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Dispute Resolution Law Alert - March 2018
Submitted by // K Bowers, Partner / Solicitor Advocate
13 March 2018


Arjowiggins HKK2 Ltd v Shandong Chenming Paper Holdings Ltd [2018] HKCFI 93

Introduction

In the recent case of Arjowiggins HKK2 Ltd v Shandong Chenming Paper Holdings Ltd [2018] HKCFI 93, the Court of First Instance ("CFI") granted an application for an anti-suit injunction to restrain the Respondent from pursuing proceedings in Mainland China as this would have amounted to a breach of an arbitration clause contained in the JV Contract between the parties. The CFI held that as the claims made in those PRC proceedings had already been determined in previous arbitral proceedings, to allow the foreign proceedings to continue would effectively be permitting the determined issues to be re-litigated, and could also discredit the findings made by the arbitration tribunal.

Facts

The Claimant and Respondent entered into a JV Contract on 27 October 2005 in which the Claimant held a 70% stake and the Respondent 30% of the JV entity which was formed to manufacture paper products. The JV Contract contained an arbitration clause which provided that any dispute arising out of or in connection with the JV Contract "…shall be referred to and finally resolved by arbitration in Hong Kong in accordance with the Arbitration Rules of the Hong Kong International Arbitration Centre…The arbitral award shall be final and binding on the parties".

During November 2015, the Claimant obtained an arbitral award against the Respondent for payment of RMB167.9m (with interest and costs) ("Award"). Leave was then granted by the Court for the Claimant to enforce the Award as a judgment in Hong Kong.

The Respondent then commenced further proceedings in both Hong Kong and Mainland China:-

i) February 2016 - applied to set aside the order granting leave to the Claimant to enforce the Award, which was dismissed;

ii) November 2016 - sought to restrain the Claimant from petitioning for its winding up, following a statutory demand served by the Claimant on the Respondent for RMB310m which included the amounts due under the Award and other judgments and orders made by the PRC Courts ("Winding Up Proceedings"); which was dismissed; and

iii) July 2017 - commenced proceedings before the Weifang Court in Mainland China, against the Claimant and a director of the JV Company formed by the Respondent and the Claimant. It is noteworthy that the claims made in and parties to this action were the same as in proceedings previously commenced by the Respondent, also before the Weifang Court in 2013, which were withdrawn.

The proceedings commenced before the Weifang Court gave rise to the Claimant's application for an anti-suit injunction. The Claimant's application was based on the following grounds:-

i) commencing the foreign proceedings amounted to a breach of the arbitration agreement; and

ii) the claims in the foreign proceedings had already been determined in the arbitration as well as in previous Hong Kong proceedings when the Respondent attempted to set aside the Award, meaning that the foreign proceedings were merely an attempt to re-litigate issues that had already been determined.

Respondent is bound by arbitration tribunal's findings and any new claims must be arbitrated

In granting the injunction against the Respondent, the Court considered the claims made in the foreign proceedings and held that these proceedings fall within the scope of the arbitration clause in the JV Contract, entitling the Claimant to apply for a stay of the proceedings as provided under the JV Contract. The CFI also held that the claims made by the Respondent had already been determined by the arbitration tribunal and that it was consequently, bound by these findings. It would have been "vexatious and oppressive" for the Respondent to have reopened these determined issues. Should there be any new claims brought by the Respondent, the Court found that they should be brought by way of arbitration proceedings as provided for by the arbitration clause in the JV Contract.

Respondent's conduct found to be unconscionable

The CFI repeated the long-standing principle that in exercising its discretionary powers to grant an injunction, the conduct of the parties is a relevant factor for the Court's consideration.

In the Winding Up Proceedings, the presiding Judge noted that the conduct of the Respondent was "unethical, reproachable and unacceptable, as showing disregard and contempt for the Hong Kong court and the integrity of the financial and legal system", as it attempted to argue that as a foreign company, the Hong Kong Court had no jurisdiction to make a winding up order against it, and that it could not be demonstrated that the Claimant would derive sufficient benefit from the making of the winding up order in Hong Kong. The CFI further held that the Respondent showed "complete disrespect for the arbitration agreement and the arbitral process to which it had voluntarily agreed under the JV Contract".

Comment

This case reflects the Hong Kong Courts' willingness to grant anti-suit injunctions to uphold the validity of arbitral awards and arbitration clauses. It is a welcome decision as it demonstrates that the determination of an arbitration tribunal is final and parties are prohibited from making attempts to re-litigate issues that have already been determined or by litigating fresh claims, if that would contravene an arbitration clause in the underlying agreement.

 

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