Access to the Mainland Chinese court system gives Hong Kong the edge

In the international world of shipping, when claims arise, they often involve cross-border disputes, and that adds an extra layer of complexity. There is no point bringing proceedings if you cannot make them pay, so one of the main reasons shipping people choose arbitration is the fact that arbitration awards are easier to enforce overseas than judgments of national courts. You can take a Hong Kong final arbitration award to China, or any other country, and enforce it against the debtor's assets. Court judgments obtained via litigation proceedings tend to be more problematic.

But the ease of enforcement of final arbitration awards is only half the story. Before you get to the final award, how do you stop the debtor in the meantime from disposing of its assets to make itself "award-proof"? How do you inspect or preserve property or evidence so as to ensure that your claim in the arbitration proceedings is not frustrated? How can you get an interim order for delivery up of possession of an asset such as a ship?

For arbitration to be truly effective it needs the support of the court system at an early stage, before the proceedings progress to the full hearing/trial. As regards Hong Kong and the Mainland, this is now a reality thanks to new regulations which recently came into force. The Arrangement concerning Mutual Assistance in Court Ordered Interim Measures in aid of Arbitral Proceedings has been in force since 1 October 2019. The law is significant for arbitrations involving Mainland Chinese parties and assets, as Hong Kong is now the only seat of arbitration outside Mainland China through which the parties can access the Mainland court system and its interim measures in aid of arbitration. The arrangements are a clear example of the mutual assistance and cooperation that exist between the Hong Kong and Mainland legal systems.

Under Chinese law, interim measures include court orders relating to the preservation of assets, evidence and also conduct, and are thus similar in effect to injunctions granted by the courts or tribunals in Hong Kong.

Applications for the interim measure may be made in advance or during the Hong Kong arbitration proceedings. Where a party makes an application for an interim measure after the relevant arbitral institution has accepted the arbitration case, the applicant must produce to the PRC court not only the facts and material on which the claim is based, but also a letter from the relevant arbitral institution certifying its acceptance of the relevant arbitration case. (It should be noted that there is still no legal framework to enforce a Hong Kong interim measure (in the form of an award or otherwise) in the Mainland.)

In order to take advantage of the Arrangement, the arbitration must not only be seated in Hong Kong but it must also be administered by recognised institutions such as the Hong Kong Maritime Arbitrators Group ("HKMAG"), Hong Kong International Arbitration Centre, ICC, and CIETAC Hong Kong.

Shipping companies contracting with Mainland Chinese parties thus now have a further reason to choose Hong Kong as an arbitral seat as they can now obtain orders/injunctions from the Mainland courts.

As apparent from a number of the other features within this magazine, over the past couple of years there has been an intensified push by government to enhance Hong Kong as a centre for shipping, and also as a centre for international dispute resolution. The combination of these two initiatives meant the time was right for a standalone HKMAG, a focused specialist body to serve Hong Kong's position as a maritime arbitration centre. And, at a practical level, whilst multi-million-dollar disputes arise in relation to ships and their cargoes, the majority of shipping claims involve relatively modest amounts. So, maritime arbitration concentrates on efficiency and cost-effectiveness, in a way that is not always encountered in heavily-documented general arbitrations. HKMAG's objective is to deliver to the shipping industry the maritime dispute resolution which it needs, and in this hemisphere.

HKMAG is at the forefront of publicising the advantage which Hong Kong can bring to shipping companies when they need to resolve their disputes fairly and efficiently, and in a time zone and location which is convenient for all of Asia. On that aspect, HKMAG is to date the only maritime arbitration institution based outside the Mainland through which parties can access the Chinese court system for the purposes of injunctions and other interim measures, through the Arrangement described above. The growth of Chinese shipowning and ship leasing companies means more Hong Kong arbitration clauses in charterparties and other shipping contracts. The above Arrangement should increase the attractiveness of Hong Kong maritime arbitration to companies based outside China who value an integrated approach to dispute resolution between Hong Kong and the Mainland, whilst all the while retaining the benefits of the rule of law and the English-based legal system for which Hong Kong is well known.

Originally published by The Hong Kong Maritime Hub.

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