Hong Kong Court of Final Appeal grants freezing injunction in aid of English Court proceedings

On 14 November 2016, Hong Kong’s Court of Final Appeal delivered judgment in the case of Compania Sud America de Vapores SA v Hin-Pro International Logistics Limited [2016] HKCFA 79.

The Court’s unanimous judgment was delivered by Lord Phillips of Worth Matravers.

Although the case is a typically obscure commercial dispute relating to Bills of Lading between a Chilean shipping corporation and a Hong Kong freight forwarder shipping goods to Venezuela, it addresses a number of points of interest for common law jurisdictions such as Bermuda and other British Overseas Territories, including:

  • the appropriate remedies for breach of an Exclusive Jurisdiction clause in a contract (including anti-suit injunctions, applications for contempt of Court, and damages);
  • the circumstances in which interim relief, such as a freezing injunction, may be granted by a Hong Kong Court in aid of foreign proceedings (i.e. proceedings being pursued in an English or offshore Court); and
  • the uncertainties associated with litigation in the PRC generally.

The Court has helpfully issued a Press Summary in conjunction with its judgment, which is  set out below:

The Respondent shipped goods under bills of lading issued by the Appellant.  The Respondent alleged that the cargoes were wrongly delivered and brought proceedings against the Appellant in PRC courts.

In response, the Appellant brought an action before the English court alleging that the Respondent had breached exclusive jurisdiction clause in the bills of lading.  These clauses provided that any claims arising under the bills of lading should be subject to the jurisdiction of the English High Court.  The Appellant successfully obtained an anti-suit injunction restraining the Respondent from suing the Appellant in any other jurisdictions.

The Respondent ignored the injunction and continued to pursue proceedings in the PRC.  The Appellant commenced a second English action in relation to the further breaches of contract and obtained a worldwide freezing order against the Respondent.

In support of the English actions and the worldwide freezing order, the Appellant obtained orders in the Hong Kong court freezing the Respondent’s assets in Hong Kong and appointing receivers over those assets, under section 21M (“Section 21M”) of the High Court Ordinance, Cap 4 (“HCO”).  These orders were subsequently discharged, by an order that was upheld by the Hong Kong Court of Appeal, on the ground that the relief was contrary to judicial comity in that it intervened in a jurisdictional conflict between the English and the PRC courts. The Respondent had also given an undertaking not to take any step to enforce any PRC judgment against the Appellant without obtaining its consent or court leave.

The Appellant succeeded in its English actions and was awarded damages in the amount of any damages that should be awarded to the Respondent by the PRC courts. This result was upheld by the English Court of Appeal.  The Appellant was also successful in appealing most of the PRC court decisions.

The questions arising on the appeal were:

  • First, what are the legal principles applicable on a Section 21M application?
  • Second, is the principle of judicial comity necessarily engaged on the facts of this case, and if so how?
  • Third, did the Court of Appeal correctly apply the general principles relating to anti-suit injunctions and comity?
  • Fourth, did the Respondent’s undertaking provide sufficient protection so that the Appellant should have been declined relief in any event?

On the first question, the Court considered that Section 21M was introduced to make interim relief (such as freezing orders) available in support of proceedings that take place outside Hong Kong.  At the first stage, the court has to consider whether, if the plaintiff succeeds in obtaining a judgment in the foreign court, it is one which the Hong Kong court will enforce under section 21N of HCO.  If so, the court must then consider similar general questions to those that would arise if the relief had been sought in support of an action in the Hong Kong court, namely (i) whether there is a good arguable case (before the foreign court) and (ii) whether there is a real risk that the defendant will dissipate its Hong Kong assets.

he Court of Appeal had erred in holding that relief should not be granted unless the claimant could show that it would have had a good arguable case under the law of Hong Kong if the proceedings had been commenced in Hong Kong.

At the second stage the court has to consider whether it would be unjust or inconvenient to grant the application having regard to the fact that the court has no jurisdiction over the subject matter of the foreign proceedings.  The court has a wide discretion to refuse to make the order sought.  It is not appropriate to formulate a list of circumstances where it will be unjust or inconvenient.

In relation to the second and third questions, judicial comity should be taken into account in the second stage of considering whether interim relief should be granted.  Where a defendant is in breach of an exclusive jurisdiction clause, the relief is directed not against the foreign court but against the individual defendant who is disregarding his contractual obligations. In such circumstances an anti-suit injunction in support of the exclusive jurisdiction clause does not infringe judicial comity.

Furthermore, the Hong Kong court was not asked to assist the English court to enforce an exclusive jurisdiction clause, but to enforce an award of damages by the English court for breach of such a clause.  This did not involve a breach of comity.

The Appellant had established a good arguable case in the English proceedings, and the nature of those proceedings did not make it ‘unjust’ or ‘inconvenient’ to grant the relief sought.

Finally on the fourth question, the Respondent has not offered any explanation regarding the Appellant’s case that the PRC proceedings were fraudulent and based on forged documents.  The Court of Appeal erred in holding that the undertaking provided the Appellant with adequate security.

Accordingly, the Court allowed the appeal.  The freezing order was reinstated against the Respondent, in an amount to be assessed by the High Court.

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