Hong Kong Court of Appeal denies anti-suit injunction on grounds of delay and comity

In Sea Powerful II Special Maritime Enterprises (ENE) v Bank of China Limited [2016], the Hong Kong Court of Appeal (CA) has highlighted the need for parties to act promptly when applying for an injunction to restrain foreign court proceedings in favour of arbitration. "Deliberate, inordinate and culpable" delay in seeking the injunction, coupled with considerations of comity, had entitled the Court of First Instance (CFI) to refuse the injunction, even where there was a valid arbitration clause.

In particular, the CA condemned the plaintiff for deliberately delaying its anti-suit application until the relevant limitation period had expired, in order to deprive the other party of its contractual right to arbitrate.

Background

The defendant bank commenced proceedings in a mainland Chinese court (Mainland Proceedings), claiming wrongful discharge of cargo consigned to a vessel owned by the plaintiff. The dispute was subject to a Hong Kong arbitration clause and a contractual limitation period of twelve months, incorporated in the charter party. As a result of the plaintiff's alleged attempts to evade service, that claim was only served on the plaintiff after the limitation period had expired. The plaintiff objected to the jurisdiction of the PRC court on 5 June 2015, but did not apply for an anti-suit injunction in the Hong Kong court until 25 September 2015, more than a month after the challenge was rejected and an appeal had been lodged with a higher court in the PRC. That appeal was also rejected on 6 November 2015.

The defendant argued that the anti-suit application should be dismissed on the ground of serious prejudice to the defendant because the limitation period had expired. The CFI rejected this argument, because the defendant had taken no steps to obtain a copy of the charterparty, and had therefore been unaware of the arbitration clause. The first instance judge found that the defendant had not acted reasonably in failing to preserve its right to sue in the contractually agreed forum.

The court's analysis

The CA had to decide whether delay and comity considerations constitute sufficient freestanding justification for declining an anti-suit injunction in support of arbitral proceedings.

The anti-suit injunction was sought under section 21L of the High Court Ordinance (Cap 4). This provision confers power on the court to grant the relief, if it finds that it is "just and convenient to do so". Given the coercive nature of an injunction, the jurisdiction is discretionary, and is not exercised as a matter of course.

Following the reasoning in English cases The Angelic Grace [1995] 1 Lloyd's Rep 87, Ecobank Transnational Incorporated v Tanoh [2015] EWCA Civ 1309, and Essar Shipping Ltd v Bank of China Ltd [2015] EWHC (Comm) (the facts of which bear a striking similarity to the facts in this case) (see our previous blog post), the CA considered the exercise of its discretion to be bound by the principle that a party's obligation to proceed in the agreed forum should be enforced, absent any strong or good reasons to the contrary. The CA did not give a definitive view on whether the grant of the anti-suit injunction should be refused on grounds of delay alone. Instead, the CA held that delay and comity are related, and both are relevant to the exercise of its discretion. The CA distinguished between anti-suit injunctions to enforce an arbitration agreement, and anti-suit injunctions in support of a forum non conveniens argument. It held that comity considerations are not to be disregarded in the former, despite their reduced role when compared to forum non conveniens cases.

The plaintiff had delayed its application for an anti-suit injunction until the limitation period had expired, with the sole motive of leaving the defendant without a remedy in any available forum. Coupled with the implication that granting an anti-suit injunction would mean overturning the two jurisdictional decisions already taken in the Mainland Proceedings, and that this would likely be regarded by the Chinese courts an intrusion or obstruction of their judicial sovereignty, the CA considered that delay and comity are related factors, and upheld the dismissal of the application. The first instance judge had not erred in law, ignored a relevant factor or taken into account an irrelevant factor, nor reached a conclusion he could not reasonably or sensibly have reached. The appeal must therefore be dismissed.

The CA left open whether the plaintiff could have mitigated its delay by giving an undertaking not to take issue with the expiry of the limitation period if anti-suit relief were granted and arbitration proceedings brought.

Comment

Sea Powerful is a reminder that, despite the existence of a clear agreement to arbitrate, a party's right to resolve a dispute in the contractually agreed forum can be lost if it does not seek an anti-suit injunction promptly. The court will consider the delay in the context of all relevant factors.  In this case, the relevant factors included i) how far advanced were the foreign proceedings; ii) the contractual limitation period for bringing a claim in the agreed forum; and iii) whether there was any tactical reason for the delay, for instance, to deprive the opposing party of a remedy.

This decision should not be seen as a deviation from the pro-arbitration stance of the Hong Kong courts, which is firmly established. However, each case will be decided on its facts, and Sea Powerful clearly warns that there is a limit to the availability of such relief. In particular, the courts will not tolerate inordinate and culpable delay, especially where such delay would interfere with a jurisdictional ruling by a foreign court.

For further information, please contact May Tai, Partner, Simon Chapman, Partner, Gloria Lung, Associate, Briana Young, Professional Support Consultant, or your usual Herbert Smith Freehills contact.