Article 8(1) of the UNCITRAL Model Law, given effect by section 20 of the new Arbitration Ordinance (Cap. 609), provides that a court before which an action is brought in a matter which is the subject of an arbitration agreement must refer the parties to arbitration unless the arbitration agreement is null and void, inoperative or incapable of being performed.

Section 12 of the Arbitration Ordinance, adopting Article 5 of the Model Law, provides that "In matters governed by this Law, no Court shall intervene except where so provided in this Law".

Section 21L of the High Court Ordinance confers on the courts a general jurisdiction to grant injunctive relief.

Sequedge Investment Inc. (Sequedge), an institutional investor, and Lin Ming (Lin) had entered into a share purchase agreement whereby Sequedge agreed to buy from Lin a 10% stake in his PRC food processing business. The agreement contemplated that Lin's business would be listed, and contained a put option which could be exercised by Sequedge, requiring Lin to purchase all the sale shares back if the business was not listed within two years. The agreement also contained an arbitration clause.

In September 2011, two Sequedge Group companies and a third company which held the sale shares on trust for Sequedge, commenced HKIAC arbitration against Lin for failing to comply with the put option.

Two months after the HKIAC arbitration was commenced, Lin and one of his companies issued court proceedings in Hong Kong against the two Sequedge Group companies and 26 other defendants, complaining that the defendants had conspired with PRC government officials to have him unlawfully arrested and detained, and that they unlawfully took over his group of companies during his detention. Lin alleged that the Sequedge Group companies' conduct was inconsistent with, and in breach of, an implied term of the share purchase agreement, that the breach resulted in the termination of the share purchase agreement, and that consequently, they had lost their right to exercise the put option under the share purchase agreement. Lin sought (among other things) a declaration that the Sequedge Group companies were in fundamental breach of the share purchase agreement and that it had been terminated.

The Court of First Instance was faced with, on the one hand, an injunction application by Lin to restrain the Sequedge Group companies and the third company from proceeding with the HKIAC arbitration, and, on the other hand, an application by the Sequedge Group companies pursuant to Article 8(1) of the UNCITRAL Model Law seeking to stay Lin's court action in favour of the arbitration.

It was common ground between the parties that the facts and matters relied on by Lin in the court action were substantially the same as those in the HKIAC arbitration.

The Sequedge Group companies argued that, as there was a valid arbitration agreement, and the dispute arose out of the share purchase agreement and therefore fell within the scope of the arbitration agreement, the court must stay the court action against them in favour of arbitration. The judge agreed.

In respect of Lin's injunction application (which was not based on the Arbitration Ordinance or the UNCITRAL Model Law, but brought under section 21L of the High Court Ordinance), the court did not agree with the submission by the Sequedge Group companies that sections 20 and 12 of the Arbitration Ordinance have the effect of ousting the court's general jurisdiction under section 21L of the High Court Ordinance to grant injunctive relief.

The Court of First Instance recognised that there may be a tension between the Arbitration Ordinance and section 21L of the High Court Ordinance. However, the judge did not express a conclusive view on this issue, stating that "the relationship between the two is a matter that requires detailed consideration and is eminently suitable for decision by the higher courts." The judge then went on to state that he was "content to assume" that the Hong Kong courts have jurisdiction to grant an injunction to restrain the continuance of an arbitration to which the Arbitration Ordinance applies, but that such jurisdiction must be exercised very sparingly and with great caution.

The court held that, although it is generally undesirable to have parallel proceedings involving the same factual disputes due to the risk of inconsistent findings, in this case, Lin had himself created this risk by starting the court action after the arbitration had commenced. It was also the judge's view that an injunction restraining the continuation of the arbitration until after the determination of the court action would cause injustice to the Sequedge Group companies as the court action involved numerous other defendants who could face considerable delay before they could resume the arbitration. Further, Lin had not proved that the continuation of the arbitration would be oppressive, vexatious, unconscionable or an abuse of process. In the circumstances, the court decided not to exercise its discretion to restrain the arbitration.

The court's willingness to stay the court proceedings is in line with the UNCITRAL Model Law and confirms that Hong Kong parties have a viable avenue to restrain parties from continuing with court proceedings which have been brought in breach of an agreement to arbitrate in Hong Kong. The court's provisional indication that it is "content to assume" it has jurisdiction to grant an anti-arbitration injunction under section 21L of the High Court Ordinance is interesting, although whether this decision would be affirmed by the higher courts, and their views on how wide the power is, remain to be seen.