A game changer: Hong Kong and China agree milestone arrangement for interim measures in arbitration

In a significant development, Hong Kong and Mainland China have agreed measures under which the Chinese courts will grant interim measures in support of arbitration seated in Hong Kong. The "Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region" ("Arrangement") was signed in Hong Kong on 2 April 2019 and will come into effect on a date to be announced by both sides.

Hong Kong becomes the first and only jurisdiction outside the Mainland where the Mainland courts can grant interim measures in aid of a foreign arbitration if administered by an institution. Accordingly, parties to arbitral proceedings administered by arbitral institutions set up or established in Hong Kong will be in a position to apply to the Mainland courts for interim measures.

Hong Kong has already been one of the leading seats in arbitrations involving PRC entities given its arbitration friendly regime, independent judiciary, wealth of arbitrators with experience in dealing with PRC entities and transactions in Mainland as well as arbitrators and counsel with Chinese language capabilities. In addition, PRC courts have historically enforced Hong Kong seated awards including those administered by the HKIAC. There have been very few Hong Kong awards that have been refused enforcement in the Mainland.

Under the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region, recognition of a Hong Kong award is unnecessary before commencing enforcement proceedings, unlike enforcement of foreign arbitral awards on the Mainland under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 ("New York Convention"). The development is likely to give Hong Kong a significant boost in its attractiveness as an arbitral seat when compared with other seats in Asia such as Singapore for transactions involving PRC entities.

Winds of change

Pursuant to the Arrangement, a party to arbitral proceedings in Hong Kong may, before the arbitral award is issued, apply to the Mainland Chinese courts for interim measures in accordance with PRC law. Previously the Mainland courts did not grant interim measures in aid of a foreign arbitration, including Hong Kong. This was a problem as for Hong Kong seated arbitrations, the Mainland courts would not enforce awards for interim measures given that the award is not considered to be final. So some parties to transactions involving the Mainland chose to seat arbitrations in the Mainland to avail themselves of interim measures from the Mainland courts.

However, there have been signs of the Mainland courts being receptive to the grant of interim measures in aid of a Hong Kong seated arbitration in the last few years.

In Talpa v Shanghai Caixing (2016, Beijing IP court), a Beijing court granted interim measures for a Hong Kong seated arbitration. The plaintiff Talpa sought injunctive relief from the Beijing IP Court, even though the licence agreement provided for Hong Kong law and Hong Kong arbitration. The Beijing IP Court accepted the case and granted injunctive relief despite the fact that the Hong Kong arbitration was still pending at the time. The Beijing Court held that the claim was for "trademark infringement", and not "breach of contract" and it therefore had jurisdiction to issue injunctive relief.

In two other recent non IP-related cases, Mainland courts have granted relief without specifying a legal basis. A successful claimant in a 2013 HKIAC award applied to the Guangzhou Intermediate People's Court for preservation of the respondent's property. The Court granted the application in 2014, later recognising and enforcing the award in 2016. In a separate case, a claimant was granted interim measures during the course of the arbitral proceedings by the Wuhan Maritime Court, which ordered the freezing of the respondent's bank account and property by way of security for any award to be issued in the future.[1]

Despite these "one-off" successes, the formal footing of the Arrangement will give comfort to foreign investors that if they seat an administered arbitration in Hong Kong, they can get interim measures in aid of a Hong Kong arbitration for the Mainland courts.

The Arrangement will apply only to arbitral proceedings in three distinct categories:

• Arbitral institutions established or headquartered in Hong Kong, with their principal place of management located in Hong Kong; or

• Dispute resolution institutions or permanent offices set up in Hong Kong by international intergovernmental organisations of which the PRC is a member; or

• Dispute resolution institutions or permanent offices set up in Hong Kong by other arbitral institutions which satisfy the relevant criteria set by the Hong Kong Government.

The arrangement applies to arbitral proceedings administered by the Hong Kong International Arbitration Centre (HKIAC), ICC Hong Kong and CIETAC Hong Kong. The requirement for an institution to be centrally managed or headquartered may now see a range of additional institutions vying to set up shop in Hong Kong, provided they can meet the criteria established by the Government. The Hong Kong Government will provide a list of institutions or permanent offices for the purposes of confirmation of both Hong Kong and the PRC.

Hong Kong and China already have reciprocal arrangements concerning the enforcement of court judgments and arbitral awards, however this is the first time that the possibility of interim measures has been for arbitrations seated outside Mainland China has been countenanced.

Application

The definition of "interim measure", in the case of the Mainland, includes preservation measures in property and assets. In the case of Hong Kong, the concept of interim measures is different and includes injunctions for the purpose of maintaining or restoring the status quo pending determination of the dispute; taking action that would prevent action that is likely to cause harm to or prejudice the arbitral proceedings; preserving assets; or preserving evidence that may be relevant and material to the resolution of the dispute.

Under section 45(5)(b) of the Hong Kong Arbitration Ordinance, a Hong Kong court is empowered to grant interim measures in aid of an arbitration seated outside of Hong Kong if the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to arbitral proceedings by a Hong Kong court. Accordingly, it will be interesting to see what test the PRC courts apply in granting interim measures for a Hong Kong seated arbitration.

Implications

The Arrangement marks the first time that China has allowed its courts to grant interim relief in proceedings outside of the Mainland. The fact that it now feels comfortable in doing so may be down to Hong Kong's particular status as a Special Administrative Region with a hybrid political status but with its own separate legal system and independent judiciary based on English common law.

The overall implications are as follows:

  • Parties to mainland transactions may want to seat their arbitration in Hong Kong to avail themselves of interim measures in aid of Hong Kong seated arbitrations;
  • Hong Kong's position as a seat will be strengthened;
  • The test for applying interim measures is still untested in aid of Hong Kong seated arbitrations. We have already seen how the test may be applied in respect of Mainland seated arbitrations by Hong Kong courts (see for example the decision of Mimmie Chan J in Chen Hongqing v Mi Jingtian [2017] HKEC 1305), however the other way around remains untested;
  • Despite the Arrangement, parties can still avail themselves of interim measures from emergency arbitrators or arbitral tribunals during the course of the arbitration if the counterparty participates. This is because these interim measures will still have coercive effect, by forcing the counterparty to comply with the interim measures or otherwise bear the consequences before the arbitral tribunal. This raises a question as to whether there will be an obvious influx of interim measure applications to the Chinese courts, since this has always been an option for Hong Kong seated arbitrations; and
  • The Arrangement does not apply to ad hoc arbitrations. Parties are advised to choose an institution to administer their arbitrations.

The full text of the Arrangement can be found here.

________________________________________

[1] "Have PRC Courts Ordered Interim Relief Measures in Support of HKIAC Arbitrations without an Express Legal Basis: What Lies Ahead?" – Helen H. Shi (Fangda Partners), Kluwer Arbitration Blog, 26 August 2018

Click here for the full alert


Download PDF Share Back To Listing
Loading data