Delay can be fatal to applications for anti-suit injunctions

Introduction

In Sea Powerful II, the Court of Appeal in Hong Kong recently dismissed a plaintiff shipowner's appeal against a judge's refusal to grant an anti-suit injunction to restrain the holder of a bill of lading from continuing with court proceedings in mainland China in breach of a Hong Kong arbitration clause.(1) The judge at first instance had held that the plaintiff's delay in applying for an anti-suit injunction was of itself a standalone justification to refuse the injunction, irrespective of whether the holder of the bill (a bank) had suffered any prejudice or acted to its detriment. While the Court of Appeal's judgment turns on its refusal to interfere with the judge's discretion (which it did not consider had been erroneously exercised), it is clear that the Court of Appeal considered that those previous cases where the court granted an anti-suit injunction despite there having been some delay were best explained by their facts and because there had been some good reason for the delay. No such reason existed in Sea Powerful II.

Background

The background to the first-instance decision in Sea Powerful II is set out in a previous update (for further details please see "Anti-suit injunction applications should be prompt").

In short, the plaintiff shipowner appears to have adopted a strategy of 'wait and see' with respect to court proceedings commenced by a bank (as holder of the bill of lading) in the Qingdao Maritime Court. Those proceedings were commenced despite the bill of lading incorporating (for the purposes of Hong Kong law) a valid arbitration clause providing for a one-year limitation period in which to commence a claim. The plaintiff did not apply to the Hong Kong court for the grant of anti-suit injunctive relief until after its challenge to the mainland court's jurisdiction had failed, by which time the limitation period in the arbitration clause had expired.(2)

At first instance, the judge refused to grant the plaintiff injunctive relief to restrain the bank from continuing with the mainland proceedings on the basis that the plaintiff had delayed – for example, approximately one year had passed since the commencement of the mainland proceedings. While the judge also had regard to comity considerations as between the courts in Hong Kong and on the mainland, the delay alone was sufficient to deny the plaintiff injunctive relief despite an otherwise valid arbitration clause.(3)

Appeal

On appeal, an issue arose as to whether delay and comity considerations arising out of the delay constituted a freestanding justification to refuse the grant of an anti-suit injunction to enforce a contractually agreed arbitration clause.(4)

The plaintiff's legal representatives argued that delay of itself was no reason to deny an applicant the grant of an anti-suit injunction to enforce a contractual right. They also argued that comity considerations had minimal relevance with respect to the decision whether to grant an anti-suit injunction to enforce a contractual arbitration clause, unlike (for example) with respect to the grant of an injunction to restrain a party from continuing with overseas proceedings because a domestic court was a more convenient forum. In effect, the plaintiff argued that with respect to the grant of an anti-suit injunction to enforce a contractually agreed jurisdiction clause, that provision was paramount, irrespective of considerations of delay or any prejudice as between the parties.

The plaintiff's appeal failed because the Court of Appeal did not consider that the judge had exercised his discretion erroneously. The Court of Appeal considered that the judge had taken into account the contractual nature of the arbitration clause, but had also been entitled to take into account considerations of comity. For example, the mainland court had accepted jurisdiction over the bank's claim and the evidence suggested that the mainland court would regard the grant of an anti-suit injunction so late on as an interference with its proceedings.

The Court of Appeal also considered that previous cases where delay may not have been a bar to the grant of injunctive relief were fact specific and of little precedent value.

Comment

At the time of writing there does not appear to be an application by the plaintiff for permission to appeal. It will be interesting to see whether the plaintiff's legal representatives are instructed to apply for permission to appeal to the Court of Final Appeal and, if so, whether they can perfect an appeal point that raises an issue of "great general or public importance" such as to justify permission to appeal.(5)

In all of this, sight should not be lost of the fact that the plaintiff's application to the Hong Kong court for the grant of anti-suit injunctive relief was made approximately one year after the bank's commencement of the court proceedings in the mainland, by which time the limitation period in the arbitration clause had expired. The plaintiff presumably had time to apply for the grant of anti-suit injunctive relief before expiry of that limitation period, but may have been content to adopt a strategy of 'wait and see' as regards its challenge to the jurisdiction of the mainland court, while running down the clock on the limitation period.(6)

For further information on this topic please contact Simon Baker or Gary Yin at Smyth & Co in association with RPC by telephone (+852 2216 7000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) CACV 36/2016, [2016] HKEC 1150, May 24 2016.

(2) The plaintiff's challenge to the mainland court's jurisdiction failed because, for the purposes of the law there, it appears that the arbitration clause had not been validly incorporated into the bill of lading. The mainland court accepted jurisdiction with respect to the bank's claim.

(3) The judge at first instance accepted that the bank had failed to act reasonably to protect its rights under the arbitration clause.

(4) In the absence of a submission to the jurisdiction of the overseas court by the applicant and where the respondent had apparently suffered no irreparable prejudice.

(5) Section 22(1)(b) of the Court of Final Appeal Ordinance (Cap 484).

(6) The plaintiff's legal representatives do not appear to have had instructions regarding whether their client would not take the limitation point if arbitration proceedings were commenced.

Warren Ganesh assisted in the preparation of this update.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.