Hong Kong Court of Final Appeal finds no breach of comity in granting Mareva injunction to protect a foreign claim for breach of an exclusive jurisdiction clause

In the case of Compania Sud Americana de Vapores S.A. v Hin-Pro International Logistics Limited (FACV 1/2016), the Court of Final Appeal (CFA) overturned the Court of Appeal's (CA) decision and reinstated a Mareva injunction granted in support of proceedings in the English court for breach of an exclusive jurisdiction clause. In doing so, the CFA held that the CA erred in holding that it was necessary to consider whether the plaintiff had a good arguable case in its substantive proceedings under Hong Kong law. Rather, the correct test should be to consider whether the plaintiff has a good arguable case before the foreign court.

The CFA also held that there was no bar on the ground of breach of comity, nor public policy, to the grant of a Mareva injunction to assist in enforcing an award (or potential award) of damages by the English court for breach of an exclusive jurisdiction clause as the Hong Kong court was not asked to enforce the jurisdiction clause itself in favour of the English court. This was so even though the substantive proceedings were conducted before the Chinese and English courts in parallel, with conflicting judgments as to jurisdiction.

Background

The disputes arose between the plaintiff and defendant in respect of a series of contracts for carriage by sea. The defendant claimed to enjoy ownership of the cargo and alleged that the plaintiff, as carrier, had wrongfully released the cargo without the production of bills of lading. The defendant brought proceedings before the Chinese courts. Although the plaintiff challenged the jurisdiction of the Chinese courts by relying on an exclusive English jurisdiction clause in the bills of lading, the Chinese courts decided they had jurisdiction under Chinese law and found in favour of the defendant on the merits. The plaintiff appealed and in parallel, initiated actions before the English courts. There it obtained an anti-suit injunction and a worldwide freezing order against the defendant pending final judgment of the English actions for breach of the exclusive jurisdiction clauses. In an effort to assist the English actions and to give effect to the worldwide freezing order, the plaintiff applied to the Hong Kong court for a Mareva injunction to freeze the defendant’s assets in Hong Kong. This was initially granted but later discharged by the Court of First Instance and the CA, hence the plaintiff's appeal. A summary and a discussion of the CA judgment can be found in our previous article published on 26 March 2015.

CFA's clarification on the test in granting interim relief in relation to foreign proceedings

The Hong Kong courts have the power to grant an injunction or other interim relief in relation to or in support of proceedings commenced outside Hong Kong under section 21M of the High Court Ordinance. The court will apply a two-stage test in granting such relief. The CFA clarified that the correct approach to the first stage is to:

1. first consider whether, if the foreign proceedings could result in a judgment, that judgment is one that the Hong Kong court may enforce; and

2. if so, whether (i) the plaintiff has a good arguable case and (ii) there is a real risk that the defendant will dissipate his assets if the Mareva injunction is not granted (i.e. a test similar to a Mareva injunction in support of a Hong Kong action).

If the first stage is satisfied, the court will consider whether the grant of a Mareva injunction would be unjust or inconvenient due to the fact that the substantive claim is being litigated in a foreign court.

In relation to the first stage, the CFA observed that the CA misinterpreted English case law in finding that it was necessary to consider the strength of the substantive claim under Hong Kong law in determining whether the plaintiff had a good and arguable case. The CFA noted that foreign judgments could be enforced in Hong Kong even though the claim was one that would not have succeeded under Hong Kong law (such as due to the existence of an exclusive English jurisdiction clause in the present case). Hence, there is no reason why the prospect of such a judgment should not receive the protection of a Mareva injunction. The CFA therefore held that the correct test was whether the plaintiff had a good arguable case in the foreign court and in this case the CFA held that it had. The CFA noted that the Hong Kong court would consider any findings (if available) of the foreign court on the merits or arguability of the claim and such findings will normally carry weight with the Hong Kong court.

In relation to the second stage, the CFA held that the court had a wide discretion to refuse relief if the fact that the substantive claim was being litigated in a foreign court had consequences that made the grant of a Mareva injunction "unjust" or "inconvenient". In addressing the CA's concerns that in granting the Mareva injunction the Hong Kong courts would intervene in a conflict as to jurisdiction between the English and Chinese courts, the CFA clarified that in the present case, the Hong Kong Court had in fact been asked to assist in enforcing an award of damages (based on breach of an exclusive jurisdiction clause) by the English court, but not to assist the English court to enforce an exclusive jurisdiction clause. Unless the action of the English court in awarding such damages involved a breach of comity towards the Chinese courts, which was not found to be the case here, there is no bar on the ground of policy to enforcing an award of damages made by the English court nor to the grant of a Mareva injunction in support of the judgment of the English court. Since the relief granted by the English court is directed not against the Chinese courts but against the individual defendant who disregarded his contractual obligations, there was no breach of comity. The CFA therefore held that the nature of the English proceedings in the present case did not render it unjust or inconvenient to grant the Mareva injunction in Hong Kong.

Remarks

The CFA has helpfully clarified the test for obtaining interim relief in relation to foreign proceedings under section 21M of the High Court Ordinance and the distinction between enforcing an award given by a foreign court in a dispute over a jurisdiction clause and enforcing a jurisdiction clause. This is particularly helpful in dealing with cross border disputes involving competing jurisdictions and issues about judicial comity.

For further information please contact Dominic Geiser, Rachel Yu, or your usual Herbert Smith Freehills contact.