Hong Kong Court Grants Anti Suit Injunction

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The Hong-Kong Court of First Instance has held in the case of Ever Judger Holding Company Limited v Kroman Celik Sanayii Anonim Sirketi^[1] that the Court has the authority to grant an anti-suit injunction restraining a Party to an arbitration seated in Hong Kong from commencing court proceedings in a foreign country.

The Plaintiff in this case was the registered owner of a bulk carrier, incorporated in the British Virgin Islands. They chartered the ship to the defendant vide voyage charter party dated 6^th October, 2014 to carry 15,000MT of steel rods and 30,500MT of wire rods from China to Turkey. The charter party provided for an arbitration clause which read:

This contract shall be governed by English law and constructed [sic] in accordance with English law and any dispute arising out of or in connection with this contract shall be referred to arbitration in Hong Kong in accordance with Hong Kong Arbitration Ordinance.”

Disputes arose between the Parties when the ship arrived at Turkey because the defendant claimed that most of the cargo had allegedly been damaged in the journey. The defendant commenced proceedings in the Gebze 1^st Civil Court in Turkey. Subsequently, the Plaintiff initiated arbitration in Hong Kong and applied to the Hong Kong Court of First Instance for an anti-suit injunction.

The court first observed that an “anti-suit injunction” is a misnomer because the injunction is an order addressed to the party before the Court, in person, and not a foreign Court.

The Court derives its authority to grant injunction from two sources:

1. Section 45 of the Arbitration Ordinance which is applicable in cases where the arbitration is to be or has been commenced in Hong Kong or outside. It gives the Court the power to grant interim measures.
2. Section 21L High Court Ordinance which provides that “The Court of First Instance may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the Court of First Instance to be just or convenient to do so.”

Since neither party contended the source of jurisdiction of an anti-suit injunction, the Court did not examine which provision would govern the same.

The arbitration agreement contains a positive and a negative covenant. The former is an express covenant whereby the parties undertake to resolve their disputes through arbitration. The latter is an implied covenant, whereby they undertake not to resolve their dispute through any other forum. An anti-suit injunction seeks to enforce this negative covenant and prevent the breach of an arbitration agreement.

The ground on which the injunction was sought was breach of contract. The defendant, on the other hand, argued that an injunction should not be granted as court proceedings were pending in Turkey on a related matter between the defendant and the cargo insurers who had refused the insurance cover on the grounds that the goods had been damaged before the voyage. An anti-suit injunction would fragment the dispute at significant cost to the defendant. Secondly, the Plaintiff had filed a jurisdictional challenge in the Turkish Court and therefore, it would be inappropriate for the Court of First Instance to “jump the gun” and grant the injunction. Thirdly, it was contended that the Turkish proceedings had advanced significantly and there was a delay on the part of the Plaintiff in filing for the injunction. The defendant also argued that since an injunction is an equitable relief, the Plaintiff should have “come with clean hands” which they have not.

The first argument was rejected by the Court because the arbitration would continue whether or not an injunction was granted. Secondly, filing of jurisdictional challenge in the Turkish Court was a procedural requirement. Thirdly, the Turkish Court had not decided on the jurisdictional challenge raised by the Defendant and therefore, the proceedings had not become too advanced. Lastly, the Defendant could not establish fraud in the conduct of the Plaintiff and therefore, the objection of unclean hands was unsuccessful.

The Court further opined that a Party must give strong reasons to convince a Court to refuse an anti-suit injunction based on an arbitration agreement because the accepted norm is that the Parties should be bound by their contract. On this basis, the Court granted the anti-suit injunction restraining the defendant from continuing the proceedings in the Turkish Court.

This judgment follows a line of pro-arbitration decisions in many nations such as England^[2] and Singapore^[3] which affirm the power of the Court of the Lex Arbitri in granting anti-suits injunctions. However, Justice Godfrey Lam left the question regarding the source of this power – whether as an interim measure or general power of the Court to grant injunctions – undecided. He did observe, though, that “while (he had) no doubt the court has jurisdiction to grant an injunction to restrain one party to an arbitration agreement from taking steps to have a dispute covered by that agreement determined by a foreign court, (he was) not so sure that the jurisdiction is to be found exclusively, or at all, in s. 45(2).” It will be interesting to see what is decided in this regard.