The First Official Shot from Chinese Court against an Anti-suit Injunction2017-07-272329
On 21st July, Wuhan Maritime Court issued a maritime injunction to order the respondent, who previously obtained an anti-suit injunction from the High Court of the Hong Kong Special Administrative Region (hereinafter referred to as Hong Kong High Court) , to apply to Hong Kong High Court for withdrawing its injunction.
On 2nd June, the applicant (the Insurance Company) applied to Wuhan Maritime Court for pre-litigation preservation against the respondent, a Greek registered charterer (the Charterer) regarding to a bill of lading dispute. The applicant applied for arresting one of the Charterer’s ships which berthed at Zhenjiang Port in China. Wuhan Maritime Court approved the application and executed the preservation on the same day.
On 8th June, the Insurance Company, as the plaintiff, filed a law suit in Wuhan Maritime Court concerning the above-mentioned bill of lading dispute between it and the Charterer.
On 9th June, Wuhan Maritime accepted the case while subpoena, notice of appearance, and a copy of plaintiff submission were served to the Charterer.
On 29th June, based on the Charterer’s application on the ground that there was an arbitration clause between the two parties, Hong Kong High Court issued an anti-suit injunction against the Insurance Company.
Upon receiving the anti-suit injunction, the Insurance Company applied to Wuhan Maritime Court for a maritime injunction to order the Charterer to file a request with Hong Kong High Court to withdraw the anti-suit injunction.
On 21st July, Wuhan Maritime Court made a ruling in response to the anti-suit injunction and held that it had obtained jurisdiction over the case based on the pre-litigation preservation proceedings. Since the Charterer failed to dispute jurisdiction within the time limit and the anti-suit injunction had infringed the legal rights of the insurance company, Wuhan Maritime Court issued a maritime injunction and ordered that the Charterer shall immediately file a request to Hong Kong High Court to withdraw the anti-suit injunction.
While quite commonly used in English law, there is no anti-suit injunction under Chinese law. Therefore, based on the current law and the principle of territorial sovereignty, it is unsurprised that Chinese courts do not recognize anti-suit injunctions issued by foreign courts against parties who have commenced court proceedings in China.
In practice, Chinese courts tend to simply ignore anti-suit injunctions issued by foreign courts and there is no record of official judicial attitude towards such kind of judicial document. The abovementioned case is the very first official response from Chinese courts.
There are at least three critical points need to be paid attention to:
i. Time Limit for Disputing Jurisdiction under Chinese Law
The main reason that Wuhan Maritime Court denied the anti-suit injunction is that the Charterer failed to dispute jurisdiction within the time limit.
Article 127 of The Civil Procedure Law of the People's Republic of China (2017 Revision, hereinafter referred to as CPL) states that “If a party disputes the jurisdiction of its case after the case was accepted by a people’s court, the party shall raise the objection within the period of submitting its defence.” The regular time limit for submitting defence is within 15 days after the party receives the copy of particulars of claim sent by the court (article 125 of CPL). For parties who do not have a domicile in China, the time limit is 30 days. Application for extension is possible but subjected to court’s approval (article 268 of CPL).
It should be noted that even though a valid arbitration agreement has been made between the two parties, prompt jurisdiction objection should still be filed timely. Ignorance of ongoing court proceedings will only grant jurisdiction to the court.
Another similar issue is the time limit to dispute the validity of an arbitration agreement under Chinese law.
Article 13 of Interpretation of the Supreme People's Court on Certain Issues relating to Application of the Arbitration Law of China stipulates that where a party fails to object the validity of an arbitration agreement before the first hearing in the arbitration proceedings, but subsequently applies to the court for challenging the validity of the arbitration agreement, the court shall not hear such a case.
ii. Special Rules under Chinese Law which May Grant Jurisdiction to Chinese Courts
In this case, Wuhan Maritime Court held that it had obtained jurisdiction over the case through pre-litigation preservation proceedings, which is very true as per Special Maritime Procedure Law of the People's Republic of China (hereinafter referred to as MPL).
The Insurance Company first sought pre-litigation preservation (arresting the ship) from Wuhan Maritime Court pursuant to article 13 of MPL, which states that an application of pre-litigation maritime claim preservation shall be submitted to the maritime court in the locality of the property. Since the ship berthed at Zhenjiang port, Wuhan Maritime Court is the one with which the Insurance Company should file the application.
Article 14 of MPL further confirms that maritime claim preservation shall not be bound by jurisdiction agreements or arbitration agreements between the parties. Therefore, under Chinese law, Wuhan Maritime Court lawfully has the jurisdiction to arrest the ship.
Article 19 of MPL then stipulates that after maritime claim preservation has been taken, the party may bring a lawsuit in respect of the maritime claim to the maritime court which has executed the preservation, unless there is a valid litigation jurisdiction agreement or arbitration agreement between the parties.
Actually, the abovementioned legal framework has followed the same approach under International Convention on the Arrest of Ships (China is also a contracting state, hereinafter referred to as ICAS).
It is true that both MPL and ICAS confirms that the court which has arrested the ship shall not have the jurisdiction on the merits of the case if parties validly agree to submit the dispute to an arbitration, however, as the Charterer failed to object jurisdiction within the time limit, it is justified that Wuhan Maritime Court still has the jurisdiction over the case merits. Again, it highlights the importance of timely disputing jurisdiction to effectively exclude jurisdiction from the court which has executed the preservation.
iii. Maritime Injunction under Chinese Law
In this case, Wuhan Maritime Court issued a maritime injunction to order the Charterer to file a request with Hong Kong High Court to withdraw its anti-suit injunction.
Under Chinese law, as per MPL, a maritime injunction means any of compulsory measures by which a maritime court, on application by a maritime applicant, orders an act or forbids an act against the respondent, in order to protect the lawful rights and interests of the maritime applicant against any infringement (article 51 of MPL).
Actually, a maritime injunction under Chinese law is quite flexible (under which a maritime court can order an act or forbid an act) and may be fit into diversified situations to help a maritime claim applicant to protect its rights. The threshold is not very high--- the applicant only needs to show that (article 56 of MPL):-
i. It has a specific maritime claim;
ii. There is a need to rectify a breach of law or contract by the respondent; and
iii. Time is of the essence as failure to issue an injunction immediately will cause further loss and/or damage.
Similar to the provisions regulating maritime claim preservation, when applying for maritime injunction before bringing a lawsuit, one shall file with the maritime court at the place where the maritime dispute occurred (article 52 of MPL) irrespective of jurisdiction or arbitration agreement made between the parties (article 53 of MPL).
While contempt of court is used to penalise a party who disobeys the anti-suit injunction, punishment is also adopted by Chinese maritime courts against a party who is disobedient to a maritime injunction. A maritime court may impose a fine or detain the party in accordance with the seriousness of the circumstances; a fine on an individual shall be no less than 1,000RMB and no more than 30,000RMB. A fine on an entity shall be no less than 30,000RMB and no more than 100,000RMB. The period of detention shall be no longer than 15 days (article 59 of MPL).
However, a party (including an interested third party) still has a second chance in regard to the maritime injunction. As per article 58 of MPL, if a party is dissatisfied with the order, it may apply for reconsideration once within 5 days of receiving the written order. However, execution of the order shall not be suspended during the time of reconsideration.
Besides, in order to protect the rights of the party subjected to the maritime injunction, the court may order the applicant to provide guarantee upon application (article 55 of MPL). An applicant who wrongfully submits an application for a maritime injunction shall compensate losses incurred by the aggrieved party (including the respondent or any other aggrieved third party, article 60 of MPL).
A thorough understanding of a maritime injunction under Chinese law based on the foregoing analysis will help a party to fully utilize this mechanism to protect its right in maritime claims.
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