Ushering in a new era for China-related arbitration: reciprocal court assistance for enforcing interim measures
By: Cui Qiang, Commerce & Finance Law Offices
On April 2 2019, the Supreme People’s Court (SPC) of the People’s Republic of China (mainland China for the purpose of this article) and the Department of Justice (DoJ) of Hong Kong entered into an arrangement concerning mutual judicial assistance of court-ordered interim measures during arbitral proceedings for arbitrations seated in the other side’s jurisdiction (Arrangement). Given that both the SPC and DoJ need to take the Arrangement back home for internal approval, it will take some time—of which the schedule is not clear—for the Arrangement to come into effect.
The Arrangement, once effective, will strengthen inter-regional judicial assistance between mainland China and Hong Kong, as Hong Kong will be the sole jurisdiction where an arbitration has access to mainland Chinese courts’ support for ordering interim measures during arbitral proceedings or even before the commencement of an arbitration, and parties in arbitrations seated in mainland China can also apply before Hong Kong courts for issuing relative interim measures.
The Arrangement itself is only applicable for institutional arbitrations seated in Hong Kong (ad hoc Hong Kong arbitrations are excluded) and the arbitral tribunal must be from qualified institutions confirmed by mainland China and Hong Kong.
I. How the Arrangement works for arbitrations seated in Hong Kong
A. Parties’ dilemma in the pre-Arrangement period
Here is a scenario: an arbitration between debtor A (a mainland China resident) and creditor B (a US entity) is seated in Hong Kong. B’s claims are in high likelihood supported by the tribunal, while most of A’s assets for enforcement are within the territory of mainland China.
According to civil procedure and arbitration law in mainland China, there is no specific provision for courts in mainland China to aid arbitrations seated in Hong Kong by issuing an interim measures ruling. Therefore, without the Arrangement and given the lengthy time period of an arbitration procedure from filing of the request to the making of arbitral awards, B is exposed to a significant risk that A’s assets in mainland China for enforcement would be hidden or transferred away by A, should courts in mainland China refuse to provide B with preservative measure orders in advance.
To address this dilemma B previously had to: either (i) consider choosing mainland China as the seat of arbitration in advance so as to get access to the court’s interim measures assistance in mainland China, and thus frustrate the parties’ enthusiasm for a Hong Kong arbitration; or (ii) apply before an arbitral tribunal in Hong Kong for its partial award before an award(s) for other matters is/are available, enabling B to realise partial claims against A’s properties in mainland China. Nevertheless, our experience shows that such a strategy could, unfortunately, lead to a delay of the whole arbitration proceedings.
B. Changes owing to the Arrangement
First of all, the best choice for B to save time and money is to submit an application for court-ordered interim measures to a mainland Chinese court before the arbitration proceedings are commenced in Hong Kong, or ask the arbitral institution to forward the interim measure application to a mainland Chinese court before the Hong Kong arbitral award is granted. By doing so, debtor A’s properties will be seized, impounded or frozen for the sake of B’s legal rights.
Moreover, the Arrangement provides expressly that “this Arrangement will not impair arbitral parties’ existing rights according to the other side’s laws”, namely, when A’s properties are scattered throughout mainland China and Hong Kong or anywhere else, B can then request interim measures assistance from a mainland Chinese court and from a Hong Kong arbitral tribunal at the same time. Through such a two-pronged strategy with parallel judicial assistance from different jurisdictions, all potential assets for enforcement can be preserved to maximise applicant B’s interests.
Therefore, it seems that the Arrangement attempts to treat arbitrations seated in Hong Kong equally as those seated in mainland China, and Hong Kong’s arbitral proceedings will be given “national treatment” in mainland China by mainland Chinese courts’ assistance of interim measures. In the future, parties in cross-border transactions will be offered more flexible options for the place of arbitration: Hong Kong or any mainland city. In legal practice, international clients usually choose Singapore or Hong Kong as the place of arbitration. It’s foreseeable that Hong Kong arbitral institutions will be much more attractive due to interim measures assistance from mainland China. Furthermore, Hong Kong, as a neutral and independent jurisdiction distinguished from mainland China, will get an edge over other places when competing to be the international arbitration centre in Asia-Pacific.
II. How the Arrangement works for arbitrations seated in mainland China
A. Situations in pre-Arrangement times
Here is another scenario: an arbitration between debtor A (a mainland China resident) and creditor B (a US entity) is seated in Beijing. B’s requests have a good chance in being supported by the tribunal, while most of A’s assets to be preserved are in Hong Kong.
In the past, according to Hong Kong laws (such as Section 21M of the Hong Kong High Court Ordinance and Section 45 of the Hong Kong Arbitration Ordinance), parties in mainland arbitration proceedings can apply before Hong Kong courts or arbitral tribunals for their interim measure assistance directly, if those parties are seeking for the arbitral award’s final enforcement in Hong Kong. However, without the Arrangement, the threshold for getting interim measure orders from Hong Kong courts are much higher than doing so in the mainland.
To be more specific, under the common law system, the most important conditions for Hong Kong courts in granting a Mareva Injunction—a form of interlocutory relief freezing assets for enforcement—are: (i) the applicant’s requests in arbitration proceedings are likely to be supported, namely, the applicant has sufficient prima facie evidence to win the arbitration case; (ii) the party against whom the application is filed has properties within the territory of Hong Kong; (iii) the court holds that granting a Mareva Injunction is “just and convenient” to do so after equitable consideration; and (iv) there are actual risks that the properties for enforcement are or will be transferred away and hidden. In actuality, although interim measures granted by Hong Kong courts are more flexible, the courts are usually cautious and conservative about granting such an interim measure order. In addition, there are concentrated provisions on property preservation rules in mainland China’s laws, and the statutory time limit (48 hours) is set for courts to issue an interim measure ruling when it’s under urgent circumstances such that an applicant’s interests will be irreparably damaged without immediate interim measures. Compared with the preservation rules in mainland China’s laws, those provisions in Hong Kong are separated and fragmented, leading to uncertainty in the rules’ application. Therefore, applying for interim measures in Hong Kong is harder than applying for the same in mainland China, because the application procedures are inconvenient and results are uncertain in view of judges’ discretion rights and their consideration on a case-to-case basis, and even expensive costs are required to hire practicing attorneys in Hong Kong to get interim measures applications approved.
B. Implications of the Arrangement
After the Arrangement takes effect, parties in mainland China arbitration proceedings can directly apply for Hong Kong courts’ interim measures before arbitration proceedings begin in mainland China. The guidelines for inter-regional judicial assistance are more specific and clear; and necessary documents for the application are mentioned expressly in the Arrangement, so the conditions and results for applications of Hong Kong courts’ interim measures are more practice-friendly. Furthermore, the Arrangement also requires Hong Kong courts to order interim measures as soon as possible when the application has adequate basis, aiming to fill the lack of a time limit in Hong Kong laws and guarantee timely judicial assistance for parties in mainland China arbitration proceedings. We firmly believe that a series of bilateral negotiations for the refinement of the Arrangement will be put on the agenda in the near future.
CONCLUSION
In consideration of restrictions in Hong Kong arbitration institutes’ qualification through a list required by the Arrangement, and exclusion of ad hoc arbitration cases in Hong Kong for mainland Chinese judicial assistance, we still recommend clients choose mainland arbitral institutions in their cross-border commercial disputes for the reason that mainland institutions are not limited by the Arrangement in their qualification to get inter-regional judicial assistance, and applications for interim measures in mainland China are much easier.
The Arrangement ushers in a new era where arbitral institutions in both mainland China and Hong Kong will serve cross-border disputes. However, the Arrangement leaves some legislative gaps for bilateral negotiations in the future—such as the document list for interim measure applications and the list of qualified arbitral institutions in Hong Kong, which remains to be negotiated—and we will keep cautiously optimistic attitudes towards practical problems when applying the Arrangement.
Commerce & Finance Law Offices is experienced in providing our clients with pragmatic and cost-effective legal solutions in cross-border commercial disputes, and we are always at the forefront of theoretical research on cross-border litigation and arbitration cases. We will continue to focus on and discuss issues of cross-border arbitration, and share our insights with our clients and peers. If you have any need for advice in relation to litigation or arbitration for your commercial disputes in China, please contact our dispute resolution team for further information.
Mr. Cui Qiang, Partner of Commerce & Finance Law Offices
Arbitrator of China Maritime Arbitration Commission
Cui’s practice focuses on commercial disputes. Cui has honed his expertise in handling large quantities of contentious matters concerning equity investment, real estate, construction and infrastructure, international trade, transport and logistics, intellectual property and non-performing loans. He has successfully represented financial institutions, multinational enterprises and large-scale Chinese companies in numerous proceedings before Chinese courts and arbitral tribunals under the rules of CIETAC, HKIAC, BIAC and SHIAC.
In December 2018, Cui was ranked by Chambers as a recognised practitioner in China’s dispute resolution practice. In March 2017, Cui was nominated as a rising star by Asian Legal Business. In November 2017, Acquisition International certified Cui as Beijing’s leading adviser in litigation and arbitration.
Cui obtained an LLB from Peking University School of Law and an LLM from the University of Pennsylvania Law School. Cui is qualified in China and New York and is a native Mandarin speaker who is proficient in English. He may be reached at cuiqiang@tongshang.com.
