On 1 October 2019, Hong Kong and the PRC brought into force 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). The Arrangement empowers the courts of both jurisdictions to award interim measures in support of arbitration seated in the other territory. The types of interim measures available from PRC courts include property preservation, evidence preservation and conduct preservation. Prior to that, no formal mechanism existed to allow PRC courts to grant interim relief in support of foreign-seated arbitration. In order to do so, the only option was for the parties to elect to arbitrate in the PRC.
There are two requirements for PRC courts to provide interim measures: (1) the arbitration must be administered by a qualifying Hong Kong arbitral institution; and (2) the seat must be in Hong Kong. Guidance on the Arrangement published by the Chinese Supreme People’s Court sets out that at present, only six institutions are qualified, including the HKIAC and ICC, and can benefit from the Arrangement.
Procedures with HKIAC
For HKIAC arbitrations seated in Hong Kong, a party can apply for interim measures from PRC courts any time before the award is made. This includes even before the arbitration proceedings have commenced. In this case, parties may apply directly to the relevant PRC court. If the interim measure is granted, the applicant is obliged to commence the arbitration and submit to the PRC court, within 30 days, a letter of acceptance by the HKIAC. When an arbitration has commenced, the HKIAC will assist and pass the application to the relevant PRC court. In both scenarios, the applicant should provide counter security, which can be in the form of cash or bond.
It is reported that as of 13 February 2020, the HKIAC had received a total of 13 applications. Most of the applications requested asset preservation orders. The HKIAC also reports that asset preservation orders, totalling approximately RMB 1.7 billion (USD 243 million), have been granted in 4 cases out of 13 applications, including the following cases.
Elim Spring Maritime Case
The very first application was submitted to the Shanghai Maritime Court. A Hong Kong company commenced an ad-hoc arbitration against a Shanghai-based party in July 2019. Although the parties later settled the dispute, the respondent failed to pay the settlement sum. The Hong Kong company then commenced the second arbitration which was administered by the HKIAC. They also made an application to the HKIAC for an ex parte order to preserve, seize and freeze the respondent’s bank accounts within the PRC, as soon as the Arrangement came into force in October 2019. The very next day, the HKIAC issued the letter of acceptance in support of the party’s application, which was subsequently submitted to the Shanghai Maritime Court via the HKIAC on 8 October 2019. A bond issued by the applicant’s insurance company was accepted by the Court. The whole process took 8 days.
Dickson Holding Enterprise Company Limited v Dickson Valora Group (Holdings) Company Limited
A Hong Kong company was seeking an asset preservation order against the respondent, another Hong Kong company. The application was made to the Intermediate People’s Court of Lianyungang City, Jiangsu Province. The applicant had commenced arbitration already at the time of the application, as in the Elim Spring Maritime case and therefore the HKIAC forwarded the application to the PRC court. A guarantee was then issued by a Chinese insurance company, and the Court upheld the application within only 2 days.
The above two cases not only demonstrate the efficiency of the HKIAC in assisting with applications, but also the efficiency of the PRC courts in entertaining applications under the Arrangement. The average processing time by the PRC courts appears to be 1-2 days upon receipt of applications. It is noteworthy that PRC courts accept that applicants may not be required to provide counter security on their own, but may ask Chinese insurance companies to do so on their behalf. The ease of providing security is an added bonus arising from the implementation of the Arrangement.
Points to take away
Under the Arrangement, Hong Kong becomes the only jurisdiction outside the PRC, where parties, particularly those entering into contracts concerning Chinese parties or assets, can benefit from a formal mechanism entitling them to apply directly to PRC courts for interim measures. This has provided a compelling reason for those parties to consider Hong Kong-seated arbitration and has boosted parties’ confidence in this regard. In order to enjoy the benefits conferred by the Arrangement, it is worth noting that parties must specify that arbitration is to be administered by one of the qualifying institutions listed in the Arrangement under their arbitration clauses when entering into their contract.