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At the crossroads of litigation and arbitration: restraining foreign litigation proceedings with an anti-suit injunction

Very often, parties to a contract may – whether intentionally or unintentionally – elect to disregard a binding agreement to arbitrate. A party may simply be oblivious to the fact that once there is an agreement to arbitrate, they are generally precluded from invoking the jurisdiction of a national court to litigate. Some may have a contractual remorse in settling their dispute elsewhere, and prefer the comforts of having a home field advantage. Others might hold a genuine view that their dispute does not fall within the ambit of their arbitration agreement.

Whether a party may refer its dispute to litigation – which might be subject to mandatory arbitration – will largely depend on the terms of the arbitration agreement. As with most legal issues, the devil is in the details. When faced with a recalcitrant party that seeks to renege on the terms of a binding arbitration agreement, however, the innocent party will very likely have the arsenal of anti-suit injunction on its side. This type of injunction seeks to restraint the party in breach of an arbitration agreement from proceeding with litigation proceedings if the dispute falls within the ambit of the arbitration agreement.

While it is typically uncontroversial for a court to grant an anti-suit injunction to restrain a party from proceeding with court proceedings in the same legal jurisdiction, the situation becomes complicated when a court is asked to issue an anti-suit injunction for a set of foreign court proceedings. This was considered by the Hong Kong Court recently in Giorgio Armani SpA v Elan Clothes Co Ltd [2019] HKCFI 530, whereby it upheld the continuation of an anti-suit injunction against a PRC company that had commenced proceedings in the Higher People's Court of Shandong ("Shandong Proceedings") in breach of an arbitration agreement. In allowing the application, the Court reiterated the approach to construing arbitration clauses was to give effect, as far as the language used by the parties would permit, to the commercial purpose of the arbitration clause, namely to have a tribunal chosen by the parties hear disputes that might arise out of the agreement containing the arbitration clause.

Factual background

The plaintiff was head of the luxury fashion house, the Armani Group of Companies. The defendant was a wholly owned subsidiary of Dashang Company Ltd, a PRC company listed on the Shanghai Stock Exchange. In December 2014, the parties entered into a Master Agreement under which Elan was appointed as an authorised retailer in the PRC of Armani-branded products which it purchased from Armani entities in Switzerland, Hong Kong and Shanghai.

Clause 13.1 of the Master Agreement provided that "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 therefore, shall be settled by arbitration in accordance with the UNCITAL Arbitration rules at present in force. The appointing authority shall be Hong Kong International Arbitration Centre (HKIAC). The place of arbitration shall be in Hong Kong at Hong Kong International Arbitration Centre."

On 24 February 2017, Giorgio Armani announced without warning to Italian media that two of the Armani brands, Armani Jeans and Armani Collezioni, would be rebranded under the Emporio Armani brand. Elan was unhappy at the news which it said caused it significant losses in terms of sales and store refurbishment costs. Elan stopped paying royalties and advertising contributions following which the plaintiff served a notice of termination and commenced arbitration proceedings in Hong Kong seeking a declaration that it had validly terminated the Master Agreement. Elan, on the other hand, commenced the Shandong Proceedings against Armani SpA and its affiliates claiming for the losses citing PRC consumer protection and tort laws.

On 27 September 2018, Elan obtained an order from the Shandong Court for the preservation of assets of the Armani entities up to a limit of RMB 600 million. The order was executed against Armani's PRC bank account and stock and inventory was seized from Armani's PRC warehouse.

On 25 October 2018, the plaintiff obtained an interim injunction in Hong Kong restraining Elan from continuing the Shandong Proceedings. Madam Justice Mimmie Chan extended the injunction by order on 2 November 2018, pending determination of the plaintiff's application for continuation of the injunction pending determination of its application for a permanent injunction.

Legal basis for anti-suit injunction

The Hong Kong Court's power to grant an anti-suit injunction derives from section 45 of the Arbitration Ordinance (Cap 609) and section 21L of the High Court Ordinance (Cap 4). Deputy Judge Field said the legal principles applied by the courts in Hong Kong when deciding whether to grant an anti-suit injunction were founded on principles developed by the courts of England and Wales. He cited in particular principles laid out in The Angelic Grace [1995] 1 Lloyd's Rep 87, applied in Hong Kong in several recent cases including the Court of Final Appeal judgment Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd [2016] 19 HKCFAR 686.

Where an injunction is sought to restrain a party from proceeding in a foreign Court in breach of an arbitration agreement governed by English law, the English Court "need feel no diffidence in granting the injunction, provided that it is sought promptly and before the foreign proceedings are too far advanced".

If the arbitration clause was valid and applicable under the proper law, the fact that the foreign tribunal would not recognise the clause as valid would not normally prevent an English or Hong Kong Court from enforcing it by means of an anti-suit injunction.

The Court said the modern approach was now to "give effect, so far as the language used by the parties will permit, to the commercial purpose of the arbitration clause, namely, to have disputes that may arise out of the agreement containing the arbitration clause to be decided by chosen tribunal."

Construction of an arbitration clause should start with the presumption that parties, as rational business people, were likely to have intended that any dispute arising out of their relationship were to be decided by the same tribunal, unless there was specific language making it clear that certain questions should be excluded from the arbitrator's jurisdiction, the so-called Fiona Trust principles1.

The Court's decision

The Court rejected Elan's contention that the claims in the Shandong Proceedings against Armani SPA's affiliates fell outside the scope of the Master Agreement. The word 'Affiliates' was referred to numerous times throughout the operative clauses of the Master Agreement including in its opening sentence. Certain clauses also provided that the affiliates were beneficiaires of certain obligations in the Master Agreement. In addition, the fact that Elan had consented to Armani SpA's application that the affiliates were joined into the Court proceedings meant that Elan had to accept them as parties to the Master Agreement. The Court said there was a very good argument that disputes arising out of the Master Agreement where one of the parties was an affiliate were covered by the Master Agreement.

The Court said there was also a strong argument that the tort claim in the Shandong Proceedings fell within Clause 13.1 given the breadth of the clause's wording and the implicit contention that the acts complained of were wrongful, at least in part, because the re-branding was not permitted under the Master Agreement. The pleaded damage complained of in the Shandong Proceedings also partly resulted from Elan's purchase of products and establishment of outlets as required by the Master Agreement. The Court therefore granted the application of Armani SpA for the joinder of its affiliates.

Conclusion

The Court, in ordering the continuation of the anti-suit injunction, said it wished to assure the Shandong Court that it intended no disrespect. The order was directed against Elan and not the Shandong Court and was made because it was strongly arguable that in bringing the Shandong Proceedings, Elan had acted in breach of the Master Agreement, a contract governed by the laws of Hong Kong.

This judgment shows, once again, the arbitration-friendly stance of the Hong Kong courts and is a reminder to practitioners to ensure that clear language is used in the drafting of commercial agreements, in particular its dispute resolution clause. While it is certainly not unusual for contracting parties to often neglect the dispute resolution clause (given that it is typically not a material term in a transactional matter), it will save the parties a significant amount of time, costs and headache from having to argue which forum and what dispute resolution process their dispute is subject to. Luckily, even in cases where a party seeks to weasel out of an arbitration agreement as a result of some uncertainty, hope is not lost as the innocent party will have the recourse of seeking an anti-suit injunction to hold the wrongdoer to its contractual bargain – by referring the parties' dispute to arbitration.


  1. Fiona Trust & Holding Corp v Privalov [2007] UKHL 40