This case involved 6 members of DVC
By Rachel Lam, Terrence Tai and Jasmine Cheung
In the recent innovative case of Dickson Valora Group (Holdings) Co Ltd and another v Fan Ji Qian [2019] HKCFI 482, the Court was faced with a groundbreaking application for an anti-suit injunction, whereby the Hong Kong Court was invited to (and did) injunct proceedings in the PRC on a novel basis.
Facts
The 1st Plaintiff is a joint venture company (“Company”) formed by Moravia CV (“Moravia”), a corporate vehicle owned by Mexican investors, and Dickson Holdings Enterprise Co Ltd (‘DHE”), a corporate vehicle owned by the Defendant. Moravia, DHE and the Company entered into a shareholders’ agreement governing the operation of the Company and its wholly-owned subsidiary, the 2nd Plaintiff.
The shareholders’ agreement was subsequently supplemented and modified by a supplementary agreement and various addendums to the supplementary agreement. Of particular relevance to the application was the fact that the shareholders’ agreement contained an arbitration clause in favour of arbitration in Hong Kong.
The parties’ relationship broke down. In June 2018, unbeknownst to the Plaintiffs, the Defendant commenced proceedings against the Plaintiffs in the PRC under the 3rd addendum to the supplementary agreement. One of the clauses in this addendum provided for a success fee to be paid to Defendant, notwithstanding he was not a party to that agreement or indeed any of the supplementary and shareholders’ agreements.
Upon discovering the existence of the PRC proceedings, the Plaintiffs’ challenged the jurisdiction of the PRC Court (on the basis of the arbitration clause). This challenge was rejected by the PRC Court. Shortly thereafter, the Plaintiffs applied in Hong Kong for an anti-suit injunction against the Defendant. The Court, having considered the following issues, granted an anti-suit injunction.
Issue 1: Is the 3rd addendum subject to the arbitration clause?
Given that the arbitration clause was contained in the shareholders’ agreement rather than the 3rd addendum upon which the Defendant’s claim was based, the first issue was whether the 3rd addendum was subject to the arbitration clause at all.
As the 3rd addendum was essentially an appendix to the supplementary agreement, which in turn was expressly intended to complement the shareholders’ agreement, the Court held that the documents were intended to be read together as a whole, and it would be wholly uncommercial to suggest that parties intended to resolve their disputes under the shareholders’ agreement and the 3rd addendum in different fora by different modes of adjudication under different governing laws. On that basis, the 3rd addendum was held to be subject to the arbitration clause.
Issue 2: What is the basis of the anti-suit injunction sought, given that the Plaintiffs deny that the Defendant is party to the 3rd addendum?
Generally, an anti-suit injunction sought on the basis of a breach of a contractual jurisdiction or arbitration clause is subject to a different (arguably, less stringent) test than an anti-suit injunction sought simply on the grounds of forum non conveniens. The unusual feature in this case is that the Plaintiffs themselves deny that the Defendant is a party to the contract. The question for the Court was whether the threshold test for a contractual anti-suit injunction applied?
The answer was yes. As it was clear that the Defendant’s claim in the PRC Court was a contractual one based upon an agreement subject to an arbitration clause, the Court held that it would be no less unconscionable for the Defendant to make a claim under the contract in a different forum than it would be for an actual party to the contract to do so.
Defendant was seeking to claim a benefit under the contract without recognizing the condition to which it was plainly subject, and the Plaintiffs had a right to prevent a claim against them based on their contractual obligations being pursued otherwise than by the contractually agreed mode. In other words, the Defendant could not have his cake and eat it.
One cannot pick and choose which parts of a contract one wishes to adopt, and then simply discard the other parts or ask the Court to disregard the same.
In coming to the above view, the Court reviewed and approved a line of English authorities on what is known as a quasi-contractual anti-suit injunction, although this label was not expressly adopted by the learned Judge. The Defendant was therefore subject to the same threshold as those applicable for contractual anti-suit injunctions i.e. he had to show strong reasons against the grant of an anti-suit injunction.
Issue 3: Are the Plaintiffs barred from applying for an anti-suit injunction given the PRC Courts had ruled against the Plaintiffs in the jurisdictional challenge?
An added complication was that the Plaintiffs had, prior to the application in Hong Kong, taken out a jurisdictional challenge in the PRC Court challenging the PRC Court’s jurisdiction on the basis of the arbitration clause. The PRC Court had rejected this challenge and determined that it had jurisdiction to hear the dispute. The question was whether this gave rise to an issue estoppel on the point of whether there was an arbitration clause binding on the Defendant?
The Hong Kong Court held that no issue estoppel arose by virtue of section 3 of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance, which provided that a judgment given by a court of an overseas country in any proceedings shall not be recognized or enforced in Hong Kong if the bringing of those proceedings was contrary to a jurisdiction or arbitration agreement and the person against whom the judgment was given did not consent or submit to the jurisdiction of that overseas court.
This applied even though strictly speaking the Defendant was not a party to the arbitration clause, as the statute did not require the plaintiff in the foreign jurisdiction (i.e. the Defendant) to be a party to the agreement, and the same principles as those applicable to a quasi-contractual anti-suit injunction applied.
Further, as a matter of discretion, a failed jurisdiction challenge in the overseas jurisdiction cannot automatically be fatal to an application for an anti-suit injunction in Hong Kong. Having regard to all the circumstances, including the period of delay and stage of proceedings reached in the PRC Court, an anti-suit injunction was ultimately granted by the Hong Kong Court.
This judgment represents the first case in which the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance has been applied in answer to an issue estoppel point.
Conclusion
Not only does this case provide guidance on the unconventional quasi-contractual anti-suit injunction, it also sets out principles pertaining to the interaction between failed jurisdictional challenges in overseas courts and applications for anti-suit injunctions which are of wider application.
Rachel Lam, Terrence Tai and Jasmine Cheung acted for the Plaintiffs.
Anson Wong SC, Alan Kwong and Michael Ng acted for the Defendants.
