China: Anti-arbitration injunction refused by the Hong Kong Court of First Instance: Lin Ming v Chen Shu Quan

The Hong Kong Court of First Instance handed down its judgment on 8 March 2012 refusing an application for an injunction seeking to restrain arbitration proceedings before the Hong Kong International Arbitration Centre (HKIAC).

The decision recognises the conflict between the general jurisdiction of Hong Kong courts to restrain arbitral proceedings (section 21L of the High Court Ordinance) and the principle that the courts shall not intervene in an arbitration (section 12 of the Arbitration Ordinance). Despite the court's refusal to grant the anti-arbitration injunction on this occasion, the case affirms the general jurisdiction of Hong Kong courts to restrain arbitral proceedings but that this jurisdiction will only be exercised in exceptional circumstances.

The case

The dispute arose from the Sequedge Group's ("Sequedge") purchase of shares of a PRC food processing company from Chinese entrepreneur Lin Ming ("Lin"). The Share Purchase Agreement contained an arbitration clause which applied to any "dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof".

There was a dispute over a put option. Sequedge referred the matter to arbitration at the HKIAC. Lin then commenced parallel proceedings in the Hong Kong Court of First Instance and sought an injunction to restrain the arbitration proceedings, alleging that the Share Purchase Agreement had been terminated by breach. Sequedge on the other hand applied to the court for a stay of court proceedings in favour of the arbitration.

Anti-arbitration injunction
The basis of Lin's application for an anti-arbitration injunction was the court's general jurisdiction to grant injunctive relief (section 21L of the High Court Ordinance (Cap. 4)), on the ground that it would be unjust to require Lin to face two sets of proceedings. However, this general jurisdiction conflicts with Section 12 of the Arbitration Ordinance (Cap. 609) (Article 5 of the UNCITRAL Model Law on International Commercial Arbitration ("Model Law")), which provides that "in matters governed by this law, no court shall intervene except where so provided". The question was whether this had the effect of ousting the court's jurisdiction to grant such an injunction.

Mr. Justice Ng found that the Court's general jurisdiction to grant anti-suit injunction was not ousted by the Arbitration Ordinance, following a line of English precedent. However, this jurisdiction would only be exercised in exceptional circumstances, such as where the arbitration was oppressive, vexatious, unconscionable, or an abuse of process. The Judge did not find these in the present case and refused to restrain the arbitration.

Stay under Section 20 Arbitration Ordinance
The natural consequence was that the court proceedings were stayed in favour of the arbitration, pursuant to section 20 of the Arbitration Ordinance (Article 8 of the Model Law) which provided that where an action is brought in a matter which is the subject of an arbitration agreement, the court must refer the parties to arbitration unless it is established that the arbitration agreement is null and void, inoperative or incapable of being performed.

The Court found that there was a valid arbitration agreement and therefore stayed the court proceedings. As to the alleged termination of the Share Purchase Agreement, Mr. Justice Ng noted that the arbitration clause would survive repudiation of the contract containing it, pursuant to section 34 of the Arbitration Ordinance which provides that an arbitration clause which forms part of a contract should be treated as an agreement independent of the other terms of the contract.

Implications for arbitration proceedings in Hong Kong

The decision affirms the general jurisdiction of the courts under Section 21L of the High Court Ordinance to grant an injunction to restrain the continuance of an arbitration. However, such jurisdiction should be exercised "very sparingly and with great caution".

Mr. Justice Ng also noted that the extent of this jurisdiction and its conflict with the Arbitration Ordinance is "eminently suitable for decision by the higher Courts".

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