Five Years of Interim Chinese Court Measures Benefit Hong Kong-Seated Arbitrations

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In Short

The Background: An 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 ("Interim Measures Arrangement") came into force on 1 October 2019, allowing parties to Hong Kong-seated arbitrations to seek interim measures directly from People's Republic of China ("PRC") courts.

The Situation: Since the implementation of the Interim Measures Arrangement, the Hong Kong International Arbitration Centre ("HKIAC") has processed a significant number of applications for interim measures in Mainland China.

Looking Ahead: The track record of the Interim Measures Arrangement over the past 18 months provides a compelling reason for parties to consider choosing Hong Kong as the seat of arbitration, due to the proven ability of parties to seek and obtain interim measures in PRC courts.

On 9 February 2021, the HKIAC reported in the HKIAC Releases Statistics for 2020 that since the Interim Measures Arrangement entered into force on 1 October 2019, the HKIAC has processed 37 applications for interim measures before courts in Mainland China brought by parties to ongoing arbitrations in Hong Kong. These applications include 34 applications for preservation of property, two for preservation of evidence and one for preservation of conduct (effectively an injunction). The total value of assets sought to be preserved across all 37 applications is approximately RMB 12.5 billion or US$1.9 billion.

The HKIAC also reported that it is aware of 24 decisions that have been handed down by PRC courts in relation to applications for interim measures. In particular, the Intermediate People's Court ("IPC") has granted 22 applications for property preservation upon the applicant's provision of security and rejected two such applications. The total value of assets reported to have been preserved as a result of these decisions amounts to approximately RMB 10 billion or US$1.6 billion.

Through the Interim Measures Arrangements, parties to Hong Kong-seated arbitrations have the ability to seek interim measures directly from PRC courts. This opportunity is not available to parties to arbitration seated anywhere else outside of Mainland China.

The Interim Measures Arrangement and its Implications

In order to apply for interim measures in PRC courts, parties to arbitration must fulfill two criteria: (i) the arbitration must be seated in Hong Kong; and (ii) the arbitration must be administered by one of the institutions that fulfill the qualifications set out under the Interim Measures Arrangement.

The qualifying institutions are:

  • HKIAC;
  • China International Economic and Trade Arbitration Commission Hong Kong Arbitration Centre;
  • International Court of Arbitration of the International Chamber of Commerce—Asia Office;
  • Hong Kong Maritime Arbitration Group;
  • South China International Arbitration Centre (HK); and
  • eBRAM International Online Dispute

There are three types of interim measures available in Mainland China:

  1. Property preservation: an order to preserve assets from being dissipated or transferred.
  2. Evidence preservation: an order to preserve evidence from being lost or destroyed.
  3. Conduct preservation: an order requiring a party to take specific action or prohibiting a party from taking a specific action.

An applicant can apply to the IPC before the arbitral award is made or even before the arbitration proceedings have been commenced. Where the application of interim measures is made before the arbitration proceeding is commenced, parties must submit a letter of acceptance from the arbitration institution to the IPC within 30 days after the interim measures are granted; otherwise, the IPC will discharge the interim measures. Where the application of interim measures is made after the arbitration proceeding is commenced, the arbitration institution is required to pass the application to the relevant IPC.

The proper forum is the IPC of either the respondent's place of residence or the place of the application's subject matter (for example, where the property or the evidence is located). If the respondent's place of residence or the place of the application's subject matter falls within the jurisdiction of a different People's Court, the applicant must make an application to any one of those People's Courts but cannot make an application to more than one court.

Although the Interim Measures Arrangement does not specify the provision of security by an applicant as a condition for granting the interim measures, courts may require the applicant to provide security under Article 8 of the Interim Measures Arrangement. The reported decisions reveal that applicants who have been granted interim measures have provided security when filing their applications. Courts in Mainland China often calculate security based on a percentage of the claimed amount and require it to be provided in the form of a guarantee by a bank or by an insurance company. Applicants should therefore factor in the costs of such security when charting out the application's costs.

Read an English translation of the Interim Measures Arrangement.

Interim Measures After an Arbitral Award is Made

While the Interim Measures Arrangement empowered PRC courts to grant interim measures in aid of arbitral proceedings, it applied only to applications for interim measures made before the making of arbitral awards. Article 4 of the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR ("Supplemental Arrangement"), which took effect on 27 November 2020, provides that Hong Kong and PRC courts may grant interim measures before or after accepting an application for enforcement of an arbitral award. This amendment strengthens the Interim Measure Arrangements by enabling PRC courts to similarly order interim measures after an award is made in Hong Kong. This will no doubt enhance the prospects of an award's enforcement in Mainland China.

Read an English translation of the Supplemental Arrangement.

Three Key Takeaways

  1. Hong Kong is the first and only jurisdiction that enjoys an arrangement with Mainland China permitting interim measures to be directly sought from PRC courts.
  2. The application of interim measures can be made before or after the commencement of the arbitration proceedings. The availability of interim measures may prove critical to the preservation of the parties' commercial interest when a dispute occurs.
  3. Parties, particularly those entering into contracts involving Chinese parties or assets, should consider the benefits conferred by the Interim Measures Arrangement when negotiating arbitration agreements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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