Applications for Interim Measures in Mainland China: Advantages of Arbitrating in Hong Kong

Before October 1, 2019, parties to any arbitration seated outside Mainland China could not apply to Mainland China courts for interim measures. Exploiting this vulnerability, recalcitrant parties may have attempted to frustrate the award by simply hiding, dissipating, or destroying significant assets and incriminating evidence within Mainland China. This defeats the purpose of an efficient and effective resolution of commercial disputes by way of international arbitration.

This vulnerability was eventually addressed in favor of Hong Kong-seated arbitrations. 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 (the “Arrangement”) came into effect on October 1, 2019. It allows, among other things, parties to administered arbitrations seated in Hong Kong to seek preliminary and interim relief before the Mainland China courts. This makes Hong Kong the only seat of arbitration where arbitrating parties can seek such relief before the Mainland China courts.[1] The Hong Kong International Arbitration Centre recently published a few statistics under, and frequently asked questions relating to, the Arrangement. In the following, we briefly revisit the provisions of the Arrangement and review the implementation of the Arrangement in light of these statistics. We also discuss certain practical remarks.

The Arrangement

The Arrangement gives rise to two mechanisms. On the one hand, parties to arbitrations which are seated in Hong Kong and administered by a recognized arbitral institution can apply to the Mainland China courts for interim measures before the arbitral awards are made (“Mainland China Assistance”).[2] On the other hand, parties to arbitrations administered by a Mainland arbitral institution can apply to the Hong Kong Court of First Instance (“CFI”) for interim measures before the arbitral awards are made (“Hong Kong Assistance”).[3] We set out these two mechanisms below:

As of July 5, 2021,[15] the HKIAC saw 47 applications for Mainland China interim measures in aid of Hong Kong-seated HKIAC arbitrations. Out of these, 44 were made for asset preservation, two for evidence preservation, and one for conduct preservation. HKIAC was aware of 30 decisions issued by the Mainland China courts pursuant to the Arrangement. Out of these, 28 granted the applications for asset preservation. The total value of assets preserved amounted to RMB10.8 billion (approximately USD1.7 billion). On average, it only took the Mainland China courts 19 days from receiving an interim measure application to making a decision.

Practical Remarks

The Arrangement has the force of supporting cross-border economic developments involving Mainland China and Hong Kong. Specifically, the Arrangement made Hong Kong an even more attractive jurisdiction as an arbitration seat. In order to fully embrace the protections made available under the Arrangement, arbitrating parties are encouraged to proactively discern any attempt of the opposing parties to dispose of or dissipate their assets or evidence. Arbitrating parties are encouraged to do so even before arbitration is contemplated or threatened. In this regard, our investigative attitude and global outreach have fit squarely with clients’ and in-house teams’ interests in both applying for interim measures and defending such applications.

To secure interim measures expeditiously, arbitrating parties are encouraged to accurately identify the subject matters (e.g., assets or evidence to be preserved) of the applications. In addition, while the provision of security is optional[16] in embarking upon the Mainland China Assistance, the requesting party must provide, in the application papers, information about the property in Mainland China to be used as security or certification of financial standing.[17] Likewise, for the Hong Kong Assistance, the requesting party must include his/her/its undertaking for the CFI’s consideration,[18] therefore, good and sufficient security should be provided.

The following practical remarks should also form part of arbitrating parties’ consideration:

1. Mainland China Assistance

The Mainland China courts demonstrated their willingness to provide Hong Kong-seated institutional arbitrations with all necessary assistance to protect commercial parties’ rights and interests and preserve the integrity of arbitral proceedings.[19] The figures above also align with our experience that asset preservation is generally permitted in Mainland China. We expect and welcome an even stronger incentive for commercial parties to agree in their arbitration agreements to refer disputes to institutional arbitration seated in Hong Kong. We also anticipate a higher demand for conduct preservation in Mainland China, as conduct preservation is more powerful than asset and evidence preservations in terms of freezing the status quo.

If the place of residence of the respondent or the place where the assets, evidence, or conduct to be preserved falls within the jurisdiction of different Mainland China courts, the requesting party can only make one application with one Mainland China court.[20] In this regard, we suggest opting for the court (a) which is most sophisticated in supporting international arbitrations, (b) whose jurisdiction is most closely connected with the assets, evidence, or conduct to be preserved, and (c) where the arbitral award on the merits of the claims is to be enforced. As of July 5, 2021, 23 Mainland China courts handled applications made under the Arrangement. These include applications from Beijing, Shanghai, and Shenzhen.[21]

While we await greater certainty in the application of the substantive standards under the PRC Civil Procedure Law, arbitrating parties applying to the Mainland China courts for interim measures should always provide security. The Mainland China courts have been seen to treat the provision of security as a key factor in considering whether to order interim measures.

Finally, in light of the global pandemic, as well as the continued efforts on improving efficiency and reducing costs, the Mainland China courts have been developing technology to process certain matters online, which includes an online preservation application system.[22]

2. Hong Kong Assistance

In principle, arbitrating parties should be treated with equality and given a reasonable opportunity to be heard. Uniquely, however, the Arbitration Ordinance adopts most provisions in the UNCITRAL Model Law on International Commercial Arbitration, but not article 17I of it.[23] This means that, in deciding an application for interim measures, arbitrating parties may not be given the opportunity to present their cases.[24] An effect of carving out of article 17I is that arbitrating parties can pursue court-ordered interim measures ex parte. An ex parte application allows the requesting party to seek interim measures in the absence of the opposing parties’ knowledge. This enables the interim measures to be executed most effectively.

When making an application, the requesting parties should not, however, forget about explaining any facts that may lead the CFI not to grant the interim measures being sought or not to grant such interim measures ex parte.[25] The ex parte nature of an interim measure application requires the requesting party to be open and frank to the CFI. The strong and wide power of the CFI to grant interim measures, albeit discretionary, also warrants open and frank disclosure. It should be noted that the CFI can even order interim measures against an appropriate third party,[26] although the threshold is understandably high.

Concluding Remarks

The fast-changing nature of the commercial world fuels the pressing needs for preliminary and interim measures. It is of paramount importance that commercial parties safeguard their interests by pre-planning and strategizing with their legal advisers well in advance of arbitration. Obvious as it may be, the sense of urgency maximizes strategic options in the ensuing arbitration as much as it maximizes the likelihood of successfully enforcing the resulting arbitral awards.