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Hong Kong Court Continues Anti-suit Injunction to Restrain PRC Proceedings

  • Hong Kong
  • Other

17-04-2019

This article has first been published on Lexology.

In Giorgio Armani SpA v Elan Clothes Co Ltd [2019] HKCFI 530, the Hong Kong Court of First Instance (the “Court”) upheld the continuation of an anti-suit injunction against a PRC company which had commenced proceedings in the Higher People’s Court of Shandong in the PRC (the “Shandong Proceedings”) in breach of an arbitration agreement. In doing so, it clarified the principles applicable to the grant of anti-suit injunctions and the Court’s approach to construction of arbitration clauses.

Facts

The dispute arose with respect to a Master Agreement entered into between the plaintiff, Giorgio Armani SpA (“Armani SpA”) and the defendant (“Elan”) in 2014 (the “MA”), under which Elan was authorised to open stores selling clothing and other products bearing Armani group brand marks including Armani Jeans (“AJ”) and Armani Collezioni (“AC”). The MA contained the following arbitration agreement:

“Any dispute, controversy or claim deriving from, arising out and/or regarding this Agreement, including any dispute regarding the validity, interpretation, construction, performance, breach and termination thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force … The appointing authority shall be … (HKIAC). The place of arbitration shall be in Hong Kong …”.

The parties’ relationship soured in 2017 as Giorgio Armani announced without warning to the media that the AJ and AC brands would be rebranded under the Emporio Armani brand. This abrupt change caused Elan significant losses and it stopped paying royalties and advertising contributions due under the MA.

On 4 June 2018, Armani SpA served a notice of termination of the MA and commenced arbitration proceedings in Hong Kong seeking a declaration that it had validly terminated the MA, damages and injunctive relief. Notwithstanding the arbitration agreement, Elan commenced the Shandong Proceedings against Armani SpA and its affiliates[1] (the “Shandong Defendants”). Elan’s claim invoked PRC tort law and consumer protection laws. On 27 September 2018, Elan obtained an order from the Shandong Court for the preservation of the assets of the Shandong Defendants up to a limit of RMB 600 million.

On 25 October 2018, Armani SpA obtained an interim injunction from the Hong Kong Court restraining Elan from taking any further step in the Shandong Proceedings. The injunction was extended by order in November 2018.

The judgment concerns Armani SpA’s application for (1) continuation of the anti-suit injunction pending final determination of its application for a permanent injunction; and (2) an interim order requiring Elan to take all necessary steps to set aside the Shandong Court’s asset preservation order, which was later discharged by the Shandong Court.

Applicable Law

The judgment is a helpful reminder of the key principles applicable to the grant of anti-suit injunctions and the Court’s approach to construction of arbitration clauses:

(1) The Court’s power to grant an anti-suit injunction is derived from both section 45 of the Arbitration Ordinance Cap 609 (the “Ordinance”) and section 21L of the High Court Ordinance Cap 4;

(2) Following established English law principles, an anti-suit injunction “is directed only to the defendant and is in respect of the conduct of the defendant, and does not call into question the jurisdiction of the foreign court”;

(3) Foreign proceedings in breach of an arbitration agreement or exclusive jurisdiction clause are a breach of contract which will ordinarily be restrained by the grant of an injunction unless there are strong reasons to the contrary (Donohue v Armco [2002] 1 Lloyd’s Rep 425 at 24;

(4) The Court followed the principles laid down in The Angelic Grace [1995] 1 Lloyd’s Rep 87 at 96 in relation to the grant of an anti-suit injunction for breach of an arbitration agreement, including that it should be “sought promptly” and “before the foreign proceedings are too far advanced. The jurisdiction of the Court is discretionary and not exercised as a matter of course, and good reason needs to be shown why it should not be exercised in any given case (applied in Hong Kong in Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi [2015] 2 HKLRD 866);

(5) If the arbitration clause is valid and applicable under the proper law, the fact that a foreign tribunal will not recognise the clause as valid or give effect to it will not normally prevent the Court enforcing it through an anti-suit injunction (Youell v Kara Mara Shipping [2000] 2 Lloyd’s Rep 102 at 60);

(6) Where the applicant is seeking an anti-suit injunction on the basis of a contractual promise not to sue in a foreign jurisdiction, the applicant must show a high probability that its case is right given the impact of the injunction, if granted, on the proceedings before the foreign court (Gee, Commercial Injunctions, para 14-027);

(7) The Court may decline to grant an anti-suit injunction where there is risk of parallel proceedings and inconsistent decisions because the interests of parties in the foreign proceedings not bound by the arbitration agreement have to be considered, or if a ground of claim not the subject of the arbitration agreement is part of the relevant dispute (Donohue v Armco, at 27); and

(8) In relation to construction of arbitration clauses, the Court held that the “modern approach” does not involve drawing a fine distinction between those issues that were within the arbitration clause and those that were not. Instead, the approach should be to give effect, so far as the language used will permit, to the “commercial purpose of the arbitration clause”. Construction of an arbitration clause must be influenced by whether the parties as “rational businessmen” were likely to have intended that only some of the questions issues arising out of their relationship were to be arbitrated and others were to be decided by national courts. The Court followed the Fiona Trust principles ([2007] UKHL 40 at 2) that the construction of an arbitration agreement should therefore “start with the presumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship … to be decided by the same tribunal unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction” (applied in Hong Kong in The Incorporated Owners of Hamden Court v Mega Miles Construction Co Ltd (HCCT 32/2014, 2 June 2015).

The Decision

Armani SpA contended that the claims in the Shandong Proceedings against all of the Shandong Defendants, and not just Armani SpA, fell within the arbitration agreement in the MA. Elan contended that the only contracting parties to the MA were Armani SpA (not its affiliates) and Elan.

The Court found that there was a strongly arguable case that Armani SpA and Elan had executed the MA on behalf of their affiliates and that they had express or implied authority to do so. Alternatively, Elan had to accept that the affiliates were parties to the MA because they had consented to Armani SpA’s application to have them joined into the Court proceedings as such. The Court applied the Fiona Trust approach and held that there was a very good argument that any dispute arising out of the MA where one of the parties is an affiliate of Armani SpA is covered by the arbitration clause.

Elan contended that the tort claims in the Shandong Proceedings did not fall within the arbitration clause in the MA. The Court rejected this relying on the “breadth of the wording of [the arbitration agreement]” and the connection of the torts complained of in the Shandong Proceedings to the MA. The Court held that, even if the affiliates were not parties to the MA, applying the Fiona Trust principles and the wording of the MA, there was a good argument that Elan’s claims in the Shandong Proceedings against Armani SpA and its affiliates are covered by the arbitration agreement.

Accordingly, the Court concluded that it would be just and convenient to order the continuation of the anti-suit injunction and that there was no good reason not to enforce the arbitration agreement.

The Court (Deputy Judge Field) was careful to note that, by making the above order he meant no disrespect to the Shandong Court. The order was directed against Elan and not the Shandong Court. The Court clarified that the order was being made because it was strongly arguable that Elan had commenced the Shandong Proceedings in breach of the MA which was governed by the laws of Hong Kong.

Takeaways

This judgment demonstrates the consistent pro-arbitration approach of the Hong Kong Courts. The Courts will generally not construe arbitration clauses narrowly and limit their application only to contractual claims. Nevertheless, parties should recognise that a well-drafted arbitration clause is crucial in any agreement in order to prevent the risk of parallel foreign proceedings. The Court would not decline an anti-suit injunction to restrain foreign proceeding if there is a clear language to the contrary in the agreement, provided the injunction is sought promptly and before the foreign proceedings are too far advanced. Parties would need to show very good reason not to enforce an arbitration clause, as the Court would not readily disregard the effect of one.

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