Mainland China and Hong Kong sign Supplemental Arrangement on mutual enforcement of arbitral awards

14 December 2020, Construction, Newsletter, by Stanley Lo,

On 27 November 2020, the Secretary for Justice, Ms Teresa Cheng SC, and the Vice-President of the Supreme People’s Court, Mr Yang Wanming, signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and the HKSAR (Supplemental Arrangement). The Supplemental Arrangement refines the Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and the HKSAR (Arrangement) which has been in force for two decades and further facilitates the use of arbitration in cross-border civil and commercial dispute resolution.

The Supplemental Arrangement amends the Arrangement in the following respects:

1.          Recognition of arbitral awards

Cross-border enforcement of arbitral awards under recognised protocols (including the New York Convention and agreements between the Mainland and Macau/Taiwan) commonly involve two stages, namely, “recognition” of the binding force of the award and “enforcement” of the award. The Arrangement only refers to the steps required to be taken to enforce an award, but not those required to be taken for recognition of an award, which created some confusion about the precise steps that parties needed to take for recognition of an award.

The Supplemental Arrangement clarifies that the procedures set out in the Arrangement shall be interpreted as applying to both recognition and enforcement of arbitral awards.

2.          Interim measures

Interim measures in aid of arbitration were not covered in the Arrangement. Whilst the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of Mainland China and of the HKSAR, which came into force on 1 October 2019, empowers the Courts in the Mainland and Hong Kong to grant interim measures in aid of arbitral proceedings, it only applies to applications for interim relief made before the making of arbitral awards.

The Supplemental Arrangement provides that the Courts may grant interim measures before or after accepting an application for enforcement of an arbitral award. This will reduce the risk of parties against whom arbitral awards are made, frustrating enforcement by dissipating assets and hence increase the effectiveness of cross-border arbitration.

3.          Removal of the “mainland arbitration authorities” requirement

Under the  Arrangement, the Hong Kong Courts agree to  enforce awards made pursuant to the Arbitration Law of the PRC by certain recognised Mainland arbitral authorities, whereas the People’s Courts of the Mainland agree to enforce all awards  made in Hong Kong pursuant to  the Arbitration Ordinance, without limiting the application to certain Hong Kong arbitral authorities.

In respect of enforcement of Mainland awards in Hong Kong, the Supplemental Arrangement removes the reference to enforcement of only those awards made by certain recognised Mainland arbitral authorities, so that now all arbitral awards made in the Mainland fall within the Arrangement.  This extends the reach of the Arrangement vis-à-vis Mainland awards and brings the regime in line with international practice under the New York Convention, which determines applicability based on the “seat of arbitration” approach.

4.          Concurrent enforcement proceedings

Under the Arrangement, a party armed with an arbitration award could not apply simultaneously to enforce the award in both Hong Kong and the Mainland. This restriction caused practical issues when the party against whom the award was made had assets in both Hong Kong and the Mainland, including the possibility that the second enforcement application would be time-barred following a lengthy but futile enforcement application in the other jurisdiction.

The Supplemental Arrangement allows concurrent enforcement applications in the Mainland and Hong Kong, subject to the restriction that the total amount to be recovered in the two places must not exceed the amount determined in the arbitral award. The Mainland and Hong Kong Courts shall also provide each other, upon request, with information about the status of enforcement of the arbitral award.

Effective date of Supplemental Arrangement

The changes referred to at (1) and (2) above came into effect on 27 November 2020, upon the signing of the   Supplemental Arrangement and those referred to at (3) and (4) above will come into effect at a later date, to be announced and once necessary amendments to the Arbitration Ordinance have been enacted. Parties should therefore keep abreast of local legislative developments in order to take full advantage of the measures under the Supplemental Arrangement.