Hong Kong Courts grant anti-suit injunctions to restrain foreign proceedings in breach of an arbitration agreement

In Arjowiggins HKK2 Ltd v Shandong Chenming Paper Holdings Ltd [2018] HKCFI 93, the Hong Kong Court of First Instance has granted an anti-suit injunction in favour of a recipient of a Hong Kong arbitral award to restrain the continuation of the overseas proceedings by the losing party. The Court held that such proceedings were essentially commenced to re-litigate the same matters that had already been decided in a previous arbitration and ultimately to avoid honouring the arbitral award.

Facts

On 27 October 2005, the parties entered into a contract (Contract) to establish a joint venture company (Company) in the Mainland for the manufacturing of paper products. Under the Contract, any dispute arising out of or in connection with the Contract shall be resolved by arbitration in Hong Kong in accordance with the Arbitration Rules of the Hong Kong International Arbitration Centre.

Disputes arose and the Claimant commenced arbitration proceedings pursuant to the Contract against the Respondent for breach of contract (Arbitration). The Claimant obtained an award in its favour on 20 November 2015 (Award).

Subsequently, the Respondent instituted further proceedings in Hong Kong and Mainland China:

1. in February 2016, the Respondent applied to the Hong Kong Court to set aside the Award and an order of the Court granting leave to the Claimant to enforce the Award. The application was dismissed;
2. in November 2016, the Respondent applied for an injunction in Hong Kong to restrain the Claimant from filing a winding up petition against the Respondent. The Court dismissed the application and considered it to be an "unethical" attempt to refuse to honour the Award; and
3. on 5 July 2017, the Respondent filed proceedings before the Intermediate People's Court of Weifang City in the Shandong Province in China (Weifang Court) against the Claimant, its director Mr Tong Chong (Tong), and the Company (2017 Proceedings). In fact, the Respondent had already instituted the same proceedings, against the same parties, before the same Chinese Court in 2013 (2013 Proceedings). The 2013 Proceedings were subsequently withdrawn by the Respondent at the request of the judge in the Weifang Court.

In view of (3), the Claimant applied for an injunction under section 21L of the High Court Ordinance (Cap. 4) to restrain the Respondent from continuing the 2017 Proceedings. This was on the grounds that (i) the 2017 Proceedings were instituted in breach of the parties' arbitration agreement; and (ii) the Respondent's conduct was vexatious and oppressive, since the Respondent was attempting to re-litigate matters which had already been decided by the arbitral tribunal and the Hong Kong Court. Alternatively, the Claimant sought a stay of the 2017 Proceedings.

Findings

The Court found in favour of the Claimant and granted an anti-suit injunction. In reaching its conclusion, the Court took into account and analysed (i) the claims made in the 2017 Proceedings; and (ii) the conduct of the Respondent.
(i) The claims made in the 2017 Proceedings

Notwithstanding the Respondent's assertion that the issues in the 2017 Proceedings did not arise out of and were entirely unrelated to the Contract so as to come within the ambit of the arbitration clause, the Court found that the claims in the 2017 Proceedings fell within the scope of the exclusive arbitration clause in the Contract which had already been raised and dealt with in the Arbitration. As such, the Respondent was bound by the findings and determination in the Award, and the Claimant was contractually entitled to restrain the continuation of the 2017 Proceedings or ask for them to be stayed.

(ii) Respondent's conduct

The Court found that the Respondent, by refusing to accept its liability under the Award, displayed "intentional and deliberate disregard of the order of this Court" and "complete disrespect for the arbitration agreement and the arbitral process to which it had voluntarily agreed". The Court accordingly saw "no just or fair basis or cause" to exercise its discretion in favour of the Respondent.

Comment

The use of anti-suit injunctions to restrain foreign proceedings in breach of an arbitration agreement is becoming increasingly common. This case is a helpful illustration that the Hong Kong Court will not hesitate, in an appropriate case, to grant such relief, even after an arbitral award is obtained. It is a further example of the Court's pro-arbitration stance in the context of attempts to re-litigate essentially the same disputes that have already been decided in arbitration. This is welcome reassurance that even where the claims are under the guise of different causes of action and ostensibly between different parties in litigation versus arbitration, the Court will not permit arbitral awards to be re-opened or re-argued.

For further information, please contact Dominic Geiser, Partner, Jojo Fan, Senior Associate, or your usual Herbert Smith Freehills contact.