China: Mark Your Calendar: The Interim Measures Arrangement Between Mainland China And Hong Kong Comes Into Effect On 1 October 2019

Last Updated: 10 October 2019
Article by James Kwan and James Ng

According to an announcement made on the People's Court Daily, 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") will come into effect on 1 October 2019, coinciding with the 70th anniversary of the founding of the People's Republic of China ("PRC"), in both Mainland China and Hong Kong. An English translation of the Arrangement can be accessed here.

The Arrangement is the first legal instrument entered into between Mainland China and a foreign jurisdiction concerning interim measures in aid of arbitration. Notably, the Arrangement will retrospectively apply to all arbitral proceedings commenced prior to 1 October 2019 that have not been concluded by that date (but the application must be made on or after that date). The Arrangement, however, will not apply to interim measures sought after an award is rendered and before its enforcement before a national court.

This is a significant and welcoming development for all users of arbitration, as there was no legislative underpinning for Chinese courts to grant interim measures in aid of a foreign arbitration. Although the Arrangement provides for bilateral court assistance in Hong Kong and Mainland China, the spotlight will be on assistance rendered by the PRC courts for Hong Kong seated arbitrations. Hong Kong courts already grant interim measures in aid of a foreign arbitration, including those seated in Mainland China. Given that interim measures from the Chinese courts is only possible for Hong Kong seated arbitrations, it is clear that Hong Kong's popularity as an arbitral seat will gain further momentum as a result of this positive development.

Background to the Arrangement

The background to the Arrangement has been set out in our previous publication titled "A game changer: Hong Kong and China agree milestone arrangement for interim measures in arbitration", which can be accessed here.

By way of a short recap, the Arrangement allows a party in a Hong Kong seated arbitration to seek the PRC courts' assistance to grant interim measures, and vice versa. This can be done at any time before the arbitral award is rendered. Previously, the PRC courts had refused to grant interim measures in aid of a foreign arbitration (including Hong Kong), which was problematic for parties to an offshore arbitration since there is a lack of recourse if (for instance) the counter party dissipates its Chinese assets. This problem was exacerbated by the fact that interim measures granted by a foreign arbitral tribunal – even if in the form of an arbitral award – would not be recognized and enforced by the PRC courts since it would not be considered as a final award for the purposes of the New York Convention.

With the advent of the Arrangement, there is now statutory underpinning that parties may rely on to obtain interim measures in aid of a Hong Kong arbitration from the PRC courts, subject – of course – to the requirements that must be met under the Arrangement.

Requirements to obtain interim measures under the Arrangement

Interim measures from the PRC courts under the Arrangement can only be sought by parties to a Hong Kong seated arbitration. Further, such arbitration must be administered within the ambit of three distinct categories, namely by:

  1. Arbitral institutions established or headquartered in Hong Kong, with their principal place of management located in Hong Kong; or
  2. Dispute resolution institutions or permanent offices set up in Hong Kong by international intergovernmental organisations of which the PRC is a member; or
  3. 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 ("Government").

The list of dispute resolution institutions or permanent offices shall be approved by the Government in the first instance, to be finally confirmed by the PRC Supreme People's Court ("SPC"). The main consideration for this formal process is that as opposed to the recognition and enforcement of arbitral awards, interim measures have the inherent risks of being abused by an applicant and causing harm to a respondent, meaning a more serious approach should be adopted.

As far as the definition of "interim measures" is concerned, in the case of the Mainland China, it includes preservation measures in property and evidence. 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.

The Arrangement provides detailed provisions on, inter alia, what needs to be specified in the application for interim measure, what materials need to be submitted to a People's Court of the Mainland for interim measure, etc.

Currently approved arbitral institutions and permanent offices

The Hong Kong Department of Justice ("DOJ") has announced and published a list of institutions and permanent offices that have been approved as being qualified for the purposes of Article 2(1) of the Arrangement as follows:

  1. Hong Kong International Arbitration Centre ("HKIAC");
  2. China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center ("CIETAC" Hong Kong);
  3. International Court of Arbitration of the International Chamber of Commerce – Asia Office ("ICC");
  4. Hong Kong Maritime Arbitration Group ("HKMAG");
  5. South China International Arbitration Center (Hong Kong); and
  6. eBRAM International Online Dispute Resolution Centre.

This means that parties in any Hong Kong seated arbitration already commenced (or to be commenced) and administered by one of these institutions or permanent offices can take advantage of the Arrangement by seeking interim measures from the PRC courts after 1 October 2019.

As we have noted in our previous publication, the requirement for an institution to be centrally managed or headquartered in Hong Kong 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.

Conclusion

The Arrangement is truly a game changer for Hong Kong seated arbitrations. Whereas the Hong Kong courts allowed parties to a PRC-seated arbitration to seek interim measures, this was not reciprocated by the PRC courts for Hong Kong seated arbitrations. Once the Arrangement comes into effect, parties to cross border transactions with a Chinese element will have a strong incentive to consider Hong Kong as the seat of arbitration, in order to take advantage of the protections offered by the Arrangement. Further, any arbitration already commenced before 1 October 2019 will be able to utilize the Arrangement in appropriate cases, as long as they have not been completed by this date.

In terms of the Arrangement's future implications:

  • Hong Kong's position as an arbitral seat will obviously be strengthened.
  • There will also be a strong incentive to have an administered arbitration, in particular by referring to one of the institutions1 above already approved by the Government and the SPC. In this regard, parties should consider their choice of institutions carefully, given that each institution will have its own rules resulting in different procedures (and costs) being applicable in an arbitration.

The Arrangement clearly shows that Mainland China places great value in Hong Kong as an internationally recognized juridical seat under the context of "One Country, Two Systems", and upholds Hong Kong's status as a preferred arbitral seat as well as a one-stop-shop to resolve disputes.

Footnote

1 Some institutions already enjoy a distinct advantage. For example, the HKIAC has a commendable track record of successful enforcement of arbitral awards in Mainland China: we understand from the HKIAC that since 1999, only three of their awards were refused enforcement in Mainland China.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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