When will the court grant an anti-arbitration injunction?

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Authored by: Joseph Chung

In 廈門新景地集團有限公司 formerly known as 廈門市鑫新景地房地產有限公司 v. Eton Properties Ltd and Another, [2023] HKCFI 1327, the Hong Kong court granted the Plaintiff an anti-arbitration injunction (but in more limited terms than that applied for) to prevent the Defendants from making certain claims in a new arbitration commenced against the Plaintiff in Mainland China, which claims, the court said, had already been determined by the Hong Kong court in proceedings to enforce previous arbitral awards.

The parties had entered into an Agreement to develop land, which was governed by Mainland China law and subject to CIETAC arbitration in Beijng. Disputes arose in relation to the Agreement and in 2006, a Mainland arbitral tribunal made the 1^st Award in the Plaintiff’s favour that the Defendants continue to perform the Agreement. The following year (2007), the Plaintiff obtained an order from the Hong Kong Court to enter statutory judgment in terms of the 1^st Award.

In 2008, the Plaintiff commenced a common law action in Hong Kong (HCCL 13) to enforce the 1^st Award. It sought damages for the Defendants’ breach of implied promise to perform the 1^st Award. This action was appealed up to the Court of Final Appeal, which granted the Plaintiff’s claim and ordered the matter to be returned to the Court of First Instance for a trial on quantum. As a result, the statutory judgment, giving effect to the 1^st Award stating that the Defendants continue to perform the Agreement, was set aside.

In 2009, the Defendants sought a ruling from the Mainland tribunal that the Agreement could not be performed. The tribunal rejected this application and made a 2^nd Award providing that the 1^st Award was final and there was nothing further to be determined by the tribunal.

In 2022, the Defendants commenced a new arbitration against the Plaintiff in the Mainland, as a result of Article 580 of the PRC Civil Code coming into effect in 2021, which allows any party to an agreement, regardless of whether it is the party in breach or the innocent party, to terminate the agreement in certain specified circumstances. The Defendants argued that under Article 580, the Agreement was terminated.

Subsequently, the Plaintiff applied in the present action for an anti-arbitration injunction, to restrain the Defendants from taking any steps to pursue the new arbitration and to compel them to discontinue it.

The judgment usefully sets out the legal principles applicable to the grant of an anti-arbitration injunction, as follows:

• The court has the jurisdiction and power under section 21L of the High Court Ordinance to grant either an anti-suit injunction or an anti-arbitration injunction, where it appears to the court to be just or convenient to do so.

• Whilst the jurisdiction to grant an anti-arbitration injunction exists, the court’s power to grant such must be exercised not only with great caution and in circumstances which can be shown to be wholly exceptional, but also with due and proper regard to the objectives and principles of the autonomy, independence and finality of arbitration as enshrined in the Arbitration Ordinance (Ordinance).

• Two conditions must be satisfied before the power to grant an anti-arbitration injunction may be exercised, namely: (i) the injunction does not cause injustice to the claimant in the arbitration, and (ii) the continuance of the arbitration would be oppressive, vexatious, unconscionable or an abuse of process.

• Where it is clear that the dispute in question is within the terms of a valid arbitration agreement, then the courts should not interfere. In view of the extensive Hong Kong authorities on the approach and policy of the courts here towards upholding arbitration agreements and the finality of arbitral awards, this principle cannot be disputed.

• There is a need for caution in granting anti-arbitration injunctions in relation to arbitrations outside the jurisdiction, because such matters are generally best left to the relevant supervisory courts, being the courts of the country of the seat of the arbitration.

• In many of the cases concerning whether an anti-arbitration injunction should be granted, there is an issue as to whether there is any or any valid arbitration agreement. It is generally appropriate for that issue to be left in the first instance to be determined by the arbitral tribunal.

• The objectives of autonomy as set out in section 3 of the Ordinance, and the policy of minimal curial intervention in arbitration, as repeatedly emphasized by the courts, must be borne in mind when an application for anti-arbitration injunction is considered.

• The fact that there may be a significant degree of duplication and overlap between concurrent court proceedings and the arbitration is not sufficient to warrant the deprivation of the claimant’s right to arbitrate issues which are the subject of the arbitration agreement.  The prospect of concurrent court proceedings and arbitration relating to the same subject matter do not make the arbitration vexatious, unconscionable or an abuse of process to justify the court taking the disputed issues out of the hands of the arbitrator.

Court Decision

The court referred to the obviously competing interests in play in this case. What was unusual, was that the 1^st Award was for continued performance of the Agreement held to be in place, what the Hong Kong Court was enforcing was a judgment entered on the breach of the promise to honour the 1^st Award and what the Defendants sought to do in the new arbitration was to ask for discharge of the Agreement under a new PRC law. 

The court said that the judgment in HCCL 13 for compensation in respect of breach of the promise was separate and independent of the Agreement and the rights and duties of the Plaintiff and Defendants respectively flowed from the 1^st Award.  There had been no judgment or award of compensation for breach of the Agreement.  Whether or not the rights and obligations of the parties under the Agreement could be said under PRC law to have continued to subsist after any judgment or award had been entered, were for determination under PRC law and the tribunal and supervisory court on the Mainland were the better forum for argument on those questions.  If the Defendants’ contractual rights had continued to subsist under the Agreement, it could not be said that they were vexatious or abusive in submitting those rights to the tribunal in the new arbitration for determination.

On balance, the court said it could not conclude that it would be just to grant the injunction in the wide terms sought by the Plaintiff, and the parties should be left to argue before the tribunal whether the Defendants were entitled under the new PRC law to seek termination of the Agreement.  Whether their rights under the new PRC law were affected by the findings made by the tribunal in the 1^st and 2^nd Awards or by the findings of the Hong Kong courts as to the alleged impossibility of either the performance of the Agreement or attainment of the purpose of the Agreement, would have to be argued before and decided by the tribunal.

However, the court concluded that it would be right and just to grant an injunction to restrain the Defendants from continuing the new arbitration on the basis of or for pursuing any claim or assertion that the Plaintiff’s action for damages as claimed in HCCL 13 was in substance a claim for damages for the Defendants’ breach of the Agreement and/or was in breach of the Agreement, or that it should be determined by or under PRC law on the question of assessment of the Plaintiff’s loss for breach of the promise. The Plaintiff had clearly shown that these issues were not covered and not within the scope of the arbitration clause of the Agreement, the Defendants’ rights under that clause had not been infringed, and any arbitration of such claims and assertions was vexatious, oppressive and an abuse of process, because it sought to attack the judgments of the Hong Kong courts and undermine the enforcement of the 1^st Award in Hong Kong.

This is the latest judgment in the long and ongoing dispute between廈門新景地集團有限公司 and Eton Properties Ltd.  This case represents one of the rare occasions of the Court granting an anti-arbitration injunction although on narrow terms focusing on whether specific claims of the Plaintiff were within the scope of the arbitration clause and whether such claims had already been determined by the Hong Kong court in proceedings to enforce previous arbitral awards.  This case once again demonstrates the Hong Kong’s Courts’ pro-arbitration approach and its reluctance to interfere with the jurisdiction of the arbitral tribunal.

Key Contacts

Joseph Chung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9647