HONG KONG COURT REJECTS ATTEMPT TO OVERTURN ANTI-ARBITRATION INJUNCTION IN RUSSIA SANCTIONS CASE

The Hong Kong Court of First Instance has dismissed an application to discharge an anti-suit injunction restraining Russian court proceedings brought in breach of an agreement providing for HKIAC arbitration in Hong Kong (Linde v. RusChemAlliance [2023] HKCFI 2409).

Background

The dispute arose after EU sanctions in relation to the oil and gas sectors caused the German contractor for a gas processing complex in Russia to suspend performance.  The Russian complex owner then purported to terminate the contract and obtained a freezing injunction from a Russian court over the assets in Russia of the contractor and its Irish parent company (which had guaranteed the obligations of the contractor).  The freezing order was originally granted in support of prospective arbitration proceedings under the contract, but was later amended to allow claims to be made by the owner in the Russian court, which the owner subsequently commenced.  The contractor obtained an anti-suit injunction from the Hong Kong court, which the owner applied to discharge.

Access to justice issue

The central issue was the owner’s allegation that it would be denied access to justice and would not receive a fair trial in a Hong Kong arbitration, due to the allegedly “significant influence” which the United Kingdom (which the owner characterised as an unfriendly jurisdiction hostile to Russia) was said to continue to influence on Hong Kong.  The owner contended that, as a result, the dispute was subject to the exclusive jurisdiction of the Russian court as a matter of Russian law.

Mimmie Chan J rejected the access to justice argument in strong terms, describing it as "highly fanciful", “grossly exaggerated, if not totally based on false premises”, and an “unsubstantiated assertion”.  The judge noted that the sanctions had no legal effect in Hong Kong and the owner had been able to obtain effective legal representation in Hong Kong from the outset of the injunction proceedings.  Moreover, the owner had successfully obtained the appointment of the former Chief Justice of Hong Kong, Geoffrey Ma, as its chosen arbitrator.  There was no suggestion that the owner had encountered any difficulties with the HKIAC, its representation or the conduct of the arbitration.

The court reached its conclusion against the backdrop of the following legal principles:

• The court should ordinarily grant an injunction to restrain foreign proceedings brought in breach of an agreement for Hong Kong arbitration, at least where the injunction has been sought without delay and the foreign proceedings are not too far advanced, unless the party resisting the injunction can demonstrate strong reasons to the contrary.
• To demonstrate strong reasons, there must be something unforeseeable at the time of the contract, or something so exceptional that it goes to the interests of justice.
• There is no need to prove that the arbitral tribunal is the more convenient forum. The purpose of the injunction is to uphold and enforce the positive promise of a party to arbitrate the dispute, and the negative right not to be vexed by proceedings brought in breach of the arbitration agreement.
• If the arbitration agreement is valid and applicable under the law governing it (in this case, Hong Kong law), the fact that a foreign court will not uphold the clause will not normally prevent the Hong Kong court enforcing it through an anti-suit injunction.
• It was not relevant whether the foreign court had jurisdiction under its own law. The essential point and rationale for the grant of the injunction was that, since a party had agreed to the arbitration clause, it should not be allowed to invoke any other relevant jurisdiction.

In the present case, the restrictions imposed by the sanctions were reasonably foreseeable at the time when the contract was made, and were in fact part of the bargain struck by the parties (which provided for their potential evolution in the contract).  The substantive Russian proceedings, moreover, were at a relatively early stage.

As a result, the Hong Kong court could not give credence to the access to justice argument, and it was also not satisfied that the Russian court had exclusive jurisdiction over the dispute such as to constitute good reason for the court to overturn the injunction.  A related argument that the arbitration agreement was invalid and unenforceable as a matter of Russian law, and that an award made pursuant to it would not be enforceable in Russia, was also dismissed for the same reasons.

Loss of security issue

The court also rejected the owner’s argument that the prohibition of the Russian court proceedings would result in its loss of the security provided by the freezing orders, which it argued comprised the only security for its claims (since any award in its favour would not be enforceable outside Russia by virtue of the sanctions).  Even after the original freezing order in support of prospective arbitral proceedings had been amended to allow claims before the Russian court, the owner was still able and entitled to pursue its claims by arbitration and was not compelled to commence the Russian court proceedings.  The Hong Kong injunction further expressly permitted the owner to preserve the freezing order.

It was clear from the authorities, moreover, that if security through the Russian court could not be preserved by qualifying the anti-injunction, the Hong Kong court would still grant the injunction.  This was a consequence of the contract to arbitrate.  There was nothing unjust in holding the owner to its bargain, whereas it would be unjust to deprive the contractor and its parent company of the contractually agreed benefit of not having to face claims before the Russian courts.

Enforcement issue

The court also rejected the owner’s contention that arbitration in Hong Kong would be futile, because the EU sanctions had the alleged consequence that any award could not be enforced in any place other than in Russia.  The contractor and its parent company were part of a corporate group with global presence, with assets outside the EU.  Whether or not an award for payment of any amount to the owner would be enforced would depend on the public policy of each state and its regard for or recognition of the sanctions.

In any event, even on the owner’s argument, any award in its favour could be enforced in Russia, where the contractor and its parent company had assets.  On that basis, it could not be said that the arbitration would be futile in the sense that it would not produce an enforceable award.

Comment

This decision is a robust endorsement of Hong Kong’s status as an independent seat of arbitration where (as the court emphasised) arbitrators have express statutory duties to act independently, fairly and impartially, and to treat the parties with equality.  It also provides a useful example of the approach which the Hong Kong courts are likely to take to sanctions-related issues in the arbitration context.