Hong Kong Court continues injunction in aid of foreign arbitral proceedings

In Ve Global UK Limited v Charles Allard Jr and Intelita Limited, HCMP1678/2017, 10 October 2017, the Hong Kong Court of First Instance continued injunctions and dismissed the Defendants’ allegation of abuse of process in respect of the Plaintiff’s delay in commencing arbitration proceedings in relation to the underlying dispute after having obtained urgent injunction orders against the Defendants.

Background

The Plaintiff claimed to be the assignee of, and successor to, the business and assets of Ve Interactive Limited (Ve Interactive), the ultimate holding company of a global group of companies which owned an online sales and marketing business (the Ve Business).  The 1^st Defendant, Mr Charles Allard (CA), managed the Ve Business in Asia.  CA is also a majority shareholder of the 2^nd Defendant (Intelita), which holds a minority shareholding in Ve Interactive’s Asian subsidiaries.  Ve Interactive and Intelita entered into a Shareholders’ Agreement and a Licence Agreement (which contained an arbitration clause) for the licensing of various rights to Intelita for the operation of the Ve Business in Asia.

In July 2017, the Plaintiff suspected that CA had set up a rival business in Hong Kong and was using Intelita to obtain and use confidential information belonging to the Plaintiff for the purpose of the rival business.  A notice of termination of the License Agreement was served on Intelita on 25 July 2017.

On 28 July 2017, the Plaintiff successfully obtained an ex parte injunction from the Court, restraining CA and Intelita, among other things, from operating the Asian subsidiaries (Injunction).  The Injunction was continued and the terms were extended at an inter partes hearing on 4 August 2017 (Revised Injunction).  The Injunction and Revised Injunction were granted under s45 of the Arbitration Ordinance, which permits the Court to grant interim relief in aid of arbitration. In this case, the Court granted relief in support of an arbitration to be commenced pursuant to the arbitration clause in the License Agreement.

On 21 September 2017, the Plaintiff commenced arbitration proceedings in respect of the underlying dispute between the parties (Arbitration).

Issues

The Defendants challenged, among other things, whether:

• the Plaintiff’s delay in commencing the Arbitration amounted to an abuse of process; and
• fortification should be provided by the Plaintiff in respect of its undertaking as to damages in the event that the Injunction and Revised Injunction were continued.

Decision

Delay

In deciding whether to discharge or refuse the grant of an injunction on the ground of delay or abuse of process, the Court has to consider all the circumstances of the case including, but not limited to:

• the length of the delay;
• any explanation put forward for the delay;
• the degree of prejudice liable to be caused to the defendant as a result of the delay;
• the degree of prejudice liable to be caused to the plaintiff if the injunction is to be discharged; and
• whether the defendant has in any way caused or contributed to the delay.

The Court agreed with the Defendants that there had been delay in commencing the Arbitration.  The Court stated that it is imperative for an applicant seeking an urgent ex parte injunction to act diligently and speedily in initiating proceedings in relation to the underlying dispute.  The undertakings on which the order is granted should expressly state that the plaintiff will issue the primary proceedings as soon as practicable.

The explanation put forward by the Plaintiff was that the delay was due to the fact that the Defendants intimated they would cooperate to comply with the post-termination obligations and arrangements as set out in the Licence Agreement, such that it may not have been necessary to commence the Arbitration. This explanation was not challenged or opposed by the Defendants.

The Court was satisfied, based on the evidence available, that there is a serious question to be tried in relation to the claims against the Defendants.  The Court was not satisfied that the Defendants had suffered any prejudice as a result of the delay.  Having considered all the circumstances, the Court dismissed the Defendants’ application for the Injunction and Revised Injunction to be discharged on this ground.

The Defendants failed to show that they had established any independent business, apart from the Ve Business, which would entitle them to use the IT accounts of the Plaintiff and the information in those accounts to which they had access. Consequently, the Defendants failed to show that they would suffer significant loss as a result of the Injunction and Revised Injunction, each of which restrained access to those accounts and information. If there was any intention to use the accounts for any business other than that of the Ve Business, it was demonstrated only in August 2017, when the Defendants sought and obtained expressions of interest from certain clients of Intelita. However, on the Plaintiff’s evidence, most of these were existing clients of VE Asia, to which Intelita and CA are restrained from providing goods or services for two years after termination of the Licence.

Chan J noted that CA and Intelita could open new IT accounts for use in any business which does not compete with the Licence Agreement. In contrast, Global would suffer “irreparable damage” if it were precluded from accessing the information and data stored in the accounts now registered in the name of Intelita, or if Intelita were allowed access to the confidential information of the VE Business and clients. “Balancing the risks of injustice that may be caused by granting or refusing the interim relief”, the judge upheld the Injunctions. She noted that the “maintenance of the status quo in the interim would facilitate the arbitration”, but reminded the parties that it is open to them to seek further or more appropriate orders or directions from the arbitral tribunal, once empaneled.

Although the Defendant proposed amendments to the Revised Injunction, the judge felt it was “neither necessary nor appropriate” to allow them. She did allow certain amendments to the Injunction.

Fortification

A defendant seeking fortification of a plaintiff’s undertaking as to damages has the burden of showing the need and the appropriate quantum for the fortification. The defendant must show a “likelihood of significant loss arising as a result of the injunction”. Because the Defendants failed to establish any independent business other than the VE Business which Intelita operated under the Licence, the judge held that there was no evidence they would suffer irreparable damage if the Licence was terminated and Defendant lost right to the bank or IT accounts as a result of the Injunction and Revised Injunction. There was therefore no need for Global’s undertaking to be fortified.

Comment

Hong Kong courts will take into account all the circumstances of the case when exercising their discretion to discharge or refuse the grant of an injunction. This case also serves as a helpful reminder that an applicant who seeks urgent relief from the court must act with diligence and speed in initiating the primary proceedings in support of which the interim relief is granted.