HONG KONG COURT STAYS "TRADEMARK SQUATTING" LITIGATION IN FAVOUR OF ARBITRATION

The Hong Kong Court of First Instance has stayed tortious claims relating to "trademark squatting" commenced pursuant to an exclusive jurisdiction clause in favour of CIETAC arbitration in the PRC (Sesderma, S.L. v Seeky International Limited and Golong Co., Ltd [2023] HKCFI 1619).

The primary basis for the decision was issue estoppel, with a prior Hong Kong court judgment having held that the contract containing the exclusive jurisdiction clause had been replaced and superseded by the contract containing the CIETAC arbitration clause.  The court also found that, in any event, the parties were prima facie bound by an arbitration clause covering the relevant claims, and a stay of proceedings was therefore mandatory pursuant to section 20 of the Hong Kong Arbitration Ordinance.

The court briefly discussed the governing law of the arbitration agreement (albeit in strictly obiter comments) and appeared to adopt an approach essentially consistent with previous Hong Kong authority.

Background

The dispute arose out of a distributorship arrangement between Sesderma, S.L. ("S") and Golong Co., Ltd ("G").

The parties initially concluded an agreement whereby S appointed G to be the exclusive distributor of S's products in the PRC (the "2017 Agreement").  The 2017 Agreement contained an exclusive jurisdiction clause providing for disputes to be settled by the Hong Kong courts.

Subsequently, a new agreement was concluded under which G's distributorship was extended to include various other jurisdictions (the "2018 Agreement").  The 2018 Agreement contained an arbitration clause providing for disputes to be settled by CIETAC arbitration in the PRC.

Three arbitrations were conducted between the parties in the PRC (two of them concurrent arbitrations before the same tribunal), resulting in one award in favour of S and two awards in favour of G.

S also commenced Hong Kong court proceedings against an allegedly related company of G ("Seeky") to which G was later joined as a defendant, advancing claims of unlawful interference with business and contracts.  S contended that G and Seeky were "trademark squatting", namely, unlawfully seeking registration in Seeky's name of trademarks which were the property of S.  It sought a mandatory injunction requiring the withdrawal of the relevant trademark applications, plus damages.

G applied to stay the Hong Kong court proceedings on the basis that the claims being advanced by S fell within the scope of the arbitration clause in the 2018 Agreement.

Decision

Mimmie Chan J granted the stay on the basis that S was barred by issue estoppel from arguing that the exclusive jurisdiction clause in the 2017 Agreement applied to the dispute.

This was because S was clearly bound by findings previously made by the court in the course of enforcement proceedings brought by G to enforce one of the awards in its favour, to the effect that the 2017 Agreement had been replaced and superseded by the 2018 Agreement and that the parties had intended to arbitrate disputes in accordance with the arbitration clause in the 2018 Agreement (see G v S [2021] HKCFI 1461).

The court also held that, in any event, there was no suggestion that the arbitration clause in the 2018 Agreement was invalid, inoperative or incapable of performance, and hence there was a prima facie case that the parties were bound by an arbitration clause covering the dispute, such that the matter should be referred to arbitration so that an arbitral tribunal could decide on its own jurisdiction.  In reaching this conclusion, the court referred in the first instance to expert evidence on PRC law (which G contended was the governing law of the arbitration clause) to the effect that the present dispute over trademark squatting fell within the scope of the arbitration clause.

The court then reasoned that, even if the governing law of the arbitration clause was Hong Kong law (as S contended), the tortious claims were arbitrable and fell within the scope of the arbitration clause.  In reaching this conclusion, the court applied the "Fiona Trust" presumption that, unless the language of the clause made clear that certain questions were intended to be excluded from the tribunal's jurisdiction, the assumption should be that the parties, as rational business people, were likely to have intended any dispute arising out of their relationship to be decided by the same tribunal.

Comment

The decision is notable as the first (albeit brief and strictly obiter) judicial discussion of the governing law of the arbitration agreement since the case of China Railway v CKH [2023] HKCFI 132 earlier this year (covered in our previous blog here).  That case followed the approach of the English Supreme Court in Enka v Chubb and held that an express choice of law clause applicable to the main contract will "generally" also apply to the dispute resolution clause.

In its brief discussion of this issue in the present case, the court noted that the 2018 Agreement was governed by PRC law, and stated that, "in the absence of exceptional circumstances", the arbitration agreement should likewise be governed by and construed in accordance with PRC law.

Although the concept of "exceptional circumstances" might be argued to imply a somewhat stronger presumption that the governing law of the main contract will also be the governing law of the arbitration agreement than the term "generally" used in China Railway, it seems unlikely that the court was seeking to express a materially different test to that endorsed in the China Railway decision.  Although the parties plainly took different positions and the issue was therefore in play, the extent to which it was argued in detail before the court is unclear.  The issue was discussed in passing in the decision, there was no express reference to the applicable legal principles, and the court's decision to grant the stay did not ultimately turn upon the point.

Viewed in broad terms, however, the decision is consistent with previous authority and suggests a consistent policy by the Hong Kong courts of adopting a rebuttable presumption that the governing law of the main contract will generally also be the governing law of the arbitration agreement in the absence of clear reasons to the contrary.