The Mutual Assistance Arrangement for Court-ordered Interim Measures in Arbitration between Mainland
[Abhinav Srivastava is a graduate of National Law University, Delhi and is currently based out of New Delhi. He is interested in the areas of international finance law, mergers and acquisitions, and investment law.]
The Supreme People’s Court of the People’s Republic of China and the Government of the Hong Kong Special Administrative Region came to terms on an mutual assistance arrangement pertaining to the enforcement of court-ordered interim measures that is being termed as a ‘landmark’ for arbitration in the region. Although Hong Kong is a part of the same sovereign country as Mainland China, it has been given the status of a Special Administrative Region endowed with its own legal system and an independent judiciary. The interplay between the two legal systems, especially in terms of Sino-foreign arbitration has always been quite complex and convoluted. This piece will attempt to summarize the key takeaways from the arrangement, looking at the provisions set out in the arrangement, before moving on to understanding how arbitration will be affected in the near-future as this arrangement comes into force. In a move that can be interpreted as the next logical step from the previously concluded Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region, it adds on to the already existing, highly layered cooperation between the dispute resolution systems of the two places. The essence of the arrangement is to enable the dispute resolution systems of the Mainland and the HKSAR to form a symbiotic partnership in issues of property, evidence and conduct preservation (a concept akin to a prohibitory or mandatory injunction in usual parlance). The problem that several parties arbitrating under the jurisdiction were facing was that, unlike judgments in civil and commercial matters (pursuant to the abovementioned arrangement) wherein the courts of PRC and HKSAR could impose mandatory measures regarding recognition and enforcement of judgments, there was no such provision for foreign-seated arbitrations. This meant that in the event that the party could not restrict the other party from dissolving its assets, then this de facto renders any award from a Hong Kong seated arbitration as redundant. To understand the implications of this arrangement, let us consider the pre-arrangement scenario. Historically, the legal framework was such that in circumstances wherein interim measures were required in China, parties had to choose a China-seated arbitration. This was no less than a compulsion, as even when parties to a Sino-foreign arbitration wished to opt for a neutral jurisdiction as the seat of arbitration, they would have to opt for China in the case that either party has assets located in the mainland. The reason for this ‘compulsion’ was the fact that application for interim relief in Mainland China could only be made to the PRC courts [in cases where the arbitrations were seated in China] as the power to grant interim relief was with the courts rather than the tribunals as per Chinese law. In addition, up until the date of this Arrangement, the Courts have had not been accorded any powers expressly which would enable them to provide interim measures for arbitrations seated outside the Mainland. This would be a major hindrance, as parties have routinely expressed their reservations about using both the traditional and alternative dispute resolution forums in China due to widespread allegations of a lack of transparency.
Moving on to the key takeaways from the arrangement, the arrangement itself comprises of 13 articles which lay down the scope of the interim measures, the arbitration proceedings in Hong Kong, procedures regarding application for preservation, and the judicial examination of such applications. Article 1 of the arrangement sets out the ambit of the term ‘interim measure’; and incorporates various types of measures currently available through the courts of the Mainland or Hong Kong. The focus seems to be on the preservation of assets and evidence, along with an effort being made to prevent imminent harm. Earlier, the law only allowed for a Hong Kong-seated arbitration to seek interim measures during the enforcement phase. Due to this, and the amount of time it has taken for parties to complete recognition and enforcement proceedings before a Chinese court, obtaining interim relief has become a burdensome and highly uncertain process for parties to a Sino-foreign arbitration.
Article 2 defines arbitration in Hong Kong and subject to the release of a list of institutions covered by the arrangement, outlines criteria for such determination, requiring for either the establishment or permanent offices of such institutions in HKSAR or those seated in Hong Kong. Article 3 deals with the identification of the competent court, contingent on the territorial jurisdiction and jurisdiction by level. It also establishes a procedural workflow – requiring that the arbitral institution itself shall forward the interim measures application. However, it allows for application by the party before the arbitration proceedings provided that they file a request for initiation of arbitration within 30 days from the date on which application for interim measures was made. However, the practice of the courts has been tilted against the grant of interim relief prior to the proceedings, so it might be an unrealistic option moving forward. Under the formal requirements set out in Article 4, an applicant is required to submit the following documents to the Court while applying for interim measures:
the application for interim measure;
the arbitration agreement;
documents of identity [additional power of attorney in case of foreign companies];
where a party makes an application for interim measure after the relevant institution or permanent office has accepted the arbitration case, the request for arbitration setting out the main claim of the arbitration and the facts and justifications on which the claim is based, together with the relevant evidential materials, as well as a letter from the relevant institution or permanent office certifying its acceptance of the relevant arbitration case; and
any other materials required by the People’s Court of the Mainland.
It invariably also includes articles laying down rules with regard to security and court fees. In terms of security, we can see several Chinese courts becoming increasingly open to accepting security in forms other than cash, such as bank guarantees or real estate assets. Articles 6 and 11 merely restate and add to what is already common knowledge – that parties to arbitration with a seat outside Hong Kong may apply for interim measures before the Hong Kong courts. It clarifies that parties to a mainland arbitration may apply to the High Court of the HKSAR in accordance with this agreement (reiterating the already existing Hong Kong Arbitration Ordinance (Cap 609)).
In a nutshell, parties to a Sino-foreign arbitration who seek to avail the benefits of this agreement must keep a few pointers at the back of their head. First, the seat of arbitration must be Hong Kong. This privilege has not been extended to other autonomous regions within China, such as Macau or Taiwan. This could perhaps be a step towards easing arbitration for Hong Kong-seated scenarios, providing them an edge over other neutral jurisdictions such as England or Singapore which parties seem to prefer. Secondly, it is imperative to select an arbitration administered by one of the recognized institutions set forth in Article 2 of the arrangement. Glancing at the criteria outlined for what would constitute ‘arbitral proceedings in Hong Kong’, it seems plausible to consider three institutions to be definitive additions – whenever the governments decide to publish the list. These would be the Hong Kong International Arbitration Centre, the International Chamber of Commerce and the China International Economic and Trade Arbitration Commission. Third, parties must understand that even at this time, interim measures available will be limited, and also subject to the thresholds and requisites laid down under the Chinese arbitration law.
As with any directive or arrangement seeking to remodel a legal framework, there are a few points that seem to be amiss with the arrangement. As mentioned earlier, it does not extend the applicability of the terms of the arrangement to ad hoc arbitrations, limiting itself to only institutionally-administered arbitrations. This problem seems to only be part of a bigger problem, since the viability of ad hoc arbitrations itself is, at best, murky under the Chinese framework. In fact, until a certain point, there was unanimous approval amongst observers of the Chinese arbitration sphere that arbitration agreements designating ad hoc arbitrations were generally considered to be invalid. Another issue is that, although the first Article includes evidence preservation in the interim measures available to parties, it still suffers from the same problem as it did pre-Arrangement. As with the previously explained problem, the issue seems to run deeper than it seems. The Chinese courts have been very reluctant to grant such measures, largely due to the high threshold set forth by the Chinese Arbitration Law whose Article 46 stipulates that the parties must prove both the existence of the evidence and the imminent danger of being lost or destroyed.
 See The Hong Kong Arbitration Ordinance, Articles 20 and 35-45.
 PRC Arbitration Law of 1994, Article 46.