30 December, 2016
The Court of Final Appeal (CFA) recently handed down a judgment in Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd FACV 1/2016 which clarifies the tests applicable to applications under section 21M of the High Court Ordinance (Section 21M).
Under Section 21M, the Hong Kong Court may grant an injunction or other interim relief in aid of proceedings commenced or to be commenced in a place outside Hong Kong. In this case, the Plaintiff/Appellant sought a Mareva injunction to freeze the Defendant’s/Respondent’s assets in Hong Kong to aid it in the enforcement of its judgment obtained against the Defendant in England for damages for breach of exclusive jurisdiction clauses.
The CFA held that there are two stages involved in determining a Section 21M application. The first stage is for the court to consider whether, if the proceedings that have been or are to be commenced in the foreign court result in a judgment, that judgment is one that the Hong Kong court may enforce.[1] If so, the court should then consider whether the applicant has a good arguable case before the foreign court and whether there is a real risk of dissipation of assets by the defendant if the injunction is not granted.
The second stage, the CFA held, is for the court to consider whether the fact that the substantive claim is being litigated in a foreign court has consequences that make the grant of an injunction under Section 21M unjust or inconvenient. Judicial comity is an example of a relevant consideration in this stage.
This judgment is welcomed as providing clarification in relation to the tests to be applied in determining Section 21M applications and, in particular, that when considering whether the applicant has a good arguable case, one has to look at whether he has a good arguable case before the foreign court and NOT whether he has a good arguable case under Hong Kong law had the proceedings been commenced in Hong Kong.Where the foreign court has already considered the strength of the applicant’s case, its conclusions will normally carry weight in the Hong Kong court. However, if the Section 21M application is made in aid of proceedings not yet commenced in the foreign court or in proceedings that have been commenced, but in which the foreign court has not yet considered the strength of the applicant’s case, the practical implication of the CFA judgment is that the Hong Kong Court will need to carry out an assessment and application of foreign law to the facts of the case, which will probably mean expert evidence on the relevant foreign law having to be adduced.
Section 21M was introduced with the Civil Justice Reforms in 2009 and since then, applications for Section 21M injunctions have been quite common in Hong Kong, Hong Kong being an international financial centre and a place where many companies’ accounts and assets are kept. Deacons have handled a number of cases relating to Section 21M injunctions, including acting for the Appellants in the Court of Appeal case of Beyonics Technology Limited & Another v Goh Chan Peng & Others CACV 244/2014,last year. The appeal was allowed in that case and the Court of Appeal said that the Hong Kong court’s jurisdiction under Section 21M is ancillary in nature, its purpose being to facilitate the foreign court which has primary jurisdiction over the matter and that Hong Kong courts will be cautious and very slow to take a different view on the necessity of maintaining a Section 21M injunction if the foreign court who has primary jurisdiction has discharged an injunction ordered by it.
Background
The Appellant is a Chilean shipping corporation and the Respondent is a Hong Kong freight forward company. In June 2012, the Respondent brought proceedings against the Appellant in the PRC under bills of lading containing exclusive English jurisdiction clauses. In response, the Appellant sought and obtained an anti-suit injunction from the English court against the Respondent.
Despite the anti-suit injunction, the Respondent continued with the PRC proceedings and commenced further proceedings in various courts in the PRC. The PRC courts held that the exclusive jurisdiction clauses were void. In November 2013, the Appellant brought proceedings in England, seeking damages for the Respondent’s breaches of the exclusive jurisdiction clauses. A further anti-suit injunction was obtained, but again, the Respondent ignored the injunction and continued with the PRC actions.
In June 2014, in support of it claims in the English actions, the Appellant obtained a worldwide freezing order against the Respondent in the English court. In support of the English actions and to give effect to the worldwide freezing order, the Appellant then obtained a Mareva injunction over the Respondent’s assets in Hong Kong and the appointment of a receiver over those assets under Section 21M.
In October 2014, the English court held that the jurisdiction clause was an exclusive jurisdiction clause and made a permanent anti-suit injunction. The Court also held that the Respondent was in breach of contract in bringing proceedings in the PRC and awarded damages to the Appellant. The Respondent’s appeal against the English decision was dismissed.
After the English court had given judgment in October 2014, the Hong Kong court discharged the Mareva injunction and Receivership Order pursuant to the Respondent’s application. The Appellant appealed, but the appeal was dismissed by the Court of Appeal on the basis that intervening in a jurisdictional conflict between the Courts of England and the PRC would be contrary to judicial comity. The Court of Appeal also considered the undertaking given by the Respondent not to enforce judgments given by the PRC courts without the Appellant’s consent or leave of the Court, as adequate protection. The Appellant then appealed to the CFA.
The CFA’s Decision – The two-stage test
The First Stage
The CFA held that
- The starting point is to consider whether, if the proceedings that have been or are to be commenced in the foreign court result in a judgment, that judgment is one that the Hong Kong court may enforce.
- If the answer to 1 above is yes, the Court should then consider (a) whether the plaintiff has a good arguable case before the foreign court; and (b) whether there is a real risk that the defendant will dissipate its Hong Kong assets if the Mareva injunction is not granted.
The CFA held that the Court of Appeal was wrong in holding that it was necessary to consider the strength of the substantive claim under Hong Kong law. The underlying cause of action, the CFA said, has little significance, as foreign judgments will be enforced in Hong Kong even though the claim is one that would not have succeeded under Hong Kong law. So the question which the Hong Kong court has to consider is whether the plaintiff has a good arguable case before the foreign court and NOT whether the plaintiff would have a good arguable case under Hong Kong law if proceedings had been commenced in Hong Kong. The Hong Kong Court has to form a view, the CFA said, on all the available materials, including any findings of the foreign court itself.
The CFA referred to the fact that relief under Section 21M can be sought, sometimes before proceedings have even been commenced in the primary jurisdiction (i.e. in the foreign court) and often when they have been commenced, but the foreign court has not yet considered the strength of the plaintiff’s case. Where the foreign court has carried out that exercise, however, its conclusions, the CFA said, will normally carry weight with the Hong Kong court. Here, the plaintiff had established a good arguable case in the English proceedings and had indeed obtained a judgment.
The Second Stage
The CFA held that the second stage requires the Court to consider whether the fact that the Hong Kong court has no jurisdiction over the subject matter of the claim, apart from Section 21M, makes it unjust or inconvenient for the court to grant the application.
The CFA noted that the relief under Section 21M is discretionary and the court can refuse to make the order sought if the fact that the substantive claim is being litigated in a foreign court has consequences that make the grant of the relief unjust or inconvenient. However, the CFA was of the view that it would not be helpful to try to formulate a list of circumstances where it would be unjust or inconvenient to grant a Mareva injunction.
Judicial Comity
The Court of Appeal was of the view that there was a conflict as to jurisdiction between the outcome of the PRC courts’ application of PRC law on the effect of the exclusive jurisdiction clause and the outcome of the English courts’ application of English law on the same, and therefore the Hong Kong court should not exercise its Section 21M jurisdiction to grant an injunction.
The CFA said that judicial comity is a matter that properly fell to be taken into account in the second stage referred to above. The CFA said that it has been recognized that an anti-suit injunction in support of an exclusive jurisdiction clause, while constituting an indirect interference with the process of a foreign court, does not thereby infringe judicial comity because the relief is directed not against the foreign court, but against the individual defendant who is disregarding his contractual obligations. In this case, the CFA said that the Hong Kong court had been asked to assist in enforcing an award of damages made by the English court for breach of an exclusive jurisdiction clause, and not to assist the English Court to enforce an exclusive jurisdiction clause. There was, therefore, no breach of comity. The nature of the proceedings also did not make it unjust or inconvenient to grant the relief sought.
The Respondent’s Undertaking
The CFA was of the view that the Court of Appeal erred in holding that the Respondent’s undertaking (referred to above) provided adequate security since it was the Appellant’s case not only that the Respondent brought the PRC proceedings in breach of contract, but that the PRC proceedings were fraudulent and based on forged documents, to which the Respondent had not offered any explanation. The Court of Appeal, should therefore, the CFA said, have viewed the Respondent’s undertaking with reservation.
Conclusion
In view of the above, the CFA allowed the appeal and reinstated the Mareva injunction.
[1] For a discussion about the enforcement regime and the recent reform proposal, please refer to Recognition and Enforcement of Foreign Judgments in Hong Kong and the Hague Conference’s proposed Convention.
For further information, please contact:
Rita Li, Deacons
rita.li@deacons.com.hk
