1. The Interim Measures Arrangement: Preserving assets, evidence, or conduct in China Mainland
The Interim Measures Arrangement has benefited parties in Hong Kong-seated arbitrations since 1 October 2019. According to the Interim Measures Arrangement, parties can apply to Intermediate People’s Courts through qualified Hong Kong arbitral institutions for interim measures to preserve evidence, assets, or conduct in China Mainland. For detailed analysis of this regime, please see our previous articles: Update on the Exclusive Benefit When Selecting Hong Kong Arbitration: Asset, Evidence and Conduct Preservation in China Mainland. How is it Working? and China Mainland-Hong Kong Interim Measures Arrangement One Year On: Crossing the River by Feeling the Stones.
2024 marks the 5th anniversary of the Interim Measures Arrangement, an opportune time to reflect on its efficacy. Hong Kong International Arbitration Centre (“HKIAC”), an experienced institution in making the relevant applications to China Mainland courts under the Interim Measures Arrangement, published relevant statistics in March 2024. Our observations are as follows:
HKIAC Statistics (2019 to 2023), published by HKIAC on 6 March 2024.
Interim Measures Arrangement – FAQs, II. Implementation of the Arrangement, updated by HKIAC as of 26 September 2024.
Ibid.
Ibid.
Ibid.
HKIAC receives 100th application under PRC-HK Interim Measures Arrangement, published by HKIAC on 13 October 2023.
Interim Measures Arrangement – FAQs, II. Implementation of the Arrangement, updated by HKIAC as of 26 September 2024.
Ibid.
Civil Procedure Law of the People’s Republic of China (Amended in 2023), Article 250.
Limitation Ordinance (Cap.347), s 4(1)(c).
CL v SCG [2019] HKCFI 398; Compendium of Notable Cases relating to the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR, December 2020, page 51.
Compendium of Notable Cases relating to the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR, December 2020, page 16.
G v X [2022] HKCFI 829.
Lin Chien Hsiung v Lin Hsiu Fen [2022] HKCFI 1270.
Speech by Secretary for Justice on “Hong Kong – Mainland China Interim Measures Arrangement: Latest Practice and Development”, published by the Department of Justice of Hong Kong on 30 June 2023.
The 14th Five-Year Plan, chapter XVIII, 274.
Interim measures are important and useful tools for parties in arbitration to protect their rights before the issuance of the final award. One common concern is that a respondent, in fear of a potential award against it, may transfer its assets out of the claimant’s reach before an award is rendered. With interim measures, the claimant is able to preserve the status quo pending further orders from the Tribunal. As cross-border arbitrations climb in numbers, so is the need for cross-border interim measures.
The Interim Measures Arrangement brings ground-breaking changes to the landscape of Hong Kong-seated arbitrations in resolving China Mainland-related disputes. Hong Kong has become one of two jurisdictions (the other being Macau) outside China Mainland where parties enjoy the assistance of China Mainland courts in relation to interim measures. The Interim Measures Arrangement operates in both ways – for Hong Kong parties to seek interim measures in China Mainland and for China Mainland parties to seek the same in Hong Kong.
Applications have surged since 2019, with the number of applications and quantum involved achieving a record high in 2022. According to the latest data updated by HKIAC as of 26 September 2024, parties which are not from China Mainland comprise the majority of the applicants, accounting for approximately 78.3% of the total applications.[2]
Preservation of assets in China Mainland is the major form of interim measures sought by applicants. As shown in Diagram 2, as of 26 September 2024, HKIAC has processed 137 applications, of which 129 were for preservation of assets, 2 for evidence, 4 for conduct and 2 for both assets and conduct. As shown in Diagram 3, as of 26 September 2024, China Mainland courts have issued 96 decisions, of which 91 were granted for preservation of assets upon applicants’ provision of security and 5 were rejected. The total value of assets preserved by the 91 decisions amounted to RMB 21.3 billion.[5]
Under the Interim Measures Arrangement, interim measures can be applied for both before and after the commencement of arbitration:
- Where the application is made before a Hong Kong arbitral institution accepts the arbitration case, a party may submit its application to the relevant China Mainland court (see Article 3 of the Interim Measures Arrangement).
- Where the application is made after the acceptance of the case, the application must be handled by the arbitral institution to the relevant China Mainland court.
Notably, according to the statistics as of 13 October 2023, all applications are made after commencement of the arbitration and through the HKIAC to China Mainland courts.[6] This suggests that parties and their advisors tend to adopt a more prudent approach in terms of application timing. Where an application is made before an arbitral institution accepts the case, this runs the risk of delays and non-acceptance, potentially where there are issues concerning defective arbitration clauses or problematic service of the notice of arbitration. In practice, we also note that different China Mainland courts have specific practices and requirements in respect of these applications, including expressing a preference for parties to submit their application package through the relevant arbitral institutions and requiring parties to provide additional information.
HKIAC also provided statistics on the average processing time: in 70 out of 91 decisions, the average time taken by China Mainland courts to issue a decision was 26 days from the receipt of an application.[7] The median time was 17 days.[8] Although the Interim Measures Arrangement does not specify a timeframe for China Mainland courts to render a decision, the statistics demonstrate that it is generally an efficient process.
2. 1999 Arrangement and Supplemental Arrangement: Enforcing Hong Kong arbitral awards in Hong Kong and China Mainland
At post-award stage, a successful party may wish to enforce the Hong Kong arbitral award against a counterparty which has assets in China Mainland. The 1999 Arrangement and Supplemental Arrangement then come into play.
The 1999 Arrangement lays down the foundational framework for the enforcement of Hong Kong arbitral awards in China Mainland. The Supplemental Arrangement further expands the scope with enhanced judicial support from China Mainland courts. On 19 May 2021, the Supplemental Arrangement was fully implemented in Hong Kong. For detailed analysis, please see our earlier article: Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between China Mainland and Hong Kong.
We highlight three important aspects of the Supplemental Arrangement:
The enforcement of an arbitral award is subject to time limits: 2 years under China Mainland law in China Mainland;[9] 6 years under Hong Kong law in Hong Kong.[10]
Under the 1999 Arrangement, if an award debtor has assets in both China Mainland and Hong Kong, the award creditor must wait for the completion of enforcement in one jurisdiction before applying for enforcement in another. The time limit to enforce in the second jurisdiction may have already expired before the award creditor can apply for enforcement in the second jurisdiction, even if the award creditor failed to recover anything on enforcement in the first jurisdiction.
Prior to the Supplemental Arrangement, CL v SCG is an example where an award creditor failed to enforce an arbitral award due to the expiry of time limits.[11] It concerns enforcement attempts of a Mainland award first in China Mainland and later in Hong Kong. Having failed to recover assets in China Mainland, the award creditor then turned to Hong Kong court for enforcement. The application was refused because the 6-year time limit under Hong Kong law had expired. The Hong Kong court specifically held that the time limit would not be suspended even though the award creditor failed to recover the total amount in China Mainland in the first place.
The time limit issue is now addressed by the Supplemental Arrangement. In cases where assets are situated in both Hong Kong and China Mainland, parties can commence enforcement actions in both jurisdictions simultaneously. During enforcement, courts in Hong Kong and China Mainland will exchange information on the status of enforcement upon request to facilitate timely disposal of the matter and to avoid double recovery.
Although the Interim Measures Arrangement enable parties to preserve assets in China Mainland before and/or during the arbitration, it does not offer any post-award protection before the recognition and enforcement of Hong Kong awards by China Mainland courts. Assets in China Mainland which are potentially subject to future enforcement may be at risk of dissipation after the arbitral award is handed down.
This gap is filled by the Supplemental Arrangement - it expressly empowers China Mainland courts to grant post-award preservation measures upon application by a party. The position is further confirmed in a notable case released by the Supreme People’s Court: Application of Farenco Shipping Pte. Ltd. for Enforcement of Arbitration Awards made in Hong Kong.[12]
In recent cases, the first instance courts in Hong Kong have clarified the operation of the Supplemental Arrangement in respect of double recovery.
According to G v X,[13] in the absence of specific facts which make the issue relevant, the mere fact that an award creditor has applied for enforcement or even obtained orders through execution and enforcement of the arbitral award in China Mainland is not material to Hong Kong courts when considering whether the award should be enforced in Hong Kong.
As further ventilated in G v X, the same rationale applies to the application of post-award preservation orders. A relevant court may impose preservation or mandatory measures for enforcement of arbitral awards and in accordance with the law of the place of enforcement, even though that enforcement action is ongoing in the other jurisdiction of China Mainland or Hong Kong. Under the Supplemental Arrangement, before starting enforcement proceedings in Hong Kong, the award creditor does not have to wait for completion of the enforcement proceedings in China Mainland. An award creditor will only be prevented from seeking payment of any sum which exceeds the full amount due under the arbitral award, i.e double recovery is prohibited as opposed to double protection.
Further, in Lin Chien Hsiung v Lin Hsiu Fen,[14] where an award creditor applies ex parte (i.e without giving notice to the other party) for enforcement of the arbitral award in Hong Kong, the court considered that it was not material that the award creditor had failed to disclose the fact that enforcement was already applied for in China Mainland. This was because since the Supplemental Arrangement came into force, parties are no longer restrained from enforcement of arbitral awards in Hong Kong and China Mainland simultaneously. While non-disclosure was not considered material, the court discharged the award creditor’s ex parte enforcement order, because of the utmost duty to make full and frank disclosure to the court in ex parte applications, and that parties should not mislead the court on any matter. It is noted that the court did exercise its discretion to re-grant the discharged enforcement order on another basis.
Conclusion
The following table summarises how the Interim Measures Arrangement, 1999 Arrangement and the Supplemental Arrangement suit the needs of Hong Kong arbitration users in relation to China Mainland-related disputes:
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Interim Measures Arrangement
|
1999 Arrangement and Supplemental Arrangement
|
Example
uses 2
|
|
|
Purpose
|
Preserve assets, conduct, and evidence in Hong Kong and/or China Mainland in support of arbitration. |
Prevent dissipation of assets in China Mainland and/or Hong Kong. |
|
|
Timing of Application
|
|
After the arbitral award is rendered. |
|
|
Benefits
|
For Hong Kong-seated arbitrations:
For arbitrations administered by China Mainland institutions, Hong Kong courts and specialist arbitration judge are experienced in dealing with interim measures applications of this nature. |
|
|
The Interim Measures Arrangement and the Supplemental Arrangement highlight Hong Kong’s distinctive strengths as a seat of arbitration: powerful procedural tools at the parties’ disposal to facilitate arbitrations with China Mainland-related elements from the beginning to the end, “irrespective of their nationality, domicile or place of business, so long as they choose Hong Kong as the seat of arbitration”.[15] As envisaged under the 14th Five-Year Plan by the State government,[16] the unparalleled strength in resolving China Mainland-related disputes further consolidate Hong Kong’s role as a leading legal and dispute resolution hub in the Asia Pacific region.
