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Interim Measures in Mainland in Aid of HK Arbitration
2020-06-24Jack Law | Xizhen Wang | Chuang Chen

The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland & of the Hong Kong Special Administrative Region (“the Arrangement”) has come into force since October 1st, 2019.  The Arrangement gives parties to a Hong Kong-seated arbitration rights to seek interim measures before Mainland courts and aids subsequent enforcement of an arbitral award.


Based on the provisions of the Arrangement and taking into account the current judicial practice, this article introduces the interim measures that a party to a Hong Kong-seated arbitration may seek from the Mainland courts; its requirements, procedures and other noteworthy precautions; hoping to offer systematic and comprehensive guidelines to parties and lawyers to a Hong Kong-seated arbitration.


I. Different Types and Functions of Interim Measures Ordered by Mainland Courts


Under Article 1 of the Arrangement, interim measures ordered by the Mainland courts include property preservation, evidence preservation, and conduct preservation.  The most significant and common measure among the three is property preservation. This article focuses primarily on the regime of property preservation.


Property preservation usually is ordered by the Mainland courts upon a party’s application when the judgment would be rendered unenforceable or other damages would be caused by the conduct or other reasons of the other party.  The measures include sealing up, seizing and freezing assets, and etc. It is similar to a Mareva injunction under Hong Kong law.


Enforcement of judgments could be difficult in the Mainland. Property preservation thus serves a significant function in judicial practice to guarantee the enforcement. In practice, the enforcement of an award becomes a tough issue when the winning party, having spent years in obtaining the award, subsequently finds that its opponent had transferred its assets in the Mainland to associated companies. Through property preservation, however, courts may order to seal up (e.g., real properties), seize (e.g., facilities and equipment), or freeze (e.g., bank accounts); so that an arbitral award could be effectively enforced. The property preservation can diminish the risk of dissipation of assets and put more pressure on the opponent in achieving settlements.


II. Scope of Application for Interim Measures before Mainland Courts


Article 2 of the Arrangement provides that “arbitral proceedings in Hong Kong” means those (1) seated in Hong Kong (by parties’ agreement or otherwise decided by the arbitral tribunal in accordance with relevant arbitration rules); and (2) administered by an arbitral institution or its permanent offices, which include, at the moment, Hong Kong International Arbitration Centre, China International Economic and Trade Arbitration Commission Hong Kong Arbitration Center, International Court of Arbitration of the International Chamber of Commerce – Asia Office, Hong Kong Maritime Arbitration Group, South China International Arbitration Center (HK), and eBRAM International Online Dispute Resolution Centre.


It is noteworthy that ad hoc arbitrations and investment arbitrations are excluded for the purpose of the Arrangement, as well as arbitrations under arbitral institutions without permanent offices in Hong Kong.


III. Requirements of the Application to Mainland Courts for Interim Measures


(1) The Requirements


Pursuant to the Arrangement and relevant PRC laws, a party applying for interim measures shall submit the following to Mainland courts: (1) the application for interim measure; (2) the arbitration agreement; (3) documents of identity; (4) letter from relevant institution or permanent office certifying its acceptance of the case; (5) particulars of assets; and (6) guarantee.


In practice, the most important materials are the application, the particulars of assets, and the guarantee.


(2) The Application for Property Preservation


In Hong Kong, an applicant for a Mareva injunction must first prove (1) a good arguable case and (2) real risk of dissipation.  The court then may consider the balance of convenience before granting an injunction.

In comparison, the threshold is much lower in applying for property preservation before Mainland courts. There is no need to satisfy the requirements of a Mareva injunction.  In practice, the Mainland courts would not consider the possibility of the applicant’s chances of winning in the case nor would it investigate into whether the other party is dissipating assets. As a result, the chance of Mainland courts granting a property preservation is considerably high. In addition, the content of most applications are similar to each other.  An applicant may consult the standard forms[1] provided by the Supreme Court when drafting an Application for Preservation Measure.


(3) Particulars of Assets


Contrary to the common law system, there is no order for disclosure per se under PRC laws. The applicant for property preservation must provide clear evidence upon which the other parties’ assets could be ascertained.  Mainland Courts would only preserve the assets identified by the applicant.  Identifying the assets for preservation is usually the toughest practical barrier for an applicant. 


In practice, a party normally would engage lawyers to carry out an investigation, and conduct company search or other types of due diligence in order to obtain particulars of assets.


(4) Guarantee Provided by the Applicant


Unlike the practice in Hong Kong, an applicant’s undertaking of compensating the other opposing party’s losses is not sufficient before Mainland courts.  In practice, the applicant for property preservation are usually required to provide guarantees in the following ways: (1) assets security by the applicant or a third party; (2) third party guarantee; (3) letters of guarantee issued by financial institutions; or (4) letter of indemnification provided by insurance companies.


Applicants usually follow PRC lawyer’s advice and use a letter of guarantee or indemnification by a financial institution or an insurance company so that the financial burden upon the applicant itself could be relieved. 


IV. Application Procedures


(1) When to Apply


Article 3 of the Arrangement requires an application be submitted “before the arbitral award is made.” It means that a party may file an application to Mainland courts before the commencement of an arbitration or during the arbitration proceedings. However, no application can be made once an arbitral award is issued.


Currently, these is no provision allowing a party to apply for preservation measures after the arbitral award is rendered.  Therefore, it is advisable for parties to a Hong Kong-seated arbitration to apply for preservation measures before an arbitral award is issued.  It is also recommended because the recognition and enforcement of a Hong Kong award may be time-consuming in the Mainland, while the losing party might have opportunities to transfer assets, which can further obstruct the actual enforcement. Applying for and utilizing the interim measures thus can offer significant advantages to the winning party in the subsequent enforcement.


(2) How to Apply


An application for interim measures should be submitted to the relevant Mainland courts directly if it is made prior to the commencement of an arbitration. Upon the interim measure being taken, it is required the letter of acceptance be submitted to the court within 30 days by the arbitral institution. If an application is made during the arbitral proceedings, the applicant should submit it to the arbitral institution, and the latter will pass on the application together with its letter of acceptance to relevant Mainland courts.


In practice, the Mainland courts would accept that the party submits the application, together with the letter issued by the arbitral institution, directly to the court. The courts would then verify the authenticity of such letter via the contact details of institutions provided by the Department of Justice of Hong Kong.

It is worth noting that, if, upon receiving application, the Hong Kong International Arbitration Centre decides to issue a letter of acceptance, it will communicate copies of such letter to other parties to the arbitration only at the request of the party submitting the application.


It is advised that parties applying for preservation measures to instruct lawyers to file the application directly to the Mainland courts so as to save time for transmission and to reduce the risk of assets dissipation.


(3) Jurisdiction


Article 3 of the Arrangement provides that the intermediate People’s Court of the place of residence of the party against whom the application is made or the place where the property or evidence is situated has jurisdiction in granting interim measures.


An applicant is free to choose to apply to the court of the place of residence or the court where the property is situated. But the application can be made only to one court.  In practice, an applicant usually seeks assistance from experienced lawyers in choosing a proper court to prevent local protectionism and smooth the procedure.


(4) Hearing, Time and Costs


In an application for a Mareva injunction in Hong Kong, the court will conduct an oral hearing, and the opposing party has a chance to object. Even in the case of emergency, the court will have an ex parte hearing to scrutinise the case of the applicant. To the contrary, Mainland courts in general do not hold hearings to consider applications for property preservation and only review written applications submitted by applicants. Hence, it is more likely that Mainland courts would grant applications for property preservation.


For applications submitted before the commencement of arbitration, Mainland courts are required to make their decisions within 48 hours upon receiving applications. For applications submitted during arbitral proceedings, the time period is 5 days upon receiving applications. In cases where guarantees are required, courts must decide within 5 days after guarantees are provided. The preservation measures shall be taken within 5 days upon courts granting orders.


Costs of the court in granting interim measures are relatively low, which are charged based on the amount of assets involved.  In any case, the cost shall not be more than RMB 5,000.


V. Summary


Overall, with the Arrangement coming into force, parties to a Hong Kong-seated arbitration now are able to apply for property preservation in the Mainland, which highlights prominently the advantages of Hong Kong-seated arbitrations. It is advantageous for parties to make use of such more likely granted and costs effective property preservation measure in the Mainland courts. Since the legal regimes in the Mainland are noticeably different from those in Hong Kong, especially regarding assets disclosure and guarantee requirements, parties to Hong Kong-seated arbitrations and their lawyers should make themselves familiar with the Arrangements and seek necessary assistance from Mainland lawyers in order to obtain fully the protections and benefits offered by the Arrangement.


Lastly, we are of opinion that there are several parts of the Arrangement needed to be revised and improved.


First, once the final award is issued, a party cannot apply for interim measures until the award is recognized by a Mainland court. According to the Arrangement, if the parties do not apply for interim measures before the award is issued, the winning party has no way to preserve property before the award is recognized, but the opposing party is very likely to transfer assets to avoid the enforcement of the award. Therefore, we suggest that the time for filing an application should be extended to the recognition period, i.e., if the award is issued after the Arrangement takes effect (October 1, 2019), the parties should be entitled to apply for interim measures in the Mainland courts.


Second, Mainland courts generally do not conduct substantive scrutiny of the application for property preservation, and thus the opposing party has no chance to object. As a result, property preservation may be abused and may lead to unfair consequences for the opposing party. Compared with the litigation fees charged by the Mainland courts, Hong Kong-seated arbitrations only require a relatively inexpensive advance payment. A claimant may commence an arbitration in Hong Kong for the sole purpose of forcing a respondent to make concession. We believe that after the property preservation is granted by Mainland courts, the opposing party should be allowed to apply for a inter parte hearing within a certain period (for example, within 15 days) to object property preservation. The courts should decide whether the preservation should be kept or not by conducting an oral hearing and examining the evidence. Besides, Mainland courts should adopt the test used in Mareva injunction and balance the interests of an applicant and its opponent in deciding whether property preservation should be granted.  


We believe that the Arrangement will be refined and improved through judicial practice, and the connections between Mainland China’s and Hong Kong’s procedures will be continuously strengthened to achieve closer judicial assistance.