23 October 2017

Maritime injunctions - a weapon against anti-suit injunctions?

This article was written by Yu Feng(Partner), Steven Zhou(Senior Associate) and Stephen Du(Barrister of 7 King’s Bench Walk).

On 21st July 2017, the Wuhan Maritime Court issued a maritime injunction ordering a foreign ship owner to apply to withdraw an anti-suit injunction of the Hong Kong High Court against a Chinese insurer. This is the first case to reveal the Chinese court’s attitude towards the anti-suit injunctions of “foreign” courts.

The Facts

On 2 June 2017, Huatai P&C Insurance Co., Ltd Shenzhen Branch (the “insurer”) applied to Wuhan Maritime Court to arrest MV “Ken Sirius” owned by Clipper Chartering SA (the “ship owner”). The insurer wanted to secure a cargo claim under a bill of lading. The Chinese court granted the application immediately.

About a week later, on 8 June 2017, the insurer issued substantive proceedings against the ship owner for compensation and legal costs. On 9 June 2017, the case was accepted and documents were served.  The Chinese court decided it had jurisdiction over the ship owner under procedural law. It is noteworthy that, under Chinese law, the subrogated insurer could not be bound by the jurisdiction clause or the arbitration clause because it was not a party to the contract. Jurisdiction could only be obtained by ship arrest. 

In an attempt to avoid the proceedings in China, the ship owner applied to the Hong Kong High Court for an anti-suit injunction on the grounds that there was a binding arbitration clause in the bill of lading. The Hong Kong High Court found in favour of the ship owner. It issued an anti-suit injunction and ordered the insurer to withdraw the Chinese legal proceedings.

On 21 July 2017, Wuhan Maritime Court issued a maritime injunction against the ship owner upon the insurer’s application which ordered them to withdraw the proceedings before the Hong Kong High Court (this is essentially what a Hong Kong or English court would describe as being an anti-anti-suit injunction).

The Hong Kong Anti-Suit Injunction

From a Hong Kong (or Western) perspective, the Hong Kong court’s decision to grant an anti-suit injunction is not difficult to understand.

An anti-suit injunction is an order by one court requiring the respondent to withdraw legal proceedings in another court. These orders are usually granted if –

  • the foreign proceedings are in breach of a jurisdiction or arbitration clause; or 
  • they are vexatious or oppressive.   

In cases where it is alleged that a party is breaching a jurisdiction or arbitration clause, an anti-suit injunction orders specific performance against a party to comply with their contractual obligations. In other words, not to sue in any forum other than that agreed in the contract.

In this case, the most obvious ground for the ship owner to rely on was that the Chinese proceedings were in breach of the arbitration agreement.  The insurer made a claim under the bill of lading, which contained an arbitration clause. Therefore, the insurer should be ordered to comply with their contractual duty not to sue in a Chinese court.

The counterargument by the insurer, before the Hong Kong court, was that the ship owner consented to the Chinese court’s jurisdiction (and therefore waived its right to arbitration). This argument would succeed if Chinese procedural law applied, but not if Hong Kong law applied. Under Hong Kong law, the ship owner would only have consented to the jurisdiction if it voluntarily appeared in court to defend its case.

The Hong Kong court applied Hong Kong law, found that the ship owner did not consent to Chinese jurisdiction, and concluded that the insurer’s claim in the Chinese court was in breach of the arbitration clause. Therefore, the appropriate remedy was to order the insurer to withdraw proceedings in the Chinese court.

The Chinese Maritime Injunction (Anti-Anti-Suit Injunction)

Article 51 of the Special Maritime Procedure Law of the PRC (the “SMPL”) defines “maritime injunction” as:

“compulsory measures taken by a maritime court to compel the respondent to do or not to do certain things so as to protect the applicant’s rights and interests in connection with a maritime claim.”

Article 56 of the SMPL lists conditions for granting a maritime injunction: 

  • There is a specific maritime claim; 
  • There is a necessity to rectify the action or inaction of the respondent; 
  • There is an urgent situation and without the injunction the loss and/or damage would be irreparable.

Contractual agreement on dispute resolution does not limit an application for a maritime injunction in the Chinese maritime court. An injunction can be sought in any maritime court where the maritime claim arose.

Remedy for an Anti-Suit Injunction?

If the above tests are stringently applied, there are a number of possible arguments. The preliminary one is whether the issue of foreign court proceedings is a “maritime claim”. Chinese law does not define what constitutes a maritime claim. However, Article 21 of the SMPL, which relates to vessel arrest, sheds some light on the subject. Originating from the Arrest Convention 1952, Article 21 lists 22 situations upon which a vessel can be arrested for security.  Although the list is not exhaustive, it is notable that the insurer’s claim in this case does not fall within its scope. 

Other issues are the infringement of statutory or contractual rights and whether the Hong Kong High Court order created an ‘emergency’ situation. The inclusion of an arbitration clause in a bill of lading is highly controversial in China and there have been a number of cases around the issue. Therefore, it is unlikely that the arbitration argument was groundless. In particular, it should be noted that the SMPL supports vessel arrest to secure a foreign arbitration. There must be sufficient evidence to demonstrate that the insurer’s rights would be irreparably prejudiced by submitting the claim to arbitration.

Chinese vs English Anti-Anti-Suit Injunction Compared

It may be of interest to compare the Chinese and English approaches to the anti-anti-suit injunction.

Under Chinese law, there is no such concept as an anti-suit injunction. The court does not grant orders that interfere with foreign legal proceedings, and equally it regards any interference by foreign courts with Chinese proceedings as illegitimate and therefore to be restrained by an anti-anti-suit injunction (or to be ignored completely).

In contrast, under English law, the anti-suit injunction is well established. The English court will grant orders which have the effect of interfering with foreign proceedings. Similar orders are sometimes made by foreign courts interfering with English proceedings.

It is our view that an English court would have been much less willing to grant an anti-anti-suit injunction than a Chinese court in this case.  An English court would probably distinguish between having jurisdiction over a party who had failed to object to its jurisdiction, and having jurisdiction over a party who had contractually agreed to its jurisdiction. This case falls within the former category and an English would have been reluctant to grant an anti-anti suit injunction. However, the Chinese court concluded it had jurisdiction under Chinese procedural law, and that was sufficient for it to grant an anti-anti-suit injunction.

Conclusion

The use of the maritime injunction as an anti-anti-suit injunction is a “creation” of the Wuhan Maritime Court, for use in situations where there is no such possible injunction under Chinese law. Other maritime courts may follow this approach in similar cases, or even develop the maritime injunction into an anti-suit injunction to prohibit foreign proceedings.  However, we do not expect it will expand into the (non-marine) commercial domain because there is no other similar injunction in civil procedural law.  Remedies in other areas will depend upon the development of domestic legislation.

The Belt & Road initiative will create closer relationships between foreign and Chinese companies. Competition over jurisdiction will be unavoidable.  In such circumstances, we expect that Chinese courts will use maritime injunctions (or more general civil injunctions) to protect a Chinese entity’s procedural rights.  Our advice to foreign entities if such a situation arises is to explore their options. Perhaps they have grounds to have a Chinese court overrule either an anti-suit or an anti-anti suit injunction.

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