Hong Kong court considers its power to grant injunctions in support of foreign arbitrations; says hybrid clause enforceable

In Top Gains Mineral Macao Commercial Offshore Limited and TL Resources Pte Ltd (HCMP1622/2015), the Hong Kong Court of First Instance has refused to discharge an injunction in support of prospective arbitral proceedings in Singapore, despite the "hybrid" nature of the arbitration clause and the fact that the Singapore court had declined to grant an injunction in the same case. The court held that both s 21M of the High Court Ordinance (HCO) and s 45 of the Arbitration Ordinance (AO) can apply to injunction applications in aid of foreign arbitral proceedings; there is no substantive difference between the tests under the two statutes. Chan J also held that an award rendered under a clause that provided for arbitration at SIAC under the ICC Rules could be enforced in Hong Kong, so long as it had not been set aside by the courts of the seat.

Background

The dispute arose out of a sales agreement (Agreement). The Agreement contained an arbitration clause providing for any dispute to be referred to Singapore International Arbitration Centre (SIAC) in Singapore under the Rules of the International Chamber of Commerce (ICC Rules). This type of clause, requiring one arbitral institution to administer disputes under the rules of another, is known as a "hybrid" clause. Such clauses are generally problematic, giving rise to questions about their enforceability. The ICC, in particular, insists that only it is competent to administer arbitrations under the ICC Rules – the Rules contain an express statement to this effect.

The Plaintiff first applied for a Mareva (freezing) injunction in the Singapore court, seeking to prevent dissipation of the Defendant's assets, but failed. It then applied for a Mareva Injunction (Injunction) in Hong Kong, which was granted.  The Plaintiff subsequently referred the dispute to the ICC in Singapore. The Defendant applied to discharge the Injunction, arguing, inter alia, that

1. the Plaintiff had wrongly referred the ex parte judge to s 21M HCO as s 45 AO is exclusively applicable when an injunction sought was in aid of foreign arbitral proceedings. The correct test is whether the applicant will suffer "serious and irreparable damage" (The Lady Muriel [1995] 2 HKC 320, Leviathan Shipping v Sky Sailing [1998] 4 HKC 347 and Executive Search international Limited v Ray & Berndston, HCCL 218 of 1999 cited by the Defendant);
2. no injunction could have been granted because the hybrid nature of the arbitration clause meant the arbitral tribunal had no jurisdiction to decide the dispute.

Test for injunctions in support of foreign arbitral proceedings

The Court noted the authorities cited by the Defendant were decided before s 45 AO came into effect. In those decisions, the court was exercising its inherent jurisdiction in granting relief in respect of proceedings not already on foot in Hong Kong.  Ever since s 45 AO came into effect, it has been the primary provision governing the Court's grant of interim measures in aid of arbitration proceedings commenced, or to be commenced, in or outside Hong Kong.

The case authorities can also be distinguished on the basis of the express wording in s 21M (4) HCO. The Court considered other authorities, such as Prema Birkdale Horticulture (Macau) Ltd v Venetian Orient Ltd [2009] 5 HKLRD 89 and Compagnia Sud Americana De Vapores SA v Hin-Pro International Logistics Ltd (Compagnia), to be more relevant as guidelines to the Court's exercise of power under s 21M HCO. The Court construed "proceedings" under s 21M HCO to include arbitral proceedings. Therefore, both s 21M HCO and s 45 AO were applicable on the facts.

As both s 21M HCO and s 45 AO enable the Court to grant interim relief in aid of foreign proceedings, the Court held that the cases decided under s 21M HCO would also be relevant to s 45 AO. There is no real distinction between the two tests under the two provisions. According to the Compagnia guidelines, the test comprises two stages:

• at the first stage, the Court follows and applies the general principles governing the grant of interim relief in Hong Kong proceedings. In the context of a Mareva injunction, the plaintiff need only show a good arguable case, that there is a real risk of dissipation of assets, and that the balance of convenience is in favor of granting the injunction;
• at the second stage, the Court considers whether it would be unjust and inconvenient to grant the injunctive relief;

In response to the Defendant's argument that the Court should not maintain the Injunction because the Singapore courts had declined to issue the same, the Court noted that, while Hong Kong courts should "respect the view and the approach" of a foreign court and be "cautious and slow" to contradict it, they will "examine the strength and arguability of an applicant's claim in the context of Hong Kong law rather than simply accepting a decision of the foreign court". The Court further commented that in certain circumstances, parties may prefer injunctions granted by the courts, as opposed to the tribunal, as only the former can bind a third party.

Can a "hybrid" clause give rise to an award enforceable in Hong Kong?

The Court noted that under both s 21M HCO and s 45 AO, the applicant must demonstrate that there is a "good arguable case" that the foreign proceedings are capable of giving rise to a judgment or award that may be enforced in Hong Kong.

The Court found the Plaintiff to have met the test.  Although the Plaintiff had departed from the arbitration clause by referring the dispute to the ICC instead of SIAC, this was a question of the jurisdiction of the arbitral tribunal, and it was therefore for the tribunal, not the Court, to determine. Notably, Chan J did express a view that, if the tribunal accepted jurisdiction and rendered an award, it would be possible for the award to be enforced by the Hong Kong Court, either by exercise of its discretion on the facts of the case, or because the supervisory court (i.e. the Singapore Court) had not it set aside.

In granting the Injunction, the Court also upheld the Plaintiff's argument that the defendant had demonstrated "low commercial morality" and there was a real risk the Defendant would not honour any Award made against it in the absence of the Injunction.

For the above reasons, and after considering other arguments of the Defendant, the Court held that the Injunction should be continued.

Finally, the Court warned parties of the risk of delaying in applying to discharge injunctions. While delay does not automatically deprive a defendant of its right to apply for discharge, if the defendant "takes no action with respect to matters which have been extant for lengthy periods,  it lies ill in [the defendant's] mouth to say that there is likely to be irreparable damage". Therefore, parties are advised to act promptly when seeking to discharge any injunction.

For more information, please contact Julian Copeman, Managing Partner – Greater China, Simon Chapman, Partner, Briana Young, Professional Support Lawyer or your usual Herbert Smith Freehills contact.