XCHRX EXECUTIVE SEARCH INTERNATIONAL LTD. v. RAY & BERNDTSON LTD.

HCCL 218/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.218 OF 1999

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J U D G M E N T

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THE ACTION

1. This action was commenced by writ on 6 December 1999. It is between the plaintiff, a Bermudan company which administers the affairs of an international group or 'partnership' of executive search consultants, and the defendant, a Hong Kong company and allegedly a former member of this group said no longer to enjoy the status of membership by virtue of an exclusion notice dated 13 April 1999. The relief sought in these proceedings primarily consists of injunctive relief, the dominant purpose being to restrain the defendant from the use of any part of the international partnership identity, including the use of the 'Ray & Berndtson' name and the use of the international partnership logo.

2. No defence has been filed, but in the evidence placed before the court on its behalf, the defendant denies, inter alia, the validity of such purported exclusion from the partnership, and challenges the plaintiff's right to the relief presently claimed.

THE APPLICATIONS PRESENTLY BEFORE THE COURT

3. By summons dated 16 December 1999 the plaintiff seeks interlocutory relief substantially in terms of the final injunctive relief pursued in the action, although the relief set out in the summons appears to be considerably more detailed and wide-ranging (albeit no point was taken as to that). In any event, at the time this summons was filed, no cross-application was in existence, hence the terms of the order sought "until after judgment in this action or until further order". This being so, why the injunction application was taken out not only pursuant to Order 29 rule 1, but also pursuant to the Arbitration Ordinance, Cap.341 is not clear; perhaps it was anticipatory.

4. Be that as it may. In response, the defendant has issued its own application, by summons dated 20 December 1999, for, inter alia, a stay of these proceedings "under Order 12 rule 8 ... and/or the Arbitration Ordinance, Cap.341 and/or inherent jurisdiction". I note at the outset that this is in no sense an Order 12 rule 8 application : what is being questioned is not the undoubted existence of the court's jurisdiction over the Hong Kong defendant, but the exercise thereof against the background of an arbitration clause contained in what has been referred to in these proceedings as "the Kilkenny Agreement". This is an international joint venture agreement dated 21 October 1993 which established the framework in which executive search firms could mutually and internationally participate in cooperative efforts, to which such organisation the defendant (then named Transearch Far East Limited) became a member on 2 August 1994.

5. Clauses 19 and 20 of this Agreement read as follows :-

"19. Applicable Law

19.1 This Agreement shall be governed by and construed in accordance with the laws of Bermuda.

20. Dispute Resolution

20.1 In the event any dispute or difference arising among the parties to this Agreement or between a Member and the Board as to their respective rights or obligations under the terms of this Agreement or connected herewith or incidental hereto, including any dispute as to the existence or validity hereof or as to the interpretation of any of the terms hereof, cannot be resolved by means of conciliation, such dispute or difference shall be finally settled by arbitration according to this Section 19.

20.2 A single arbitrator shall be appointed by mutual agreement among the parties or, if such agreement cannot be reached, by the Court of Arbitration of the International Chamber of Commerce. The arbitrator shall have experience in commercial disputes and shall not be associated with any Member or with competitors of any Member.

20.3 The arbitration shall take place in London, England. The arbitration, including all written documents to be submitted to the arbitrator, shall be conducted in the English language.

20.4 The arbitration shall be conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce.

...

20.7 The decision of the arbitrator shall be final and binding upon the parties and judgement upon the award may be entered by any court having jurisdiction thereof. Consent is hereby given to the jurisdiction of such court in reference to any matter arising out of the arbitration set forth in this Section or the enforcement hereof."

THE EVIDENCE

6. The evidence before the court is in relatively narrow compass, consisting of an affidavit leading the injunction application from Mr Paul Richard Ray Junior, and an affidavit in response, and in support of the cross-application for a stay, from Mr David Seabrook. The plaintiff's case was latterly supplemented by a further affidavit handed up in the course of the hearing from Mr Michael Bennet, a partner in the plaintiff's solicitors, but I do not think that this adds much to the debate. I have had the opportunity to consider fully this evidence, in addition to the skeleton arguments provided by counsel on behalf of their respective clients.

THE SCOPE OF THE ARGUMENT

7. In broad terms the shape of the argument ran thus :

8. Mr Coleman, for the plaintiff, submitted that there was no dispute between the parties as to the applicable legal principles. On behalf of his client, he did not object to a stay of these proceedings pursuant to Article 8 of the Uncitral Model Law, as applied by section 34C of the Arbitration Ordinance, Cap.341, and he stated that he would be prepared to accept (absent the word 'permanent') a stay of proceedings in terms of paragraph (ii) of the defendant's summons. His attack, however, was directed at obtaining ancillary injunctive relief pending resolution of what was accepted would now be arbitration proceedings to be conducted under ICC Rules. In this regard, Mr Coleman referred the court to the provisions of section 2GC(1)(c) of the Arbitration Ordinance, Cap.341, which provides :-

" (1) The Court or a judge of the Court may, in relation to a particular arbitration proceeding, do any of the following -

...

(c) grant an interim injunction or direct any other interim measure to be taken."

9. For his part, Mr Westbrook for the defendant submitted that the court had no discretion as to the grant of a stay pursuant to Article 8(1), the terms of which are as follows :-

"Article 8. Arbitration agreement and substantive claim before court

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."

10. Mr Westbrook further argued that when a stay was granted, as it had to be in the circumstances of this case, there should be no question of the grant of any ancillary injunctive relief, and further and in any event he submitted that it was apparent that the wrong plaintiff was suing in this case, and that the summons was incompetent in that it ran foul of the provisions of section 2GC, Cap.341.

11. The foregoing, therefore, represents the overall shape of the debate, the hearing of which was fixed for two hours and in the event took a full day.

THE STAY OF PROCEEDINGS

12. Putting to one side the fact that this plainly is not a challenge to the jurisdiction per se, both counsel appeared to take it as read, given the applicability and invocation of Article 8, that a stay should and would be granted. Mr Westbrook did, however, provide pause for thought when he boldly submitted that notwithstanding the defendant's reliance upon the provisions of Article 8, his client had not to-date, and did not anticipate, formally referring this case to arbitration. This was not a case, therefore, where it was simply a matter of time before issuance of the relevant notice or in writing the appropriate letter. To the contrary. It was said to be sufficient merely to invoke the relevant contractual provision and to take advantage of the mandatory stay provided for by Article 8 of the Model Law, absent any requirement that his client, the applicant for the stay, should take steps to commence such arbitration. This result, Mr Westbrook submitted, necessarily followed upon a proper construction of Article 8.

13. No authority was advanced for this proposition which, as counsel are aware, elicited both surprise and a degree of resistance. Mr Coleman, however, did not demur from this statement of apparent principle.

14. For my own part, I harbour reservations that this should be the case, so that, in effect, a party may simply pray in aid the existence of the contractual clause and then, having stayed proceedings on this basis, effectively sit back and wait until pursued in the appropriate arbitral arena. Nevertheless, given that the stay was not opposed, and further, in light of the general words of Article 8 that "A court ... shall ... refer the parties to arbitration ...", I have decided reluctantly to accede to the application, notwithstanding the absence of any notice of reference to arbitration pursuant to section 31, Cap.341, and notwithstanding that it is as plain as a pikestaff that this application is no more than a tactical gambit on the defendant's part. I deprecate the statutory removal of judicial discretion in these matters, not least because in my view the natural and most appropriate method of resolving this particular dispute would have been immediately to move to an early trial. However, there it is; in the present situation regrettably there appears to be little room for manoeuvre.

THE INJUNCTIVE RELIEF

(i) Jurisdiction and the relevant test

15. In the circumstances of these cross-applications, Mr Coleman drew my attention not only to the permissive provisions of section 2GC(1)(c), Cap.341, but also to those of section 2GC(6), which reads :-

" (6) The Court or a judge of the Court may decline to make an order under this section in relation to a matter referred to in subsection (1) on the ground that -

(a) the matter is currently the subject of arbitration proceedings; and

(b) the Court or the judge considers it more appropriate for the matter to be dealt with by the relevant arbitral tribunal."

16. No arbitration is currently in existence, of course, and thus, submitted Mr Coleman, the provisions of section 2GC(6) are of no moment. Accordingly, in considering the grant of ancillary injunctive relief the court should apply no more stringent test than the standard 'balance of convenience' approach adumbrated in American Cyanamid v. Ethicon [1975] AC 396.

17. In this connection, Mr Coleman cited, and sought to distinguish, the cases of Leviathan Shipping Co. Ltd v. Sky Sailing Overseas Co. Ltd [1998] 4 HKC 347 (Findlay J) and The Lady Muriel [1995] 2 HKC 320 (CA), pointing out that the latter case was a decision made prior to the 1996 amendments to the Arbitration Ordinance and (as was the situation in Leviathan Shipping) in the context of an arbitration which was already in existence.

18. For his part, Mr Westbrook argued that the relevant test was that laid down in The Lady Muriel, op.cit., namely, that of "serious and irreparable damage if the order were not made" (per Godfrey JA, op.cit. at 324I). But this was only part of his argument in this context. In any event, he submitted, Mr Coleman was out of court on this application because, on these particular facts, the provisions of section 2GC had no application since the statutory jurisdiction relied upon was defined and limited by the opening words of section 2GC(1), namely, "The Court ... may, in relation to a particular arbitration proceeding, do any of the following ...", the short point being that there was not yet any "particular arbitration proceeding" in existence, the plaintiff having sought relief in the Hong Kong court in breach of its clear contractual obligation to go to arbitration, a fact which was the catalyst for the defendant's own application. If followed, said Mr Westbrook, that there was no jurisdiction to grant the interlocutory relief the plaintiff now seeks.

19. In reply, Mr Coleman argued that the opening words of section 2GC in effect should be construed as reading "before or during a particular arbitration proceeding", and that such construction would be consistent with the specific use of the word 'currently' in clause 2GC(6), with Article 9 of the Model Law, viz. :-

"Article 9. Arbitration agreement and interim measures by court

It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure."

and also with Article 23(2) of the ICC Rules of Arbitration which reads, in part :-

"Before the file is transmitted to the Arbitral Tribunal, and in appropriate circumstances even thereafter, the parties may apply to any competent judicial authority for interim or conservatory measures. ..."

20. The preliminary point taken by Mr Westbrook is unattractive. On reflection, however, I am inclined to think that it is correct purely as a matter of construction, although I do not think that the jurisdiction of the court is thereby removed, which is the result for which he contends. I am disinclined to construe section 2GC(1) as Mr Coleman would have it, not only in light of the specific words used, but also given that the thrust of the amendments to the Ordinance (at ss.2GA-2GG) is predicated, it seems to me, upon the existence of an arbitral tribunal and of arbitration proceedings themselves. Nor do I think that in argument Mr Coleman should be able to have it both ways, that is, to ask the court to exercise an interim ancillary jurisdiction under section 2GC(1)(c), but at the same time to avoid the potentially adverse effects of section 2GC(6)(b).

21. In the event this analysis is not of great importance in practical terms, but if and in so far as such construction be correct, this case would then turn not upon the exercise of the statutory jurisdiction to grant interim relief within section 2GC(1)(c), but upon the exercise of the court's inherent jurisdiction. This particular aspect was not, I think, explored during the argument. Suffice to say, however, that if as a matter of law the court is in no position to do other than to grant a mandatory stay, I do not accept that there is no jurisdiction to grant ancillary injunctive relief absent the commencement of an arbitration, should the court otherwise consider it just so to do. In such circumstances, however, the appropriate approach, whether in terms of the exercise of a statutory or an inherent jurisdiction, must be one of considerable caution.

22. As Findlay J aptly expressed the position in Leviathan Shipping, op.cit., at 355 :-

" So, notwithstanding that the plaintiff's action is referred to arbitration, the court has jurisdiction to deal the applications for interim relief. The question is whether or not the court should exercise this jurisdiction when the arbitral tribunal has the same powers. For a long time now, the courts have leaned in favour of making the parties who have agreed to settle their disputes by arbitration stick to that method of dispute resolution rather than resorting to litigation when it suits them to do so. The 1996 amendments to the Ordinance have underlined that approach by removing the court's discretion in relation to the action and by enlarging the powers of the arbitral tribunal. The legislature has provided for the intervention of the courts, but, in my view, this jurisdiction should be exercised sparingly, and only where there are special reasons to utilise it. A special reason would be where the arbitral tribunal does not have the power to grant all the relief sought in a single application. Rather than apply to the tribunal for some of the relief and to the court for the other relief, it would obviously be more appropriate for the application to be made in its entirety to the court. But there is, in this case, no valid reason why the main dispute should be referred to arbitration, but the dispute regarding interim relief should be decided by the courts. The tribunal has the power to grant all the relief claimed."

23. Whilst Godfrey JA in The Lady Muriel, in a judgment delivered prior to the 1996 amendments to the Arbitration Ordinance, observed (op.cit. at 324-326) :-

" I turn to the next question : whether it was right for the judge to make the order, notwithstanding that by the time he came to make it, the arbitrators appointed by the parties were seized of the dispute.

I would hold, again following the decision of the House of Lords in Channel Tunnel Group v Balfour Beatty Ltd [1993] AC 334, that there is no reason in principle why the judge should not have made such an order as he made here notwithstanding that (under the Model Law) there had to be a stay of the Hong Kong action in favour of the arbitration. But the question, as that case demonstrates, is whether the grant of the relief claimed would be appropriate in circumstances where as here the arbitrators had not themselves been asked to make an order for inspection of the vessel (as they could have been: see The Vasso [1983] 1 WLR 838) nor to approve the charterers' application to the Hong Kong court for such an order.

In the circumstances of this case, it would not be appropriate for the Hong Kong court to grant the relief sought at the instance of the charterers, who have not even sought, let alone obtained, the approval of the arbitrators to their request for that relief. I do not rule out the possibility that, in another case, where there is great urgency, and where serious and irreparable damage would manifestly and undoubtedly be done to the charterers unless the relief sought were granted, so that the interests of justice dictated the grant of relief to the charterers as a matter of necessity, the court might be prepared to grant charterers an appropriate 'interim measure of protection', notwithstanding that the approval of the arbitrators to their application had not been first obtained. But it is, in my judgment, not enough that it would be just and convenient to make the order for inspection. I am of the opinion that before the Hong Kong court would be justified in making such an order in aid of a foreign arbitration, it would have to be satisfied, beyond a peradvanture, that the charterers would suffer serious and irreparable damage if the order were not made. As it seems to me on the facts of the present case, the charterers are unable to do more than prove that it would be of some assistance in the resolution of their disputes with the owners if the evidence produced by the inspection were in due course to be placed before the arbitrators. This, in my judgment, is not nearly good enough.

I agree with the sentiments expressed in the Channel Tunnel Group case to the effect that those who make agreements for the resolution of disputes must show good reasons for departing from them, and that, having promised to take their complaints to arbitrators, that is where complainants should go. The fact that they may find that remedy too slow, or too inconvenient, is quite beside the point. That is not to say that the Hong Kong court must never be invited to play a secondary role in the taking of measures to make the work of the chosen tribunal more effective. To say that the Hong Kong court can never grant an interim measure of protection in support of proceedings which the parties have agreed should be the subject of an arbitration abroad would be to go too far. It will be remembered that the captain of HMS Pinafore originally claimed that he was 'never, never sick at sea'; but, under pressure, was constrained to substitute 'never' with 'well, hardly ever'. The Hong Kong court has then the power to grant 'an interim measure of protection' to a party to an arbitration, even in an action itself otherwise stayed in favour of the arbitration; but ought to be very cautious about granting him relief. Clearly, if the arbitrators approve of the application, the situation is totally changed. The purpose of 'an interim measure of protection' is not to encroach on the procedural powers of the arbitrators but to reinforce them, and to render more effective the decision at which the arbitrators will ultimately arrive on the substance of the dispute. Provided that this, and no more, is what such a measure legitimately aims to do, there is nothing in it contrary to the spirit of international arbitration....

... The matter can perhaps best be put this way; where a party to an international commercial arbitration, the seat of which is in a place other than Hong Kong, seeks 'an interim measure of protection' from the court of Hong Kong without having first obtained the approval of the arbitrators to his application, the Hong Kong court should refuse the application unless satisfied that the justice of the case necessitates the grant of the relief in order to prevent what may be serious and irreparable damage to the position of the applicant in the arbitration. If, as I think is here the case, the applicant is unable to discharge this (admittedly, very heavy) burden, the Hong Kong court should refuse him relief."

24. To summarise under this head, therefore, whether on the present facts this case falls within the terms of section 2GC, Cap.341, or whether (as I am inclined to hold) in the prevailing circumstances the court is thrown back upon the exercise of its inherent jurisdiction, I am of the view that the relevant test to be applied in this application for ancillary injunctive relief must be that within the higher standard of 'serious and irreparable damage'.

(ii) Application to the present facts

(a) 'Serious and irreparable damage'

25. In terms of the application of this test, the plaintiff clearly fails in limine, paragraphs 19 and 20 of the affidavit in support of the injunction (in this context the only relevant part of the plaintiff's evidence) nowhere approaching this benchmark. And, as earlier indicated, this conclusion follows whether the court is exercising its jurisdiction under section 2GC(1)(c) or whether, at bottom, the court in fact is being asked to exercise its inherent jurisdiction.

(b) American Cyanamid : balance of convenience

26. If I be wrong in my conclusions thus far, and, contrary to the views expressed, Mr Coleman is correct in his argument as to the primary applicability of section 2GC(1)(c), and if he is further correct in submitting that the test to be applied is no more than the usual interlocutory injunction balancing exercise (an approach to which I was initially attracted), I should in any event have arrived at the same conclusion, and I should have dismissed the plaintiff's claim for the interim relief presently sought even on the basis of this lesser test.

27. In terms of what might be termed a 'normal' balance of convenience evaluation, in my view it is difficult to conclude on the evidence before the court that greater damage would be caused to the plaintiff if the injunction were not to be granted than would be caused to the defendant if it was. In fact, quite possibly the reverse is true, if indeed damages are an appropriate remedy at all for either party in this type of situation. In any event, the affidavits are light on the point : the plaintiff's evidence refers simply to "a significant risk" of damage unless the defendant is restrained in terms of the summons, whilst the defendant's evidence asserts continued membership of the international partnership, and relies, at least by necessary inference, upon the loss of the "considerable goodwill" it has developed since 1994 in the geographical areas of Hong Kong, China and Taiwan by transacting its business "in good faith" under the 'Ray & Berndtson' name and the use of the international logo.

28. In this equation, also, the element of delay possesses some profile. It is again difficult to be convinced of the plaintiff's pressing need for injunctive relief, and of concomitant damage if such relief be now not granted, when, under the terms of the Kilkenny Agreement, the defendant not only has a contractual six month grace-period (which in this instance will have expired, on the plaintiff's case, on 13 October 1999), but in addition the present proceedings were not commenced until 6 December 1999, so that a period of eight months has already lapsed subsequent to the allegedly valid exclusion from the 'partnership'. In this regard, I decline Mr Westbrook's invitation to find, within the context of the injunction application, that there is no serious issue to be tried. I am firmly resistant to the resolution of issues of fact upon affidavit alone, and this view applies further to his argument about the plaintiff's locus to sue. Both matters, it seems to me, are pre-eminently suitable for the tribunal of fact, and will no doubt occupy the minds of the arbitrators should any be so appointed.

29. Which element of this case conveniently brings into focus the final reason for the refusal of relief in this case, namely, that this injunction application by the Plaintiff - for purposes, I have no doubt, equally as tactical as those of the defendant in moving for a stay in favour of arbitration - will, in effect, be determinative of the issue(s) with which any arbitrator or arbitrators will in due course be seized. As Godfrey JA observed in his judgment in The Lady Muriel, op.cit.,

"The problem is that there is always a tension when the court is asked to order, by way of interim relief in support of an arbitration, a remedy of the same kind as could be sought from the arbitrators: a tension between, on the one hand, the need for the court to make a tentative assessment of the merits in order to decide whether the plaintiff's claim is strong enough to merit protection, and on the other, the duty of the court to respect the choice of tribunal which both parties have made, and not to take out of the hands of the arbitrators a power of decision which the parties have entrusted to them alone. There are limits beyond which parties to arbitration agreements cannot be allowed, consistently with their arbitration agreements, 'to run to the courts for help', as Lord Mustill pointed out in SA Coppee Lavalin LV v Ken-Ren Chemicals and Fertilizers Ltd [1995] 1 AC 38 at 65."

30. Whilst Bokhary JA (as he then was), in a concurring judgment expressed the position thus :

" The courts must be careful not to usurp the function of arbitrators through excessive zeal in attempting to assist them. There can be situations in which there is a real danger that a party would, unless stopped by the courts here, do something which would render nugatory an application which the opposite party could, timeously and with reasonable prospects of success, make to overseas arbitrators or the courts of the country in which they are sitting. In such a situation - and when (as in the present case) service is possible - it may be that the courts here can properly make a prohibitory order to preserve the position pending such an application overseas. Making such an order might be truly to assist the arbitrators without in any way usurping their function.

In the present case, the judge went further than merely preserving the position for the arbitrators. He went so far as to do what it was for the overseas arbitrators or the court where they are sitting to do. And that is why I think he went too far."

31. Clearly, therefore, it is not the position that there can never be cases in which it is appropriate for parties to arbitration agreements "to run to the courts for help", to use Lord Mustill's pithy phrase, for the purpose of interim protection. In my judgment, however, this case, manifestly, is not one of them.

ORDERS

32. As a consequence of the foregoing judgment, the following Orders are determinative of the applications before the court :-

33. On the plaintiff's summons dated 6 December 1999

1. The plaintiff's summons dated 6 December 1999 is dismissed;

2. There be an order nisi that the costs of the application be paid by the plaintiff to the defendant, to be taxed if not agreed.

34. On the defendant's summons dated 20 December 1999

1. There be a stay of proceedings herein until further order;

2. There be an order nisi that the costs of the application be paid by the plaintiff to the defendant, to be taxed if not agreed.

35. If such be necessary, I will hear the parties on the form of the Orders, and upon the issue of costs.

36. I thank counsel for their assistance.