Sharon Cheung ArbitrationLinks

Hong Kong court maintains anti-suit injunction against Russian court proceedings

In Linde GMBH v. Ruschemalliance LLC [2023] HKCFI 2409, the Hong Kong Court of First Instance upheld an anti-suit injunction to restrain court proceedings commenced in Russia in breach of an agreement for arbitration seated in Hong Kong. Notably, the court rejected arguments that Russian laws on jurisdiction should deter this conclusion, which illustrates its preparedness to uphold the parties’ bargain.

Background

As a result of EU sanctions, Linde GMBH (“Linde”), a German contractor, suspended performance under an engineering, procurement and construction contract to construct a gas processing complex (the “Contract”) entered into with a Russian owner, Ruschemalliance LLC (“RCA”). The Contract was governed by English law, and contained an arbitration agreement expressly governed by Hong Kong law and providing for HKIAC arbitration seated in Hong Kong.

In response, RCA terminated the Contract, arguing that Linde’s unilateral conduct constituted a material breach. RCA then took steps in Russia, including commencing proceedings pursuant to Article 248.1 of the Russian Arbitztrah Procedural Code (“Article 248.1”) which, broadly speaking, purports to establish exclusive jurisdiction over disputes involving Russian sanctioned parties.

In the meantime, Linde commenced HKIAC arbitration, and subsequently obtained an anti-suit injunction from the Hong Kong court in support of the arbitration, restraining RCA from pursuing the Russian litigation (the “ASI”). RCA sought to discharge the ASI by way of an application to the Hong Kong court.

Decision

The judge (Mimmie Chan J) rejected the application and upheld the ASI. At [24]-[31] she set out her understanding of the applicable legal principles, which establish the basic principle that the court will be ready to grant an injunction to restrain proceedings brought in breach of an agreement to arbitrate, and will ordinarily exercise its discretion to grant such an injunction, unless the defendant can show that there is a strong reason to the contrary. This is not an exercise of comparing forum conveniens, given that the purpose of such an injunction is to enforce a positive agreement to arbitrate.

Having then rejected some arguments alleging material non-disclosure on Linde’s part, the judge turned to the heart of RCA’s objections in this case. Relying on Article 248.1, RCA argued that the grant of the ASI was not just and convenient as (i) it meant the Russian courts had exclusive jurisdiction and (ii) that, under Russian law, the arbitration agreement in the Contract was invalid and any award would not be enforceable.

The Hong Kong court did not accept RCA’s submissions. In particular, the court made the following findings:

  • As to (i), it first found that RCA’s arguments that the Russian court had exclusive jurisdiction were ill founded. On the evidence before it, Article 248.1 applies only if the application of foreign sanctions created access to justice obstacles for a party in the dispute. In that regard, the judge found RCA’s arguments to be “grossly exaggerated, if not totally based on false premises”. The EU sanctions have no legal effect in Hong Kong, and it is clear that RCA has access to lawyers in Hong Kong ([44]-[55]).  Furthermore, the court’s conclusion that there was no good reason to discontinue the ASI included consideration of case-law which established that if the arbitration agreement is valid and applicable under its proper law (in this case, Hong Kong law), the fact that a foreign court might have jurisdiction under its own law should not normally prevent the grant of an ASI ([56]-[62]). This might be the case if there were “strong reasons” for suing in a non-contractual forum, but that was not the case here, because the relevant EU sanctions had been in place long before the Contract was concluded, and the Contract contained terms which catered for their impact ([63-68]).
  • As to (ii), the judge reiterated her conclusion that Article 284.1 had no application to the present situation, and that there was otherwise a valid arbitration agreement which extended to the dispute between the parties ([72]-[77]).

The judge also rejected other arguments raised by RCA against the ASI. These were, briefly, that it would adversely affect a freezing order that RCA had obtained in Russia ([78]-[88]) and that arbitration in Hong Kong would be futile as EU sanctions might interfere with an award. That latter argument was rejected as, even accepting those arguments, there were places outside the EU in which it could be enforced ([89]-[92]).

Comment

The decision of the Hong Kong court is interesting in the current disputes climate as corporates who have sought to exit Russia related deals, often subject to arbitration agreements, are increasingly facing Russian litigation brought on the basis of Article 248.1. The optimum course of action depends on the circumstances, but an ASI from appropriate courts is one option and increasingly being looked to (for example, as we have been following on ArbitrationLinks in England there has been a spate of recent applications – although to the extent that they are in support of foreign seated arbitrations they raise distinct issues).

Notably, the judge’s conclusions on whether the access to justice requirements of Article 248.1 were made out might help deter attempts to place direct reliance on it in Hong Kong in the future. And it may even be that such consideration might not even, strictly speaking, have been necessary to begin with (as certain of the authorities referred to by the judge illustrated, the direct relevance of Russian law to a Hong Kong law governed, and seated, arbitration agreement seems very questionable). Either way, the decision illustrates that the Hong Kong courts take a robust view to protecting their supervisory role as a seat of arbitration.