B.C. – Reasons for granting anti-suit injunction to prevent arbitration different than litigation – #818

In Axion Ventures Inc. v Bonner, 2024 BCSC 45 (“Axion”), the Court addressed a British Columbia application for anti-suit injunctions to prevent the respondents from proceeding with a Washington State lawsuit and an arbitration seated in Thailand. Axion is a skirmish in the ongoing war over the ownership and control of Axion Ventures Inc. and Axion Interactive (the two applicants in this case) and their assets and those of their subsidiary and related entities in other jurisdictions around the world. The applicants were both plaintiffs and defendants in litigation already underway in BC. For reasons described below the Court ultimately adjourned the anti-suit injunction applications. However, it recognized a distinction between anti-suit injunctions sought in respect of foreign court actions and those sought in respect of commercial arbitrations; namely, that the latter do not engage principles of comity. And of particular interest to BC counsel, the Court suggested there is no absolute rule in BC that an anti-suit can only be sought after a stay application is brought in the foreign proceeding.

Background – Axion is only one of no fewer than 17 reported B.C. Supreme Court and ten BC Securities Commissions decisions in the disputes among the various plaintiffs and defendants in this case. 

What the Court in Axion calls the “Related Actions” (all proceeding in the BCSC) involve claims of breach of fiduciary duty, loss of corporate opportunity, conspiracy, secret self-dealings, theft of corporate assets, debt claims, contempt of court, and in one action ownership of certain shares in Axion. Axion is – or at least was – a publicly-traded electronic gaming and technology company.

The Related Actions have been hotly contested in the BC Courts since at least 2021. Subsequent to the commencement of the Related Actions, N, one of the key parties in those actions commenced an action in Washington State (the “Washington Action”) and J, one of the individual parties in the Related Actions commenced an arbitration seated in Thailand (the “Thailand Arbitration”). The Washington Action and the Thailand Arbitration were the focus of the B.C. anti-suit injunctions applications.

The anti-suit injunctions – The BC applicants in Axion alleged the Washington Action was abusive and duplicative and the Thailand Arbitration was duplicative of one aspect of a debt claim in one of the Related Actions. They sought the anti-suit injunctions  and also stays of those proceedings as an abuse of process. (This comment deals only with the anti-suit injunctions. The abuse of process allegations were adjourned pending determination of a spoliation application the respondents had previously filed as part of the Related Actions.) 

N, one of the respondents, raised a threshold defence to the anti-suit injunction applications, namely that B.C. case authorities require the applicants to first bring stay applications in the Washington Action and the Thailand Arbitration. It seems the parties paid considerable attention to this point.

The Court started its analysis with a discussion of the leading case on anti-suit injunctions, Amchem Products Incorporated v. British Columbia (Workers’ Compensation Board), 1993 CanLII 124 (SCC),  (“Amchem”) which states, “since an anti-suit injunction is an aggressive remedy, it is preferable that the party seeking it bring the application in the foreign court first, in large part out of respect for the foreign court and comity.” [Emphasis added.] The Court then noted the Supreme Court’s decision in Chevron Corp. v. Yaiguaje, 2015 SCC 42, where the Supreme Court reiterated that “comity is grounded in deference and respect due to other states’ actions legitimately taken within its territory.”

The respondents cited a number of cases which hold it isn’t simply a matter of preferred procedure but rather that, absent “special circumstances” there is an absolute rule in BC that a stay must first be sought in the foreign jurisdiction. (McMillan v. McMillan, 2012 BCSC 32R.P.C. Inc. v. Fournell, 2003 BCSC 917 aff’d 2004 BCCA 30Quigg v. Quigg, 2018 BCSC 853, and Seismotech Safety Systems Inc. v. Forootan, 2021 FC 773.) 

The applicants pointed to Wang v. Fu, 2023 BCCA 247 and Li v. Rao, 2019 BCCA 264 (“Li”) to support their argument there was no such hard and fast rule. 

The Court also noted Zargarian-Tala v. Bayat-Mokhtari, 2019 BCSC 448, which “characterized the need to first bring the stay in the foreign proceeding as a ‘general rule’.” 

The Court found no appellate authority in BC had definitively ruled on the distinction between preferability and an absolute rule, but concluded Amchem (which uses the term “preferable”) remains the leading case in Canada on anti-suit injunctions and that the Court was bound by the “express cautionary language [in Amchem] in proceeding to hear an anti-suit injunction without a stay application having been brought in the foreign jurisdiction.”

With respect to arbitrations in particular the Court said:

“[33]      Even if the law in this province mandates a strict requirement to first seek a ruling on jurisdiction in a foreign court, it would not extend to foreign arbitration proceedings. As Justice Funt noted at paras. 28 and 37 of his decision in this Court in Li v. Rao, 2018 BCSC 47, aff’d 2019 BCCA 264, the law on anti-suit injunctions has “limited application” to arbitration proceedings because those do not engage judicial comity (although the Court of Appeal in Li accepted that reasoning, at the same time it noted that courts should exercise caution before granting injunctions affecting foreign arbitration and “should pay due regard to the objectives of arbitration”: para. 73)”

Discussing anti-suit injunctions more generally (i.e., not strictly in relation to arbitrations) the Court flagged the “special circumstances” that were present in Axion, namely, that stay applications were brought and granted in both the Washington Action and the Thailand Arbitration. The Thai Arbitration in particular had been stayed temporarily, pending findings of fact in the Related Actions. The Court held:

[41]      For the Thailand Arbitration, an injunction is not necessary at this juncture as the Thai Arbitration Institute has already issued a stay pending findings in the Related Actions. This aspect of the application should be adjourned generally, and rescheduled for determination at a later date, following trial (unless J [the Claimant in the arbitration] attempts to vary the stay order, which I was advised in submissions she would not do), once I have been able to make findings concerning the potential nexus between J’s debt claim and the competing claims in the Related Actions, the potential application of foreign law, and the possible loss of any juridical advantage should an anti-suit injunction be granted.” 

The Court went on to analyze the anti-suit injunction application to prevent the Washington Action from proceeding in light of Amchem and related authorities, ultimately concluding it should be adjourned so the stay application could be argued on its merits in the Washington courts.

The anti-suit injunction application to prevent the Thailand Arbitration from proceeding was adjourned generally, with leave to reset it for hearing following the trial of the Related Actions. 

Contributor’s Comments:

The use of anti-suit injunctions in the context of commercial arbitration is not often considered by Canadian courts.  

As a quick reminder, an anti-suit injunction enjoins a party to cease litigation in a different jurisdiction. Its purpose is to ensure litigation proceeds in the forum that has the closest connection with the case and to prevent parties from forum shopping. An anti-suit injunction is an equitable order and so acts in personam, i.e., the order is binding only on the party subject to the order, and not the foreign court where the proceedings were commenced.

Amchem remains the leading Canadian authority on anti-suit injunctions. However, Amchem dealt with an application to prohibit a foreign judicial proceeding, not with a commercial arbitration. The distinction is important because, as discussed in Amchem, even though an anti-suit injunction acts only on the party subject to the order it has the indirect effect of deciding a jurisdictional issue for a foreign court. As a result, anti-suit injunctions have been controversial over the years because of their inherent potential to be disrespectful of foreign courts by violating the “comity principle”. 

Amchem uses strong language cautioning against the issuance of anti-suit injunctions, describing them as “aggressive”, noting they raise “serious issues of comity”, and holding that comity “demands no less” than to refrain from granting an anti-suit injunction “when a foreign court assumes jurisdiction on a basis that generally conforms to to our rule of private international law relating to the forum non conveniens.”

In the context of commercial arbitrations, however, there appears to be a growing line of authority that distinguishes Amchem where the anti-suit injunction relates to the enforcement of a contractual right not to be sued in a given forum. As arbitrations occur only by agreement, i.e., contractually, the cases in this line have distinguished Amchem on the basis that comity ought not play a role in anti-suit injunction applications. The underlying premise is that parties should be held to their bargain and that while comity may be a significant consideration when it comes to foreign courts, the same cannot be said of foreign arbitral proceedings. “If the claimant demonstrates that proceedings have been commenced in another forum contrary to the terms of a valid and applicable arbitration agreement, the court should normally exercise its discretion to grant an anti-suit injunction, unless the responding party demonstrates a “strong cause” to not grant the relief.” [See Comity and the Anti-Suit Injunction: Developments Since Amchem, 2023 CanLIIDocs 502 Canadian Journal of Commercial Arbitration]. In that article, the author categorizes the jurisprudence according to the distinct rights protected by the remedy, one purely equitable (the “equitable rights branch”) and the other contractual (the “contractual rights branch”). The latter places the onus on the respondent to present a strong case that the court should not issue the injunction. As a general proposition this should make it easier to obtain an anti-suit injunction in respect of foreign arbitral proceedings. How much easier, of course, remains to be seen. 

While the comments in Axion related to the Thailand Arbitration are very limited, they do move the needle toward this distinction. Of note, the Court cited Li, which held:

[73]    I accept that courts should exercise caution before granting any injunction affecting the conduct of foreign proceedings whether those be judicial or arbitral in nature. Courts should pay due regard to the objectives of arbitration before granting an anti-arbitration injunction, just as they must pay due regard to comity before granting an anti-suit injunction. On the other hand, neither comity nor the objectives of arbitration justify exceptional diffidence where the injunction is based on a breach of contract, i.e., on a party’s own conduct.”

We obviously don’t know how this line of cases will develop but Axion is one small step toward recognition of the distinction between anti-suit injunctions sought to prevent proceedings in foreign courts (applications under the equitable rights branch) and those sought in respect of foreign arbitral proceedings (applications under the contractual rights branch). Under the contractual rights line of cases, because the parties necessarily agreed to proceed by way of arbitration in a particular manner, the thinking is they should be held to that bargain and obliged to comply with the contract. 

As to the BC-related question of whether a stay of proceedings must be sought in the foreign proceeding before seeking an anti-suit injunction in BC, the Court in Axion was a bit coy in not expressly deciding the question. However, it seems clear from its comments that it leaned toward treating the need for a stay application in the foreign court as a preference rather than a fixed rule.