings in any forum other than the forum specified in the arbitration agreement.
In November 2015, following a dispute arising out of a joint venture partnership, the claimant obtained an arbitral award in Hong Kong and was granted leave by the Hong Kong court to take steps to enforce the award against the respondent. The respondent made various attempts to avoid payment of the award including seeking to restrain the claimant from petitioning for the winding up of the respondent on the basis of a statutory demand. The respondent's application was refused by the Hong Kong court with the judge noting that the respondent's conduct had been 'unethical' and showed "disregard for the integrity of the legal system of Hong Kong and contempt for the High Court of Hong Kong".
In July 2017, the respondent commenced parallel proceedings before the Weifang Court in the Shandong Province in China (2017 Proceedings). The claims made and the parties named in the 2017 Proceedings were in fact identical to proceedings brought by the respondent in 2013, also in the Weifang Court (2013 Proceedings) which were withdrawn by the respondent at the request of the Weifang Court.
The claimant sought an injunction in the Hong Kong Court of First Instance to restrain the respondent from continuing the 2017 Proceedings on the grounds that they were brought in breach of the underlying arbitration agreement and the respondent's conduct was vexatious and oppressive given that the claims in the 2017 Proceedings were an attempt to re-litigate the same issues that had been decided by the arbitral tribunal and the Hong Kong court, and which had been raised in the 2013 Proceedings and subsequently withdrawn.
The court granted the injunction on the grounds that the 2017 Proceedings fell within the scope of the widely drafted arbitration agreement and the claims made by the respondent had already been considered in the arbitration proceedings. The claimant was therefore contractually entitled to request the injunction sought or to ask for the 2017 Proceedings to be stayed. The judge held that to permit the respondent to continue the 2017 Proceedings would be to discredit the findings made by the arbitral tribunal against the respondent.
Given the discretionary nature of injunctions, the court also took into consideration the unconscionable actions of the respondent, noting that it had a 'complete disrespect for the arbitration agreement and the arbitral process and that the conduct of the respondent was also 'unethical, reproachable and unacceptable, as showing disregard and contempt for the Hong Kong Court, and the integrity of our financial and legal system'.
The decision provides further evidence of Hong Kong's stance as a pro-arbitration jurisdiction in preventing parallel proceedings in foreign jurisdictions in breach of a pre-agreed arbitration agreement. It is another helpful example of the Hong Kong court's willingness to take the necessary steps to protect an arbitral award from being re-litigated in separate foreign proceedings by an obstructive counterparty.
It is worth noting that a well drafted arbitration agreement is crucial in any commercial agreement in order to prevent a counter party attempting to circumvent an arbitration agreement in favour of pursuing parallel foreign proceedings. The importance of such arbitration clauses is becoming increasingly recognised by the Hong Kong courts.
Finally, it is important to recognise that granting an anti-suit injunction to restrain a defendant’s pursuit of overseas court proceedings brought in breach of an agreement to arbitrate is not an exercise of power by the Hong Kong court over a foreign court. Rather, an anti-suit injunction is intended to give effect to the parties' agreement to arbitrate in a particular forum and to prevent "forum shopping" tactics of an obstructive counterparty. Consequently, anti-suit injunctions are not addressed to or binding upon the foreign court i.e. the Weifang court in this instance. Rather, they are directed at a party, who must comply with the terms of such an injunction or be liable to effective sanctions in the Hong Kong courts.