Since October 2019, parties to Hong Kong arbitration have had the benefit of a new mechanism allowing them to obtain interim relief in Mainland China. This “Arrangement” is, in turn, exclusive to Hong Kong, and no equivalent mechanism exists in respect of other jurisdictions. In this article, the authors set out five points to note for parties seeking to rely on the Arrangement.
1. WHY INTERIM RELIEF?
Interim relief offers a powerful tool to preserve the status quo, pending final resolution of the dispute. It might for instance involve freezing (or preserving) a counterparty’s PRC-based assets, ensuring that a successful award may be enforced. A successful interim application offers a powerful driver to settlement, and interim relief can be an important factor in a party’s dispute strategy.
2. WHAT IS REQUIRED?
To benefit from the arrangement, parties to commercial contracts should agree at the outset arbitration clauses which specifically identify Hong Kong as the seat of arbitration, and name as institution administering the proceedings one of those institutions recognised under the Arrangement (Arrangement, Article 2).
For the application for interim relief in the PRC, parties may apply to the courts at either the PRC-based counterparty’s place of residence or the place where the property or evidence is situated (Arrangement, Article 3). In exercising this choice, parties may prefer courts in larger or more developed cities. These will be more likely to have experience implementing the Arrangement, and experience in international arbitration generally.
PRC law governs the specific requirements for an application. Parties should note that PRC courts are typically reluctant to order relief extending beyond preservation measures against assets or property. Of 37 applications for PRC interim relief monitored by the Hong Kong International Arbitration Centre, all but one were ‘preservatory’ in nature. Only one of the 37 was for ‘preservation by conduct’, akin to injunctive relief ordering a party to take positive action or refrain from doing so.
3. WHAT IS THE PROCESS?
An application under the Arrangement typically involves three stages. First, the party will commence arbitration in Hong Kong. Second, it will apply to the administering institution for a letter of acceptance. Third, it will make the interim relief application to the PRC court.
Different PRC courts may impose different application formalities. Some may require the applicant to submit the letter of acceptance itself, together with supporting documents. Some may require these to be provided directly by sealed letter from the Hong Kong-based arbitral institution.
An applicant for interim relief will typically have to provide security. This could be by way of payment into a secured bank account maintained by the court. Alternatively, it could be through an insurance policy securing the application for relief. PRC banks offering such policies will charge fees varying based on factors such as the nature of the dispute and the amount to be secured. By way of indication, an RMB500 million claim may require a premium of around RMB300,000.
4. HOW LONG DOES IT TAKE?
There is, as yet, no mandatory time limit for courts to render interim relief. Practically speaking this can be a determinative strategic consideration, particularly in ‘preservation by conduct’ applications. In these cases the time required for the court to consider this application may mean that the status quo has already changed by the time the relief can be awarded.
Different courts may apply different levels of scrutiny to an application. Some will review in detail, while some will treat the application as more of a formality. Consequently, the time for processing the application will vary on a case-by-case basis. Relief may be granted any time from two weeks to several months after the institution’s issuance of the letter of acceptance. The workload of the court in question will also be a factor, as will the extent to which the applicant has thoroughly prepared its materials and anticipated the questions the court may have on the substance of the dispute.
5. WHAT BEST PRACTICES CAN BE ADOPTED?
Perhaps most importantly, counsel should make early enquiries with the relevant PRC courts to assess their familiarity with the Arrangement and any specific requirement they may have for submitting the application for interim relief. This will in turn enable counsel to select the correct forum, where the application will be swiftly addressed.
Counsel should take a holistic approach to preparation of the notice of arbitration and the application for interim relief. This will include preparing the documents concurrently, and bearing in mind the inter-relationship between the different phases. Consideration should be given to which stages of the process will be slowest to progress. For instance, all else equal, applications for security insurance should be made as early as possible given the time required for this part of the process.
Applying a holistic approach may in turn assist in preempting the court’s enquiries and save time for processing the application: To avoid or minimize the court’ scrutiny of the facts of the case, it may be advisable to prepare a longer-form notice of arbitration covering all necessary background information. Otherwise the court may extract these details through extended enquiries.
Having all documents prepared before making the necessary application in order to save time for the court’s processing of the same will also assist in minimizing the risk of tipping off the other side of the application and any risk for it to dissipate assets.
Applications for interim relief are by definition urgent, given their purpose is to prevent the other party from changing the status quo, by for instance transferring assets or destroying evidence. Parties that are well-prepared and properly-advised, may not only enhance the prospects of success in bringing an application under the Arrangement, but also reduce considerably the time needed to obtain relief.