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Hong Kong - China Arrangement: A Giant Leap Ahead?

November 17, 2019

[Prince Todi is a student at Hidayatullah National Law University, Raipur.]

 

On 1 October 2019, the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings  (Arrangement) entered between China’s Supreme People’s Court and the Hong Kong Special Administrative Region (HKSAR) came into effect. This arrangement is in pursuance of and in accordance with the provisions of Article 95 of the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China.

 

The Arrangement enables the parties to an arbitration seated outside China and administered by eligible arbitral institutions to seek interim measures through an application submitted to the Chinese courts. The Arrangement makes Hong Kong the first and only arbitral seat to provide this benefit to international parties. Further, the Arrangement, being reciprocal in nature, enables parties to China-seated arbitrations to obtain similar benefit from the courts in HKSAR.

 

This post attempts to provide an insight into the Arrangement through an examination of its origin, procedure and implications that follow.

 

Why this Arrangement?

 

Since the reunification of Hong Kong, its exchanges with the mainland have increased manifold. There has been a continuous increase in trade and business exchanges which inevitably has led to an increase in legal disputes. The said arrangement is being seen as an effort towards judicial cooperation and assistance in the field of arbitration for an expedited disposal of such disputes. For a better understanding of the Arrangement, the Supreme People’s Court released a memo detailing the background and implications of the said Arrangement. It provides three principal factors behind the arrangement:

 

(a) Realization of one country, two systems policy

 

Hong Kong, though a part of China, has a government and economic system independent of the mainland. Prior to the Arrangement, the Supreme People’s Court had signed a total of six contractual agreements, all aimed at smoothening the business process in the two regions covering mutual entrustment of judicial documents, evidence, mutual enforcement of arbitral awards, and mutual recognition and enforcement of civil and commercial judgments. The Arrangement further strengthens mutual cooperation and growth, leading to better realization of the policy.

 

(b) Need for strengthening inter-regional judicial assistance

 

In the wake of joint efforts being put in by mainland and Hong Kong for the development of Guangdong province, interregional legal disputes due to conflict of laws is bound to arise. The Arrangement seeks to correct this by providing for increased interregional judicial assistance.

 

(c) Providing support to HKIAC.

 

Mutual aid and cooperation is the foundation of this Arrangement. By supporting Hong Kong’s position as an international arbitration centre, China envisions to capitalise its position as a global economic leader.

 

Applicability of Arrangement

 

The Arrangement shall be applicable only when the arbitration is administered by certain specific institutions. Article 2 of the Arrangement provides that arbitral proceedings in Hong Kong referred to in the Arrangement shall be seated in HKSAR and administered by such institutions headquartered in HKSAR. In pursuance of this, a consolidated list has been released by HKSAR providing for the institutions eligible for this.

 

Types of interim measures

 

Article 1 of the Arrangement provides details of the types of interim measures available from the mainland Chinese courts which include “property preservation, evidence preservation and conduct preservation” measures. It is pertinent to note that the memo provides an explanation to Article 1 and states that these preservations include injunctions and other interim measures to maintain the status quo or rectify the situation before the dispute is decided and take action to prevent it. Conversely, in the case of Mainland seated arbitrations, injunction and other interim measures for the purpose of maintaining the status quo during the pendency of the dispute and preservation of arbitral proceedings, evidence and property can be sought from HKSAR.

 

Procedure for interim measures under arrangement

 

Article 3 of the Arrangement provides that before an arbitral award is made, an eligible party can make an application for interim measure to the Intermediate People’s Court having jurisdiction over the place where the residence of respondent is situated or where the property and evidence is situated. Further, in order to avoid excessive litigation, a party is allowed to make only one application to an Intermediate People’s Court even if there are differences in terms of place of residence and property or evidence. The Arrangement also provides for cases where an arbitral institution is yet to accept the case by requiring a letter from such institutions within a period of 30 days from the date of ordering interim measure.

 

Implications

 

The Arrangement can have far reaching implications; however, the most immediate and conspicuous is the growth in foreign direct investment in China and emergence of Hong Kong as a principal arbitration seat in Asia.

 

Increase in confidence among non-Chinese parties

 

The Arrangement encompasses the principles of mutual assistance and cooperation to the fullest extent and will undoubtedly lead to mutual growth in the regions. With this setup, international companies will be more confident while working with Chinese counterparts due to availability of interim measures in Hong Kong-seated arbitrations. The provision now adds a significant benefit as non-Chinese parties will be able to secure the status quo of their counterparts operating in mainland China.

 

Effect of One Belt One Road Initiative

 

The One Belt One Road Initiative introduced by the Chinese government aims to connect China to different parts of world including the continents of Europe and Africa and make it stand tall as a global leader. The project includes provision of infrastructural aid and heavy investment capital by China and, once completed, will boost trade and commerce among the connected regions (meaning more business). Since legal disputes will be inevitable, creation of such an arrangement will facilitate concentration of arbitrations in Hong Kong making it a hub of arbitration in Asia. Further, Hong Kong and China being the major economies, their dominance cannot be easily challenged in the Eurasian region. This is due to Hong Kong being the freest economy in the world and China’s superiority in lower manufacturing costs.

 

Dominance of Hong Kong

 

Article 2 lays down certain conditions for applicability of the Arrangement. This clearly implies that parties willing to choose other reputed institutions such as LCIA, AAA, VIAC, PCA, etc. to administer their arbitrations will be swayed owing to their inability to capitalise upon such benefits as the arrangement will confer. This in turn may impact party autonomy particularly for the Chinese parties as their decisions will be influenced.

 

Further, the only major counterpart to Hong Kong in Asia is Singapore International Arbitration Centre which has been investing heavily to become the most favourable choice. However, given the benefit conferred upon by the arrangement, parties now have a pragmatic reason for choosing Hong Kong as the preferred seat. This in turn may enable Hong Kong to occupy a dominant position in Asia and around the globe as an international dispute resolution service centre.

 

Complexity in adoption of such arrangement by others

 

The special relationship shared by Hong Kong and mainland China owing to one country, two systems policy has indisputably acted as a catalyst in formation of this Arrangement. However, what needs to be seen is how other arbitral institutions and nations respond to this development. Given the competitive environment existing between nations to become the most preferred choice, it is highly unlikely that they will enter into such arrangements. This implies that nations will have to make new and innovative developments providing significant benefits to parties in order to keep pace with the benefits conferred by the Arrangement.

 

Conclusion

 

The very reason of choosing arbitration is avoiding litigation on account of jurisdictional ambiguities, unfairness and delayed disposal of disputes. Mutual recognition and enforcement of arbitral awards will unfailingly lead to more businesses opting for arbitration.

 

The Arrangement is indeed a remarkable step in the development of arbitration as a favourable choice in dispute resolution in Eurasia. The provision for interim measures from mainland China to Hong Kong-seated arbitrations will invariably promote international trade and commerce in the region. The Arrangement also finds merit in being in consonance with the One Belt One Road Initiative which further enables China to become a global leader.

 

The emergence of Hong Kong as the preferred seat of arbitration is likely to be intensified owing to the benefit conferred and the complexity involved in adoption of such arrangement by other nations. This in turn is likely to increase competition among the different seats ultimately pushing development in the field of arbitration to greater heights.

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