HK Court Examines Costs After Anti-Suit Injunction

In his earlier decision to grant an anti-suit injunction against the Defendant (see the earlier case note here), Lam J made an order nisi that the defendant pay the plaintiffs the costs of the proceedings, to be taxed if not agreed (ie. on the party and party basis).

In Dickson Valora Group (Holdings) Co Ltd v Fan Ji Qian [2019] HKCFI 2953, Lam J considered an application to vary the costs order nisi, such that costs should be paid by the defendant on an indemnity basis. Two grounds were advanced in the application:

  • that the proceedings were necessitated by the defendant’s breach of an arbitration clause; and
  • that there was underhand conduct on the part of the defendant throughout these proceedings.

Breach of Arbitration Clause

The Plaintiff initially relied upon Kyrgyz Mobil Tel Ltd v Fellowes International Holdings Ltd (No. 2) [2005] EWHC 1314 (Comm) and A v B (No. 2) [2007] 1 Lloyd’s Rep 358, and a decision in Hong Kong in XL Insurance Company SE v Manley Toys Ltd (unrep, HCA 2233/2013, 19 June 2015).

Relying on these cases, the Plaintiff argued (perhaps curiously) that costs should be awarded on an indemnity basis because where a party acts in breach of an arbitration or jurisdiction agreement such as by bringing proceedings in a forum inconsistent with that agreement, the legal costs incurred by the other side in response ought in principle to be recoverable as damages for breach of contract. 

The Court rejected this argument, stating [§4]:

“It is said that part of the successful party’s costs of the application would be irrecoverable if costs are taxed on the party and party basis, and that this would be unjust.  I do not accept this argument.  If a jurisdiction agreement is enforced not by an application for anti suit injunction but by a claim for damages (such as for the additional expenses in having to litigate in the non contractual forum compared to the contractual forum — see eg Union Discount Co Ltd v Zoller & others [2002] 1 WLR 1517), the successful plaintiff will recover in full as damages such additional expenses as he can prove, but the costs of the action for damages themselves will generally still be awarded to him only on the party and party basis.  I do not see why an agreement concerning forum should as such be accorded “greater force” or “higher status” such that the costs incurred for its enforcement should as a principle be awarded on the indemnity basis.”

In any event, the Court considered that, strictly speaking, there was no breach of contract by the defendant in the present case, as he was not a party to the arbitration agreement.  As such, it was difficult to see how an action for damages for breach could be instituted against him personally.

The Plaintiff also argued that by suing in breach of an arbitration or jurisdiction agreement, the party had “misused the judicial facilities” of the local or foreign courts, conduct which deserves the court’s disapproval in the form of an order for indemnity costs.  The Court stated [§6]:

“This would suggest that all litigants who litigate in breach of a forum agreement should be ordered to pay indemnity costs, whereas there is in fact, as far as I know, no such uniform general practice in Hong Kong, whether for a plaintiff whose action in Hong Kong is stayed based on a jurisdiction agreement in favour of another forum or a party against whom an anti‑suit injunction is granted in Hong Kong based on a jurisdiction agreement.  The plaintiffs refer to XL Insurance Company SE (a case of anti‑suit injunction being granted based on an exclusive jurisdiction clause in favour of Hong Kong courts) in which the court ordered indemnity costs on the basis of A v B (No 2), but it appears the judge took into account the specific conduct of the defendant in that case.  In any event that decision does not seem to me, as yet, to represent a general prevailing practice in this jurisdiction.”

Underhand Conduct

While the Court considered some of the defendant’s actions questionable, in the context of both sides taking a robust approach to proceedings, the Court was not prepared to accept that the defendant was guilty of such conduct as should be regarded as an affront to the court (save for one summons taken out, which was considered an abuse).

Indemnity Costs Generally in Anti-Suit Injunctions

The Court noted that in their reply submissions, the plaintiffs raise for the first time the line of Hong Kong authorities in which indemnity costs were ordered in proceedings relating to arbitral proceedings, agreements or awards (eg Gao Haiyan v Keeneye Holdings Ltd [2012] 1 HKC 491; Pacific China Holdings Ltd v Grand Pacific Holdings Ltd [2012] 4 HKLRD 569; Chimbusco International Petroleum (Singapore) Pte Ltd v Fully Best Trading Ltd [2016] 1 HKLRD 582).  The Court stated [§8]:

“It is not clear that the practice extends invariably to cases of stay or anti‑suit injunction in favour of arbitration even as against a person who is not a party to the arbitration agreement.  In the English case of Kyrgyz Mobil Tel Ltd & Others v Fellowes International Holdings Ltd & Anor [2005] EWHC 1329 (QB), indemnity costs were awarded against the defendants who were not party to the relevant arbitration clause, but what they did in that case had been characterised as “vexatious and oppressive” (see §43).  In the present case, the basis for the grant of an anti‑suit injunction against the defendant is that equity requires him to recognise the contractual right of the plaintiffs “to prevent a claim against them based on their contractual obligations being pursued otherwise than by the contractually agreed mode, viz arbitration in Hong Kong”, without any need for the plaintiffs to show vexatious or oppressive conduct on ordinary forum non conveniens considerations (see §§39 & 46 of my Judgment of 20 February 2019).  In any event, it appears that the present case is the first of its kind in this jurisdiction in which an anti‑suit injunction is granted against a person who is not a party to the arbitration agreement.  In these circumstances I do not consider that an award of indemnity costs is warranted.”

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Hong Kong Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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