2 April 2019 marked an important milestone for the arbitration regime in Hong Kong – on this day the Government of the Hong Kong Special Administrative Region and the Supreme People’s Court of the People’s Republic of China have signed 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 (the “Arrangement”). The Arrangement was signed in Hong Kong and will come into effect on a date to be announced by both signing sides.
Under the Arrangement, parties to arbitral proceedings administered by arbitral institutions set up or established in Hong Kong will be eligible for applying to the Mainland courts (ie Intermediary People’s Court) for interim measures. Such interim measures include preservation of assets, evidence and conduct. Reciprocally, any party to arbitral proceedings in Mainland China may also apply to the Hong Kong courts for interim measures. The interim measures that the Hong Kong courts can grant are more diversified – apart from measures to preserve assets, evidence and conduct, parties may also apply for injunctions and other measures to (a) maintain or restore the status quo pending determination of the disputes and; (b) take actions that would prevent, or refrain the other parties from taking actions that are likely to cause, current or imminent harm or prejudice to the arbitral process.
Pursuant to the Arrangement, the Applicant is required to submit the interim relief application to the relevant arbitration institutions in Hong Kong, which the institutions would then forward the application to the competent Intermediary People’s Court. It is also possible to apply for pre-arbitration interim measures in Mainland China via the same foregoing procedures under the Arrangement. The Intermediary People’s Court would however need to receive proof of the institution’s acceptance of the arbitration within 30 days after the Mainland court grants the interim measures.
It should be highlighted that Hong Kong is the first and only jurisdiction outside Mainland China where the Mainland courts can grant interim measures in aid of the arbitral proceedings. As emphasised by Mr Wanming Yang, Vice-President of the Supreme People’s Court, the Arrangement is an unprecedented document which the Mainland China has signed with another jurisdiction in respect of interim measures in arbitration. It reflects the closer regional judicial assistance under the “One Country, Two Systems” principle, and judicial wisdom in the implementation of the principle.
Mutual Judicial Assistance Between Mainland China and Hong Kong
Before the Arrangement, Mainland China and Hong Kong have entered into various arrangements for mutual judicial assistance regarding service of judicial documents, taking of evidence, recognition and enforcement of civil and commercial judgments, and enforcement of arbitral awards. These arrangements play significant part in supporting Hong Kong as a reputable international legal and dispute resolution services hub in the region – being one of the important objectives under the National 13th Five-Year Plan and the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (the “Outline for GBA”) . As Ms Teresa Cheng SC, Secretary for Justice of Hong Kong remarked, the Arrangement provides a clear and effective legal mechanism for parties to arbitral proceedings in Hong Kong to apply to the Mainland courts for interim measures. It does not only strengthens the competitiveness of the international arbitration service in Hong Kong, but also signifies the Supreme People’s Court long-standing support for Hong Kong in its development as a leading international arbitration centre in the Asia-Pacific Region under the “One Country, Two Systems” framework.
Specifically for the arbitration regime, one rarely encounters much difficulty in enforcing a Hong Kong seated arbitral award in the Mainland courts under the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region. In particular, a Hong Kong arbitral award can be enforced dispensing with the need to have the award recognised beforehand (in contrast to one seeking to enforce a foreign arbitral award in Mainland China under the New York Convention). However, this only applied if the award was considered to be “final”. The Mainland courts would not enforce an award for interim measures since such award is not seen as “final”. The Mainland courts would not grant interim measures in aid of a foreign arbitration and Hong Kong was not an exception. This historically was a pulling factor for some parties to business transactions with connection to Mainland China to choose to arbitrate in Mainland China so as to avail themselves of interim measures from the Mainland courts.
Maritime arbitration, however, distinguished itself from other arbitral proceedings, regardless of institutional or ad hoc arbitrations. Before the two jurisdictions have the Arrangement in place, the Mainland courts have allowed parties to a foreign maritime arbitral proceeding to apply for interim measures under the Chinese Maritime Special Procedure Law. There is, however, limitation – the interim measures are limited to pre-arbitration conservatory measures that serve to preserve assets including vessel, cargo, bunker and naval materials. The measures cannot preserve assets which are outside the foregoing categories of assets.
The Arrangement is consistent with the direction as laid out in the National 13th Five-Year Plan, which clearly supported Hong Kong’s development as an international legal and dispute resolution services centre in the Asia-Pacific Region. Further, the introduction of the Arrangement is a timely measure to support the construction of the Greater Bay Area – to materialise the objective in Section 2, Chapter 3 of the Outline for GBA that Hong Kong, as one of the core cities, to establish itself as the centre for international legal and dispute resolution services in the Asia-Pacific region.
Hong Kong is the only common law jurisdiction in the Greater Bay Area and China. Its legal system has long been highly regarded. As Sir Nicolas Hamblen, Lord Justice of England and Wales, said in Shangang South-Asia (Hong Kong) Trading Co Ltd v Daewoo Logistics: “Whilst Hong Kong is no doubt geographically convenient, it is also a well-known and respected arbitration forum with a reputation for neutrality, not least because of its supervising courts.”
Naturally, under the blueprint of the Greater Bay Area, Hong Kong is being positioned as the dispute resolution and legal affairs centre of the region with the mission to provide reliable legal services to local and foreign companies for the Belt and Road Initiative.
Under the Belt and Road Initiative, an increase in cross-border commercial activities involving Chinese enterprises and foreign enterprises is expected, which will lead to a surge of potential cross-border disputes related to cross-border investments and international trade, and an increase in demand for efficient and reliable dispute resolution services to resolve these disputes.
From a practical point of view, in a transaction where one party is a Chinese enterprise and the other is an overseas enterprise, the overseas enterprise would have tendency to seek overseas arbitration institutions for settlement of any potential contract dispute, out of the concerns that overseas enterprises are generally unfamiliar with the Chinese legal system and arbitration institutions and hence they may not feel comfortable with resolving their disputes in Mainland China. However, on the other hand, for Chinese enterprises, the uncertainty and expensive costs of overseas dispute resolution are equally alarming. Under this circumstance, Hong Kong is undoubtedly an ideal arbitration location which is acceptable to both party: to Mainland parties, they have no language difficulty in communicating with lawyers in Hong Kong, and Hong Kong’s proximity to the Mainland means that Mainland parties do not have to travel far to attend hearings; foreign businessmen in general find Hong Kong an appealing place for dispute resolution due to some of its obvious strengths (to name a few): a sound and reliable legal system, a clean government with minimal intervention in commercial activities, a wealth of English-speaking legal practitioners and internationally renowned arbitrators specialising in litigation and arbitration services, its status as a world centre of expertise in commerce, finance, shipping and construction, with an enormous pool of experienced professionals, and Hong Kong arbitral awards are enforceable in the Mainland and in all countries that are members of the New York Convention. The Arrangement further strengthens the advantage of Hong Kong in this aspect since the arbitration regime in Hong Kong now can provide more comprehensive relief and protection to arbitration parties in the entire proceedings.
The Arrangement illustrated the status of Hong Kong as the dispute resolution centre in the Asia Pacific Region and its potential under the Greater Bay Initiatives. On one hand, the Arrangement enhances the dispute resolution service provided by Hong Kong in arbitration involving Chinese parties, making Hong Kong a more attractive arbitration location for international trade; on the other hand, the presence of a popular and reputable dispute resolution centre facilitates the cross-border commercial activities for the Belt and Road Initiative, creating a win-win situation for both Hong Kong and the region.
Potential Limitations & Suggestions
Despite the breakthrough brought by the Arrangement, it still has several limitations. As the first potential limitation, some may have the concern that the implementation of the Arrangement may deter some Mainland enterprises from choosing Hong Kong as the designated location in the arbitration agreement since that would essentially expose them under the risk of being subject to interim measure in future arbitration. However, this concern is simply misplaced. As Mainland China is now the world’s second largest economy, foreign companies which regularly trade with Mainland companies also likely have substantial assets and/or investments in Mainland China. Therefore, Mainland enterprises would equally benefit from the Arrangement by choosing Hong Kong as the location of arbitration for their cross-border transactions in terms of obtaining interim relief from the Mainland courts.
On the other hand, arbitration administered by the Chinese arbitration institution, such as China International Economic and Trade Arbitration Commission, has always been preferred by Chinese companies. Under such local institutional arbitration, these Chinese parties are equally subject to possible interim measure in arbitration. As such, possible interim measure does not play a role of dominant weight in the Chinese parties’ consideration in choosing arbitration location, ie factors such as ease in communication, cultural familiarity and fairness likely play a much more important role in their decision-making process. There is no reason suggesting why it would be different when it comes to Hong Kong arbitration and the Arrangement.
The second limitation relates to the type of arbitral proceedings that is recognised under the Arrangement. The laws of Mainland China only recognise institutional arbitration and the Arrangement conforms to this principle. It is believed that the Arrangement will be applicable to arbitrations administered by the Hong Kong International Arbitration Centre, International Chamber of Commerce’s Hong Kong Secretariat of the Court, China International Economic and Trade Arbitration Commission Hong Kong Arbitration Centre and the Hong Kong office of the Permanent Court of Arbitration (list of the recognised institutions / offices to be confirmed).
As opposed to the established institutional arbitration structure, ad hoc arbitration is still a foreign concept to the Chinese legal system. It is regretted that parties to an ad hoc arbitration would not benefit from the Arrangement. One example is a party to a maritime arbitration. Being an international centre of the high-end maritime service industry, Hong Kong has been a commonly chosen location for maritime arbitration. Old habits die hard, most maritime arbitrations, including those take place in Hong Kong, are in the form of ad hoc arbitration and being left out from the relief and protection brought by the Arrangement. Given that the development of the maritime legal services industry, including dispute resolution, is highly valued by the Hong Kong Government, the Authors hope that the Arrangement can get aligned with this policy in the near future to extend its scope to ad hoc arbitration, covering most maritime arbitrations. Perhaps as the next step a pilot scheme can be implemented in the Greater Bay Area to test the feasibility of the foregoing expansion of scope, ie to allow Mainland courts in the Greater Bay Area to grant interim measures in aid of an ad hoc arbitration in Hong Kong, to further deepen the collaboration between the two jurisdictions. The pilot scheme will also be in line with one of the basic principles of developing the Greater Bay Area as per the Outline for GBA, ie to implement the innovation-driven development strategy, to comprehensively deepen reform, and to encourage new breakthroughs in reform in key areas and core fields.
Third, under the Arrangement, the arbitration parties can choose to go to only one of the Intermediate People’s Courts either in the place of a party’s residence or in the place where the property or evidence sought to be frozen is located to make an application for interim relief. While this “one court” provision can avoid waste of legal costs and judiciary resources caused by duplicate applications, it creates difficulties when the location of the Respondent’s assets is different from its residence, or when the Respondent’s assets are scattered in different cities. According to the Authors’ actual experience of Chinese judicial practice, courts generally are reluctant to grant interim relief against assets outside their own jurisdiction. Therefore, unless Chinese courts adopt a different approach under the Arrangement, the effectiveness of the Arrangement in reality may be undermined. From a practical point of view, an applicant for an interim relief should consider carefully which Mainland court to go to for gaining a strategic and logistical advantage.
The Arrangement is a real shot in the arm for arbitration practitioners in Hong Kong and no doubt further strengthens Hong Kong’s capability to provide world-class dispute resolution services in the region. It is however worth noting that the law of the interim relief application under the Arrangement is Mainland Chinese law. As such, one should observe the relevant Mainland Chinese law and regulations carefully and ensure compliance with the same. For example, Mainland Courts are in general very strict about the form of documents submitted, as such parties should expect to incur costs and time on arranging certification and accurate Chinese translations of the documents to be submitted to the Mainland courts. Parties should also ensure that all the documents required by the Mainland courts are adequately provided. To highlight, Article 4(5) of the Arrangement (ie “any other materials required by the People’s Court”) serves as a “catch-all” provision and adds ambiguity to the requirement. It is therefore prudent for parties to obtain legal advice from the Mainland legal professionals when making the application.
The Arrangement is a landmark policy and will reinforce Hong Kong’s position as a “go-to” offshore seat of arbitration in Mainland-related transactions. However, one would expect to encounter complicated issues when implementing this ground-breaking arrangement, and we expect there would be more directions and guidance from the courts of both jurisdictions to provide clarity to parties and practitioners in respect of implementing the Arrangement.