Grant of Interim Relief by Court Against Non-Parties to Arbitration

Introduction

The Court of First Instance decision in Company A and Others v Company D and Others [2018] HKCFI 2240 confirmed the jurisdiction of the Hong Kong Court to grant interim measures against a third-party to the arbitration. However, it was reminded by the Court that such discretionary power should not be exercised lightly, especially against a non-party to the arbitration who has no right of appeal against such order. This is the first time Hong Kong Court’s jurisdiction under s. 45 of the Arbitration Ordinance (“the Ordinance”) against non-party was challenged.

That judgment by the Honourable Madam Justice Mimmie Chan concerned an application for receivership by the Plaintiffs when an injunction had already been in place against the 3rd Defendant (not being a party to the underlying arbitration proceedings) over the subject shares.

In the recent judgment delivered by Recorder Eugene Fung SC in [2019] HKCFI 367 which concerned the Defendants’ application for discharge of the injunction, the jurisdiction issue was touched upon again, although only very briefly.

Factual Background of the Case

As the 3rd Defendant’s grounds of jurisdictional challenge were mainly concerned with the statutory construction, the factual background of the case is not directly relevant for the arguments.

Suffice it to say that this case arose out of an ICC arbitration proceedings between the Plaintiffs and the 1st and 2nd Defendants over a Thai company’s shares. The Plaintiffs claimed that the transfer of subject shares by the 1st and 2nd Defendants to the 3rd Defendant was for the purpose evading their potential liability under the final arbitral award to be delivered. The Plaintiffs relied on s. 45 of the Ordinance and obtained a Mareva injunction against the 3rd Defendant, not being a party to the arbitration, on the Chabra basis.

The 3rd Defendant’s Main Grounds for the Jurisdiction Challenge

Before Mimmie Chan J, the 3rd Defendant argued that the Court does not have jurisdiction under s. 45 of the Ordinance to grant interim measures against a non-party to the arbitration.

The starting point of the 3rd Defendant’s argument was that the Court’s jurisdiction to grant interim measures in aid of arbitrations is purely statutory, conferred under s. 45 of the Ordinance. Section 3 of the Ordinance states the object and principles of the Ordinance and provides in s. 3(2)(b) that the Court should interfere with the arbitration only as expressly provided for in the Ordinance.

Section 45 of the Ordinance expressly excludes Art. 17J of the UNCITRAL Model Law (“Model Law”), suggesting that the Court does not, in relation to arbitration, have the same power as it has in other legal proceedings. Article 17 of the Model Law refers to “parties” and interim measures by which the tribunal can order against “a party”, which can only refer to parties to the arbitration agreement. Therefore, as a matter of statutory interpretation, the interim measures under s. 45 can only be granted against a party to the arbitration.

The 3rd Defendant also argued that the Ordinance is premised on the fundamental principle that arbitration is a consensual agreement between parties to submit their dispute to arbitration by a tribunal. The tribunal has no power to make orders against non-parties. And it will be grossly unjust for the Cout to extend the jurisdiction to non-parties who have never submitted themselves to the jurisdiction. This is particularly so when, by virtue of s. 45(10), no appeal lies from any order of interim measure made by the Court.

The 3rd Defendant also relied on two English authorities, Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] 2 CLC 784 and DTEK Trading SA v Mr Sergey Morozov [2017] WHC 94, which were decided based on s. 44 of the English Arbitration Act 1996 (“the Act”), in support of its proposition.

Mimmie Chan J’s Decision

Mimmie Chan J rejected the 3rd Defendant’s jurisdictional challenge.

Mimmie Chan J started by comparing s. 45 of the Ordinance with s. 44 of the Act, and concluded that the former is not as confined and restricted in scope as the latter. The reasoning adopted by the English Court and references to the relevant provisions governing the Court’s powers in relation to arbitration proceedings in the two English authorities do not apply to the Ordinance.

Mimmie Chan J did not regard s. 45’s exclusion of Art. 17J of the Model Law to mean, by itself, that the Court is not intended to have power to grant the orders it would otherwise and generally have in relation to the legal proceedings. Her Ladyship provided an answer to the exclusion - Art. 17J was excluded because s. 12 of the Ordinance intended to separately set out under s. 45(2) to (9) of the Ordinance the powers of the Court in relation to the interim measures, which are read in conjunction with Art. 17(2) of the Model Law (given effect to by s. 35(1) of the Ordinance). In other words, whether or not the Court has the power to grant the relief sought is to be decided by:

(a) whether the arbitration proceedings are capable of giving rise to an arbitral award that may be exercised in Hong Kong (see s. 45(5)(a) of the Ordinance);

(b) whether the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to the arbitral proceedings by the Court (see s. 45(5)(b) of the Ordinance);

(c) whether the interim measure falls within the types of interim measure outlined in Art. 17(2)(a) to (d) of the Model Law (see s. 35(1) of the Ordinance); and

(d) having regard to the matters outlined in ss.45(4) and (7) of the Ordinance.

In response to the 3rd Defendant’s argument that the Ordinance is premised on the arbitration agreement by which the parties submitted themselves to the jurisdiction of the tribunal, Mimmie Chan J agreed that there are strong arguments in support of construing all references to “parties” as parties to the arbitration itself.

However, Mimmie Chan J considered that the purpose and objective of the Ordinance have to also be borne in mind. In particular, Her Ladyship referred to s. 45(7) of the Ordinance that the role of the Court in the grant of interim measures is “ancillary” to the arbitration proceedings and the orders so granted are for the purpose of “facilitating the process” of the arbitral tribunal. Therefore, there is no need to further restrict the ambit of s. 45 of the Ordinance or confine the scope of the interim measures which may be granted, beyond what is already expressly set out.

The Recorder’s Decision

In taking out the discharge summons, the 3rd Defendant sought to argue the same points they relied on in defending the receivership application. However, rather than dwelling on the point, the 3rd Defendant simply referred the Court to the submissions it made on the previous occasion in the receivership application.

While the Recorder accepted that the 3rd Defendant is entitled to reargue the jurisdictional point in this application, the Recorder also noted that a first instance judge should only dissent from another Court of First Instance decision if he is satisfied that it was clearly wrong.

The Recorder was of the view that Mimmie Chan J had given detailed and comprehensive reasons in her decision to explain why she rejected the jurisdictional challenge. Given that the 3rd Defendant was simply referring to the same submissions without identifying why it said Mimmie Chan J’s decision was clearly wrong, the Recorder was not prepared to dissent from her decision.

Our Views

While Mimmie Chan J has rejected the 3rd Defendant’s jurisdictional challenge, Her Ladyship also acknowledged that there are strong arguments in support of construing all references to “parties” in the Ordinance as parties of arbitration itself. On the other hand, the Recorder rejected the 3rd Defendant’s argument because it was only referring to the same submissions it made for the receivership application without pinpointing why Mimmie Chan J’s decision was wrong. The 3rd Defendant’s jurisdictional challenge was not rejected by the Recorder upon full blown argument.

We are of the view that there are strong arguments for the 3rd Defendant’s jurisdiction challenge.

For instance, if the construction of the Ordinance was to permit interim measures against non-parties, it would have very significant ramifications, all of which would have required very careful thought by the legislature.

In particular, with due respect, the 3rd Defendant’s argument that no right of appeal lies from any order of interim measure made by the Court against the non-party does not seem to be fully addressed by Her Ladyship. Apart from saying the interim measures should only be granted against a non-party if it could be established on clear evidence, and on strong grounds, that the order should be made in aid of and to facilitate the arbitration proceedings, Her Ladyship did not seem to have said anything further in relation to such argument.

In our view, the argument of no right of appeal does not only go to the exercise of discretion but goes to the interpretation of the Ordinance, as in whether the statute intended to confer Hong Kong Courts with the power to grant interim measures against a non-party.

The exclusion of a right of appeal in respect of a party is not surprising, as the party can take the matter before the tribunal for a determination of underlying facts or other relevant matters. But the case for non-party is different. It is most unlikely that the normal right of appeal for a non-party would be excluded by a side wind. One would expect that if s. 45 was to confer jurisdiction over a non-party, given such serious consequence, clear and unambiguous wording would have been deployed. However, it is not the case here.

We await to see the next occasion where the jurisdictional issue is revisited by the Hong Kong Courts.

Jurisdictions: 

Partner, DLA Piper (Hong Kong)

Harris Chan is a partner in DLA Piper’s Litigation and Regulatory group. He focuses on contentious and non-contentious construction matters across Hong Kong, Macau and mainland China. Chan’s significant experience spans from defending construction site safety and environmental summonses to assisting contractors, consultants and developers in complex construction claims in mediation, arbitration and court proceedings. He brings extensive advocacy experience across all court levels and arbitration covering various jurisdictions for projects in China, Hong Kong, Macau and other major cities in Asia and Africa. He has worked extensively with numerous participants in the construction process across Asia, including main contractors, subcontractors and developers.

Chan regularly works with our corporate group from different offices in providing construction advice for investment projects involving infrastructure development and project development in China. 

On top of construction experience, Chan also handles a broad range of commercial litigations with various clients including banks, securities companies and listed companies. Areas covered include contractual disputes, shareholder disputes, banking, financial services, employment and administrative law matters such as judicial reviews and election petitions. He has also led his team in conducting various defence works concerning regulatory investigations, disciplinary actions and commercial crimes.

Chan is recognised by Chambers Asia 2011-2016 and Legal 500 (2012-2017) as a leading individual in the area of Construction.

Senior Associate, DLA Piper (Hong Kong)

KC Tai is a senior associate in DLA Piper’s Litigation and Regulatory group. He was admitted as a solicitor of Hong Kong in 2009. KC has extensive experience in handling commercial disputes and advising on regulatory matters.