X and Y v. ZPRC and ZHK

At a glance

Parties

X and Y (plaintiffs) v. ZPRC and ZHK (defendants). The first judgment names the parties GM1, GM2 and KC.

Case no.

HCCT 60/2019; [2019] HKCFI 2793 (14 November 2019); [2020] HKCFI 631 (7 May 2020)

Court

Court of First Instance, High Court of the Hong Kong SAR (Construction and Arbitration Proceedings)

Forum and rules

Underlying HKIAC arbitrations seated in Hong Kong under the HKIAC Administered Arbitration Rules; court applications under s 45 of the Arbitration Ordinance (Cap 609) and s 21L of the High Court Ordinance (Cap 4)

Treaty

Arbitration clauses in a guarantee and an ISDA Agreement, both governed by English law; New York Convention Articles II and II(3) considered

Court

Mimmie Chan J (sitting alone)

Sector

Financial derivatives (TARF); guarantees

Outcome

The Court continued the interim anti-suit injunction against ZPRC over the first Mainland proceedings (PRC1) and granted a new anti-suit injunction against both defendants over the second (PRC2). Both run until the tribunal decides or orders otherwise. A permanent injunction was refused.

Amount

No damages were in issue. Order nisi: the defendants pay the plaintiffs' costs of the proceedings.

The dispute

In March 2018 X entered into an ISDA Agreement with ZHK for derivative trading (target redemption forwards). ZHK's parent ZPRC guaranteed ZHK's obligations by a Guarantee dated 16 March 2018. Both contracts are governed by English law and refer disputes to HKIAC arbitration in Hong Kong. X began arbitrations against ZPRC and ZHK in January 2019. ZPRC then sued X and Y, an affiliate of X, in a Mainland court in June 2019 (PRC1), seeking a ruling that no valid arbitration agreement exists. Its case was that the Guarantee never took effect because approval from SAFE (the State Administration of Foreign Exchange) was a condition precedent and was never obtained. In July 2019 ZPRC and ZHK also sued Y alone on the Mainland (PRC2), alleging fraud and unlawful trades. The plaintiffs sought anti-suit injunctions. The defendants denied that the Court had jurisdiction and denied any breach. They also argued that the Mainland court had parallel jurisdiction over the validity of the arbitration agreement, that Y was not a party to it, and that an injunction would offend comity.

Key holdings

1. An anti-suit injunction restraining foreign proceedings brought in breach of an arbitration agreement is an interim measure within s 45 of the Arbitration Ordinance where an arbitration is already under way. The Court therefore had jurisdiction to grant interim relief. In the alternative, the claim fell within the gateway in Order 11 rule 1(1)(d)(iii) of the Rules of the High Court. 2019 Decision ¶¶ 14–16
2. An anti-suit injunction enforces a contract between consenting parties. It does not disrespect the Mainland court or offend comity. 2020 Judgment ¶ 14
3. The Court has jurisdiction under s 21L of the High Court Ordinance. ZHK was a proper party, so ZPRC came within the gateway in Order 11 rule 1(1)(c). There was also a good arguable case that the arbitration agreements are governed by Hong Kong law, given the Hong Kong seat and the HKIAC Rules, which brought the claim within rule 1(1)(d)(iii). 2020 Judgment ¶¶ 20–25
4. A permanent injunction is not just and convenient. Whether the Guarantee and the arbitration agreement exist turns on disputed facts and witness credibility, and the tribunal is better placed to decide those questions. The interim injunction against ZPRC over PRC1 therefore continues until the tribunal decides or orders otherwise. 2020 Judgment ¶¶ 41–45
5. The claims in PRC2 fall within the wide arbitration clauses. Even if they are framed in tort, they concern non-contractual obligations connected with the Agreement. The clauses also extend to claims against Y as X's non-contracting affiliate. Suing Y was a procedural manoeuvre to evade the arbitration agreement and was vexatious and oppressive. 2020 Judgment ¶¶ 50–52
6. Bringing PRC1 breached the arbitration agreement. Outside a stay application, courts may review a tribunal's jurisdiction only at the seat (for example on a set-aside application) or at the enforcement stage under Article V of the New York Convention. Under Article II(3), China must refer the parties to arbitration. Even if the Mainland court has jurisdiction, the defendants may not invoke it in the face of the arbitration agreement. 2020 Judgment ¶¶ 55–66
7. The defendants suffer no irreparable harm. They can still resist enforcement of any award on the Mainland. ZPRC must comply with the interim injunction within 7 days of service. The order nisi awards costs to the plaintiffs. 2020 Judgment ¶¶ 67–71

Procedural history

1. March 2018X and ZHK sign the ISDA Agreement. ZPRC issues the Guarantee dated 16 March 2018.
2. January 2019X starts HKIAC arbitrations against ZPRC under the Guarantee and against ZHK under the Agreement.
3. June–July 2019ZPRC brings PRC1 against X and Y. ZPRC and ZHK bring PRC2 against Y. In July 2019 the plaintiffs ask the tribunal for an anti-suit injunction; that application is held up by their challenge to the presiding arbitrator.
4. 28 October 2019Originating Summons issued in the Hong Kong Court of First Instance.
5. 14 November 2019Interim anti-suit injunction granted against ZPRC under s 45 of the Arbitration Ordinance.
6. November 2019HKIAC dismisses the challenge to the presiding arbitrator.
7. 12 March 2020By consent, ZHK is joined as 2nd defendant and the Originating Summons is amended to cover PRC2.
8. 7 May 2020Judgment: permanent injunction refused; interim injunction continued against ZPRC; new injunction granted over PRC2, both pending the tribunal's determination.

Tribunal, counsel and experts

Decided by

• Mimmie Chan Judge, Court of First Instance, High Court of the Hong Kong SAR

For the claimant

Allen & Overy LLP

For the respondent

Stevenson, Wong & Co

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Keywords

• anti-suit injunction
• Hong Kong
• Mainland China
• HKIAC
• section 45 Arbitration Ordinance
• section 21L High Court Ordinance
• Order 11 gateways
• New York Convention Article II(3)
• competence-competence
• ISDA Agreement
• guarantee
• SAFE approval
• non-signatory affiliate
• governing law of arbitration agreement
• comity
• The Angelic Grace
• AES Ust-Kamenogorsk
• derivatives

Summary generated with AI from the published documents — refer to the award for the authoritative text.