Hong Kong Court declined to grant interim interim injunctions under Section 45(2) of the Arbitration Ordinance in the absence of any arbitration on foot

In the recent case of Onwel Sales Limited v Skechers S.A.R.L. and Skechers Southeast Asia Limited [2021] HKCFI 790, the Hong Kong Court of First Instance has refused to grant an interim interim injunctions under Section 45(2) of the Arbitration Ordinance.

The case concerns the joint venture agreement (JVA) between the 1st Defendant (D1) and Luen On Investment Holdings Limited (Luen On) in respect of the 2nd Defendant (D2). The Plaintiff (P) in turn holds 50% of Luen On with Luen Thai Enterprises Limited (Luen Thai). Clause 8 of the JVA makes provisions to a long list of Reserved Matters requiring unanimous written consent of all shareholders or the chairman of the Board and President of D2 which Luen On have the power to appoint and remove. The shareholders as defined in the JVA is D1 and Luen On and disputes under the JVA shall be submitted to SIAC arbitration.

The Reserved Matters as provided under the JVA includes any amendment to the memorandum and/or Articles of Association and the borrowing of money save in the ordinary course of business.

P submitted that court intervention is necessary to prevent the CEO of D2 and beneficiary owner of Luen Thai from “self-arrogation” of the self-created position of “interim President” with the ability to approve Reserved Matters for D2 and to enjoin the carrying into effect various resolutions passed at board meetings in respect of Reserved Matters which pertains to the adoption of budget and business plans, loans and leases etc.

P submitted that it will be seeking leave from the Companies Court (by an unfair prejudice petition) for leave to commence SIAC arbitration under the JVA in the name of Luen On as Luen On is deadlocked.

The Court declined to grant the interim interim injunction for two reasons.

Firstly, even though Section 45(2) of the Arbitration Ordinance applies where “any arbitral proceedings…have been or are to be commenced in or outside of Hong Kong ”, P requires leave from the Companies Court to commence the intended SIAC arbitration under the JVA. Whilst the Court has refused to comment on whether to give a party locus to invoke section 45 of the Arbitration Ordinance the right to be enforced in arbitration must be vested, the Court observed that P’s case for unfair prejudice is hotly dispute and it will take time for P to establish its case before the Companies Court. The Court may also order a buy-out as opposed to granting P the leave to commence the intended SIAC arbitration and in the meantime, the defendants will be subject to the injunction for an uncertain period of time.

Secondly, the P has not identified how it is going to suffer any actual harm from the resolutions it is seeking to impugn and the Court also found that P is guilty of delay in that evidence suggests that the CEO of D2 and beneficiary of Luen Thai has in effect been assuming all powers and responsibilities as the acting President of D2 since 20 December 2019 and P had commenced multiple injunction applications and derivative arbitrations in 2019 and 2020 on the same subject matter but without seeking any interim interim relief.

On these basis and on balance of fairness, the Court refused to grant any interim interim relief and gave directions on substantive hearing of the summons for P’s injunction application.

There is no question that Section 45 of the Arbitration Ordinance applies to injunctions in aid arbitrations (whether in or outside of Hong Kong) yet to be commenced. This firm has recently represented a client in obtaining an interim injunction to protect its interest in a joint venture before commencement of the intended arbitration. However, the arbitral proceedings must be one that is “to be commenced” and further consideration must be given if the applicant for injunctive relief is not a party to the arbitration agreement or need to overcome certain hurdles before it may commence the arbitration proceedings.

This case also serves as a reminder that any delay in applying for injunctive relief can be fatal and can damage the prospect of success of an injunction application. We therefore recommend parties involved in any shareholders’/ joint venture disputes to seek legal advice as early as possible to avoid foregoing the opportunity to obtain urgent interim relief to effectively protect your interest.