Exceptional Circumstances: British Columbia Court Of Appeal Upholds Anti-Arbitration Injunction On Contractual Grounds

The British Columbia Court of Appeal recently released a decision that will be of interest to parties engaged in foreign arbitral proceedings and that have a domestic standstill agreement to refrain from continuing the arbitration pending a decision from a Canadian court.1

The parties in this case were already embroiled in a complex series of civil and family proceedings in Canada when they entered into a standstill agreement to wait for the determination of issues in the civil proceeding before taking any further steps in an arbitration proceeding seated in China. When one of the parties seemed to be continuing with the arbitration, the other party sought, and was granted, an anti-suit injunction in British Columbia preventing such further steps.2

The British Columbia Court of Appeal did not rule on whether the injunction was in the interest of justice, instead ruling on whether an injunction was available as a matter of contract law. The Court determined that it was. The Court noted that the contractual basis for such an injunction is novel in Canadian law, but well established in English law, and found that there was no reason not to apply the English common law principles in Canada. In Canada, as in England, anti-arbitration injunctions awarded on the basis of a private contract will not be granted lightly, but only in exceptional circumstances.

Background

This case is the latest in a series of proceedings between the parties in the British Columbia courts. The appellant, Mr. Rao, is a businessman in China who visited Canada in the summer of 2015. He met the respondent, Ms. Li, and the two commenced a romantic relationship. From there, the parties started a real-estate company in British Columbia with each party holding a 50% interest in the company. Ms. Li invested $1000, and Mr. Rao agreed to invest $20 million (of which he ultimately invested $17.65 million, and borrowed back $16 million by issuing promissory notes). A shareholder agreement was executed stating that disputes would be submitted to the Shenzhen branch of the China International Economic and Trade Arbitration Commission ("CIETAC"), and that Canadian law would be applied to any disputes. In the spring of 2016, the couple were married in Las Vegas. By the fall of 2016, Ms. Li claims she discovered that Mr. Rao was still married to his first wife in China, and the relationship deteriorated.

Not surprisingly, the parties filed suits against each other soon thereafter. Mr...