Hong Kong Court holds that claim in tort was not affected by arbitration clause

“Arbitration agreement” is defined under section 19 of the Arbitration Ordinance (Cap 609) as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Disputes submitted to arbitration may involve contractual claims and non-contractual claims, such as tortious claims. Generally, if an arbitration agreement includes claims arising out of or in connection with an agreement, the wording should be broad enough to cover tort claims relating to the parties’ agreement. As a result, the arbitral tribunal would have jurisdiction to determine such tort claims.

However, in a recent District Court case, Castlemil Infant (HK) Supplies Company Ltd v Care N Love Development Ltd [2018] HKDC 1419, the Court held that a tortious claim was not affected by the arbitration clause in the agreement when it granted a mandatory injunction order.

Brief Facts 

The Plaintiff was the sole distributor of milk products. The Defendant was engaged as the Plaintiff’s marketing consultant or sales agent pursuant to an agency agreement. The Defendant set up a Facebook account for the Plaintiff which acted as the virtual salesroom or retail shop for the Plaintiff. The account was also the only platform where the Plaintiff’s clients and potential clients could access information concerning the Plaintiff’s events, promotion and sales. The relationship between the parties later broke down and the Plaintiff terminated the agreement.

After the termination, the Defendant requested HK$200,000 in exchange for returning the control of the Facebook account to the Plaintiff. Subsequently, the Plaintiff discovered that many posts and marketing materials in the Facebook account had been deleted. Later, the Defendant reduced the figure to HK$50,000.

The Plaintiff applied for an injunction requiring, among other things, the Defendant to deliver up the control of the Facebook account and an order restraining the Defendant from further tempering the contents of the Facebook account. The Defendant was not represented and did not appear at the hearing.

The agency agreement contained an arbitration clause which read as follows:-

Any dispute, controversy or claim arising out of or relating to this Agreement, including its interpretation, performance, breach, termination or invalidity shall be … submitted to a binding arbitration in accordance with the rules of the International Chamber of Commerce then in effect. The place of arbitration shall be Hong Kong…”

Court’s Ruling 

The District Court held that notwithstanding the arbitration clause in the agreement, the Plaintiff may succeed in a claim against the Defendant in these proceedings because:-

  1. The agreement came to an end as a result of the termination notice;

  2. The owner of the Facebook account was the Plaintiff. After the termination, the Defendant repeatedly refused to allow the Plaintiff to have control of the Facebook account. Further, the Defendant deleted the contents of the Facebook account without the Plaintiff’s consent and may therefore have committed the tort of conversion and wrongful interference with goods.

  3. The Plaintiff’s claim in tort was not affected by the arbitration clause in the agreement.

As a result, the Court was satisfied that there was a serious question to be tried. The Court granted the injunction to the Plaintiff.

Comment

Whilst the Court is empowered to grant interim measures to support arbitral proceedings under section 45 of the Arbitration Ordinance, the Court should be the Court of First Instance of the High Court, as defined under section 2(1) of the Ordinance. One would expect the party to the arbitration agreement to apply to the High Court for an injunction whilst an arbitration agreement exists. Hence it is rather unusual that the Plaintiff applied to the District Court, thereby disregarding the arbitration agreement.

Further, in this case, it is not clear why the District Court came to the view that the Plaintiff’s claim in tort fell outside the ambit of the arbitration clause.

Of course whether an arbitration does extend to a claim in tort will depend upon the proper construction of the arbitration clause. The test for determining whether a tortious claim is within the ambit of an arbitration clause is the two-limb close connection test in the Empresa Exportadora de Azucar v Industria Azucarera Nacional SA (The “Playa Larga” and “Marble Islands”) [1983] 2 Lloyd’s Rep 171:-

“(1)   the resolution of a contractual issue is necessary for a decision on the tortious claim; or 
(2)   the contractual and tortious disputes are so closely knitted together on the facts that an agreement to arbitrate on one can properly be construed as covering the other.”

The two-limb test has been applied in various High Court cases, including the recent case of Gossip Daily Ltd v Next Media Magazines Ltd and Others [2018] HKCFI 1951 in August 2018.