Anti-suit Injunctions and Delay

The recent case of Sea Powerful II Special Maritime Enterprises v Bank of China Ltd [2016] HKEC 90 (“Sea Powerful II”) may arise out of a claim for the wrongful delivery of cargo shipped from Australia to China, but it has a wider significance for the arbitration community generally*.

In Sea Powerful II the charter party contained an arbitration clause for disputes to be arbitrated in Hong Kong (subject to English law). The bill of lading incorporated the arbitration clause on its reverse side. The arbitration clause provided for a one year limitation period in which to commence a claim (commencing with the date of delivery of the cargo); that time bar expired in December 2014. By the time a dispute arose as to delivery of the cargo, the relevant parties were the plaintiff ship owner and the defendant bank (the “bank”) as holder of the bill of lading (having superseded the shipper of the cargo).

Despite the incorporation of the Hong Kong arbitration clause, the bank commenced court proceedings in respect of its claim in the Qingdao Maritime Court (“QMC”) in September 2014. It appears that the plaintiff managed to evade service of the QMC proceedings until May 2015 and, adopting a “wait and see” strategy, only applied to challenge the QMC’s jurisdiction in June 2015. By that time the limitation period in the arbitration clause had expired. The plaintiff’s challenge to the QMC’s jurisdiction ultimately failed because local law did not appear to give effect to an arbitration clause incorporated on the reverse side of a bill of lading.

It was not until September 2015 (after its jurisdiction challenge had failed) that the plaintiff applied for an anti-suit injunction against the bank in Hong Kong, seeking to restrain it from continuing the substantive QMC proceedings in breach of the arbitration agreement. For the purposes of Hong Kong law the arbitration clause was validly incorporated into the bill of lading.

The main issue before the Hong Kong court was whether the plaintiff was culpable of delay (such that injunctive relief should be refused). The plaintiff argued that such delay of itself was not sufficient to refuse injunctive relief, provided it had not submitted to the jurisdiction of the QMC (which it was accepted the plaintiff had not).

The Hong Kong court held injunctive relief could be refused on the basis of delay alone, irrespective of what stage the overseas court proceedings had reached. On the facts, the court held that the plaintiff had delayed such that it should be denied injunctive relief. The court took into account the delay while the plaintiff was apparently evading service of the QMC proceedings (some eight months) and the further time that it took for the plaintiff to apply for an anti-suit injunction in Hong Kong (some four months). It was also not lost on the court that when the bank commenced the QMC proceedings in September 2014 the plaintiff still had time in which to apply for an anti-suit injunction before the limitation period in the arbitration clause expired (in December 2014).

Nothing in Sea Powerful II detracts from the pro-arbitration stance of the Hong Kong courts (for which, see Industry Insights in June 2015 – “Anti-suit Injunctions”). However, if a party applies for an anti-suit injunction it must move promptly and time usually begins to run from the start of the overseas court proceedings. In the normal course of events, a party who adopts a strategy of “wait and see” pending the outcome of its challenge to the jurisdiction of the foreign court (while running down the limitation period in an arbitration clause) risks being denied injunctive relief.

In this respect, applications for anti-suit injunctions are no different to applications for other injunctions (or equitable relief) and delay can be fatal. What constitutes delay in this context is fact specific but is usually measured in terms of a few months from the start of the overseas court proceedings in breach of the arbitration agreement (while also taking into account the expiry of any applicable time bar).

* The general principles are the same under English law – for which, see Essar Shipping Ltd v Bank of China Ltd [2015] EWHC 3266 (Comm); Ecobank Transnational Incorporated v Tanoh [2015] EWCA Civ 1309.