New interim measure enforcement arrangement between Hong Kong and Mainland China gives Hong Kong arbitrations an enforcement advantage in the Mainland

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Contributors: Paul Starr, Xu Xianhong, Suraj Sajnani

On 2 April 2019, the Supreme People's Court of the People's Republic of China and the Government of the Hong Kong Special Administrative Region signed a groundbreaking Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings ("Arrangement").  The gist of the Arrangement is that parties to Hong Kong arbitrations can apply directly to an Intermediate People's Court in the Mainland for property, asset or conduct preservation orders, and parties to Mainland arbitrations can apply directly to the Hong Kong High Court for injunctions or other interim measures.  

While the Hong Kong Arbitration Ordinance ("Arbitration Ordinance") already has a mechanism under its section 45 whereby parties to foreign ongoing or impending arbitral proceedings can apply for interim measures, the Arrangement is particularly significant for Hong Kong as it makes Hong Kong the only jurisdiction in respect of which parties to arbitral proceedings have a specific mechanism through which they can apply directly to Mainland courts for interim measures. The Arrangement is a game changer for parties seeking to ultimately enforce arbitration awards in the Mainland and there are concerns regarding a risk of dissipation of assets between commencement and conclusion of arbitration proceedings.

The Arrangement is set to facilitate and increase the number of cross border applications for urgent preservation measures. Here are our top-tips for dealing with applications pursuant to the Arrangement:

1. Ensure that the arbitral proceedings are of a type that are recognized under the Arrangement. For Hong Kong, this means arbitral institutions established in HKSAR or having their headquarters in HKSAR with principal place of management in HKSAR, dispute resolution institutions or permanent offices set up in the HKSAR by international intergovernmental organisations of which the PRC is a member, or other dispute resolution institutions or permanent offices set up in the HKSAR by arbitral institutions and which satisfy HKSAR Government prescribed criteria. A list of such institutions / offices is yet to be confirmed by both sides.

For the Mainland, this means a "Mainland arbitral institution". In accordance with the laws of the Mainland, in particular, the Arbitration Law, a "Mainland arbitral institution" means one that is "registered with the administrative department of justice of the relevant province, autonomous region or municipality directly under the Central Government". Nonetheless, we anticipate that one is unlikely to fall foul of the Arrangement by sticking to the list of "recognized Mainland arbitral authorities" published pursuant to the Arbitration Ordinance (see link to a gazette list here)

2. Parties can still choose laws other than Hong Kong law as the governing law of the dispute. This may be of particular interest to parties who are not currently seating arbitrations in Hong Kong due to perceptions regarding Hong Kong's relationship with China. For such parties, having their contracts governed by English, Australian or Singaporean law with the arbitration seated in Hong Kong under the rules of a Hong Kong institution, such as the HKIAC, could be a good solution.

3. While it is now accepted that foreign (including Hong Kong) ad-hoc awards are enforceable in China (even though domestic ad-hoc awards are not), disputes referred to ad-hoc arbitration cannot take advantage of the Arrangement;

4. When applying for interim measures in the Mainland, parties can choose to go to the Intermediate People's Court either in the place of a party's residence or in the place where the property or evidence sought to be frozen is located. Parties should consider carefully which of these options provides a strategic and logistical advantage, taking into account the practical steps that would need to be taken and any service / notice requirements that would need to be complied with after an order of the Court has been granted;

5. In both the Mainland and Hong Kong, applicants should be ready to put up security if required to support their application for an interim measure (although in Hong Kong, one may get away with providing an undertaking to pay damages if so awarded, rather than actually depositing funds in court). In Hong Kong, the amount of security needs to reflect the amount of potential damage to the restrained party if it later appears that the interim measure was wrongfully granted. In the Mainland, a similar standard applies and the security needs to be located in the Mainland. In preparing to put up security, parties ought to take into account the time and any logistical difficulties with transferring money cross-border, whether into Mainland to serve as security for Mainland applications, or into Hong Kong from the Mainland to serve as security for Hong Kong applications;

6. Ensure that the interim measure sought is of a type that can be granted under the Arrangement in the requested place. Article 1 of the Arrangement sets out the scope of measures that can be granted in each place;

7. Bear in mind the nuanced differences in the test for grant in each place. In Hong Kong, typically Mareva (freezing) injunctions are only granted when there is a risk of irreparable harm. On the other hand, under the Arrangement, an interim measure may be sought in the Mainland if the applicant may suffer irreparable damage or the enforcement of the arbitral award may become difficult. The latter is broader than the typical test applied in Hong Kong. Another difference is that parties applying in Hong Kong have a duty of full and frank disclosure in ex parte (single party) applications, which means that they have to highlight to the Court the arguments that the respondent may raise;

8. Act with urgency. In both the Mainland and Hong Kong, delay can be fatal to an application for interim relief.

As at the date of writing, the Arrangement is not yet in force, and will come into force on a date to be announced.

The Arrangement adds to the growing repertoire of tools for parties with China-related, Belt and Road and Greater Bay Area disputes to have these resolved in Hong Kong, and also enhances the reach of parties resolving such disputes in the Mainland to assets in Hong Kong.  Another recent tool in this context is the enforcement arrangement signed in January 2019 between the Mainland and Hong Kong broadening the scope of judgments that can be enforced cross border (for which, our client alert is available here).

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