Hong Kong court grants asset-preservation injunctions in support of foreign arbitration

The Hong Kong Court of First Instance has granted a worldwide Mareva injunction and related relief in support of an overseas AAA-ICDR arbitration, after "procrastination and obstruction" by one of the respondents in implementing the arbitral tribunal's directions for an escrow arrangement to prevent dissipation of assets (Company A and Another v. Company C [2024] HKCFI 3505).

The decision illustrates the willingness of the Hong Kong courts to grant interim relief in support of arbitrations outside Hong Kong in appropriate circumstances, including measures to protect the enforceability of the award by preventing potential award debtors from rendering themselves "judgment-proof".

Background

The underlying arbitration was brought by two offshore companies against a Hong Kong company and its parent company, which was listed on the Shanghai Stock Exchange (the Shanghai Parent).  The dispute arose out of a settlement agreement under which the Hong Kong company had committed to support the initial public offering of one of the two claimants (in which it held a 44% stake).  The claimants sought damages of approximately US$55.5 million, while the Hong Kong company and the Shanghai Parent counterclaimed for approximately US$2 million.

While the arbitration was still ongoing, the Shanghai Parent announced on the Shanghai Stock Exchange that it intended to dispose of 51% of its shares in the Hong Kong company.  The transaction would include the transfer or disposal of the Hong Kong company's business operations and assets to the Shanghai Parent and/or companies connected to it.

The claimants believed that the Hong Kong company intended to fraudulently divest itself of assets in order to render any award in the claimants' favour nugatory.  They therefore applied to the tribunal for directions preventing the transfer and requiring the Hong Kong company to pay approximately US$55.5 million into escrow.

The tribunal did not grant any "interim-interim" or "stop-gap" measure pending its decision, but agreed that the claimants could seek emergency interim relief from the Hong Kong courts while it considered the application.

The claimants accordingly applied under section 45 of the Arbitration Ordinance (Cap. 609) for (i) an injunction restraining the Hong Kong company from transferring its assets to the Shanghai Parent or its associated entities and (ii) a worldwide Mareva injunction restraining the Hong Kong company from disposing of its assets up to approximately US$55.5 million, pending either the final award or interim measures granted by the tribunal.

The injunctions were granted on an interim basis by Keith Yeung J pending the full hearing of the application one week later.  On the date of that hearing, the Hong Kong company offered undertakings to the court not to transfer any of its assets to the Shanghai Parent or remove from Hong Kong any assets up to the value of approximately US$55.5 million.

The tribunal had in the meantime indicated that it was prepared to grant a preliminary injunction in favour of the claimants.  Extensive discussions followed as to the terms of a proposed escrow arrangement, with the tribunal making numerous procedural orders as to (amongst other things) the payments to be made into escrow.  By the time the injunction application was heard by the court, the escrow arrangements still had not been agreed.

Legal issues

The Court of First Instance has the power to grant interim measures in relation to existing or prospective arbitral proceedings in or outside Hong Kong, pursuant to section 45(2) of the Arbitration Ordinance.  Amongst other things:

• The court may decline to grant an interim measure which is currently the subject of arbitral proceedings if the court considers it more appropriate for the tribunal to deal with the measure (section 45(4)); and
• Where the arbitration is outside Hong Kong, the court must have regard to the fact that its power to grant interim measures is (a) ancillary to the arbitration outside Hong Kong and (b) for the purposes of facilitating the process of a court or arbitral tribunal outside Hong Kong that has primary jurisdiction over the arbitration (section 45(7)).

The Hong Kong company opposed the granting of the injunctions on the grounds that:

• The tribunal had already granted the requested interim measures by ordering payments into escrow, such that the relief was unnecessary (and moreover the Hong Kong company’s undertakings to the court had been discharged); and
• The interim measures were currently the subject of the arbitration before the tribunal, and it was therefore not appropriate, just or convenient for the court to grant the relief.

Decision

Mimmie Chan J granted the requested injunctions pending the tribunal's further and final orders and award in the arbitration.  The court reasoned that:

• It was "indisputable" that the court's jurisdiction to grant interim measures should be exercised "sparingly" and only with special reasons, as contended by the Hong Kong company (relying upon Leviathan Shipping Co Ltd v. Sky Sailing Overseas Co Ltd [1998] 4 HKC 347 and A v. B [2023] 1 HKLRD 144);
• It was precisely because the court's power was for the purpose of facilitating the process of the tribunal outside Hong Kong, however, that the orders sought should be granted in this case;
• Whilst the tribunal had indicated its willingness in principle to grant an injunction in favour of the claimants, the progress of the interim relief application before the tribunal could best be described as "procrastination, and frustration".  The escrow agreement which the tribunal had intended the parties to sign had yet to be finalised and signed, 5 months after the claimants first applied to the tribunal;
• Accordingly, the interim measures sought by the claimants could not be said to have been finalised, the tribunal had not yet actually ruled on the claimants' application for interim relief, and the Hong Kong company's undertakings therefore had not been discharged;
• Even if the tribunal had already granted the interim measures (as contended by the Hong Kong company), it was "clear beyond peradventure" that the tribunal's directions to negotiate and finalise an escrow agreement had "fallen on deaf ears" and had not been complied with by the Hong Kong company;
• Such delay and non-compliance on the part of the Hong Kong company should not be condoned by any court, when the object and aim of the Arbitration Ordinance was for the court to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense, and when the power of the court under section 45 was for the express purpose of facilitating the process of the arbitral tribunal; and
• In light of the "procrastination and obstruction" by the Hong Kong company, it was appropriate, just and convenient for the court to grant the injunctions sought by the claimants.

The court also held that, to the extent that any order for interim relief had already been made by the tribunal, it was appropriate and just to grant leave to enforce them under section 61 of the Arbitration Ordinance (which permits the court to enter judgment in terms of an order or direction, including an interim measure, granted by an arbitral tribunal). 

Comment

The decision helpfully illustrates the approach of the Hong Kong courts to applications for interim relief in support of overseas arbitrations.

While the starting point will generally be one of deference to the tribunal and the courts of the seat (as required by section 45(7) of the Arbitration Ordinance), the Hong Kong courts have shown themselves ready to grant interim relief in support of overseas proceedings in appropriate circumstances, including for example in urgent cases where directions are necessary from a court in Hong Kong to prevent something which would render an application to the tribunal or overseas courts ineffective.

The Hong Kong courts are likely to feel less constrained in granting relief, moreover, where the tribunal has already been asked to give directions but has been unable to do so effectively, and/or the application to the court has been made with the knowledge and consent of the tribunal.  Both factors applied in the present case, and the Hong Kong company's "obstructive and un-cooperative attitude" to the tribunal's orders (as characterised by the judge) was plainly determinative of the court's conclusion that it was appropriate for it to grant injunctive relief.

The decision also provides another useful example of the enforcement by the Hong Kong courts of tribunal-granted interim relief pursuant to section 61 of the Arbitration Ordinance, following a 2024 ruling in which an anti-suit injunction granted by an arbitrator was enforced (see here our report on the unsuccessful challenge to that decision).