Anti-Suit Injunction Granted in Pro-Arbitration Judgment

In the latest chapter of the saga between Arjowiggins HKK2 Ltd (‘Arjowiggins’) and Shandong Chenming Paper Holdings Ltd (‘Shandong Chenming’), Justice Mimmie Chan in the Court of First Instance granted an anti-suit injunction to restrain Shandong Chenming from continuing its proceedings in Mainland China against Arjowiggins and an agent of Arjowiggins (see Arjowiggins HKK2 Ltd v. Shandong Chenming Paper Holdings Ltd [2018] HKCFI 93). This decision once again highlights the pro-arbitration attitude of the Hong Kong courts.

Case history

Arjowiggins and Shandong Chenming were parties to a joint venture agreement which provided for arbitration seated in Hong Kong. Dispute arose between the parties and on 20 November 2015, an arbitral tribunal issued an award in favour of Arjowiggins (the ‘Award’). Shandong Chenming made an application to set aside the Award, which was denied by Justice Chan on 12 October 2016.

Arjowiggins then served a statutory demand on Shandong Chenming. On 7 July 2017, Justice Harris rejected Shandong Chenming’s application for an injunction to restrain Arjowiggins from presenting a winding up petition on the basis of the statutory demand. Justice Harris criticised Shandong Chenming’s conduct in his judgment, noting that the company’s refusal to honour the Award “shows disregard for the integrity of our legal system” and was “unethical” (see article in the August 2017 of Hong Kong Lawyer).

Facts and arguments

The present case concerns an anti-suit injunction sought by Arjowiggins. It was revealed that the Award remains unpaid and that on 5 July 2017, Shandong Chenming commenced fresh proceedings in the Weifang court in Shandong Province against Arjowiggins and a director of the joint venture company nominated by Arjowiggins (the ‘Weifang Proceedings’).

Arjowiggins argued that the Weifang Proceedings were in breach of the parties’ arbitration agreement. It also argued that Shandong Chenming’s conduct was vexatious and oppressive since among other reasons, the claims in the Weifang Proceedings have been decided by the arbitral tribunal.

In response, Shandong Chenming argued that its claims in the Weifang Proceedings were tortious in nature and constitute a derivative action as it was seeking remedy on behalf of the joint venture company, and that since the arbitration agreement was only made between Arjowiggins and Shandong Chenming, the arbitration agreement and the Award do not bind the joint venture company or the director.

Decision

Justice Chan examined the claims raised in the Weifang Proceedings and noted that irrespective of the nature of the proceedings, the claims clearly relate to the joint venture agreement and the parties’ rights and obligations thereunder. She therefore held that the Weifang Proceedings fall within the scope of the arbitration agreement. Further, she accepted that the claims raised in the Weifang Proceedings have been determined by the arbitral tribunal, and added that even if there are new claims, those claims should be pursued in accordance with the arbitration agreement.

Justice Chan also agreed to extend the injunction to proceedings against the director, as Shandong Chenming had made the same claims against the director in the arbitration on the premise that Arjowiggins was vicariously liable for the actions of the director. Justice Chan stated that to permit the proceedings would be to discredit the findings made in the Award.

Finally, Justice Chan took into account the conduct of Shandong Chenming in deciding whether to exercise the court’s discretion to grant the injunction. Echoing the views of Justice Harris, Justice Chan was highly critical of Shandong Chenming’s conduct, noting that it “displayed complete disrespect for the arbitration agreement and the arbitral process” and that its “deliberate disregard of the order of this Court and of the Award cannot be countenanced”. The anti-suit injunction sought by Arjowiggins was therefore granted.

Comments

This judgment shows that the court is prepared to look beyond the form of the impugned proceedings to determine whether they in substance fall within the scope of an arbitration agreement. As a clear recognition of the negative aspect of an arbitration agreement, it shows that the court is willing to restrain foreign court proceedings even after the conclusion of the arbitral proceedings in order to guard against attempts to re-litigate matters determined by the tribunal. It also serves as a reminder that the Hong Kong courts have little tolerance for parties who refuse to comply with arbitral awards.

A practical point to note is that Arjowiggins’ application is based on s. 21L of the High Court Ordinance. By way of comparison, it may be recalled that in Ever Judger Holding Company Ltd v. Kroman Celik Sanayi [2015] 3 HKC 246, in which an anti-suit injunction was sought whilst an arbitration was pending, the applicant relied on s. 45 of the Arbitration Ordinance but the judge suggested without deciding that s. 21L of the High Court Ordinance may be the more appropriate basis.

The saga continues as it is understood that the Weifang Proceedings have since been withdrawn but an appeal with respect to Justice Harris’ decision on 7 July 2017 is pending.

Jurisdictions: 

Associate, Allen & Overy