On 1 October 2019, 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 force. This is a significant development because interim measures are now available in the PRC for arbitrations seated in Hong Kong.
This development will affect how you draft your dispute resolution clause for contracts between a foreign party and a PRC party. We discuss the implications of the Arrangement to your business and offer you tips on how your business can benefit from the Arrangement.
The Arrangement and its implications
Under the Arrangement, parties to arbitrations that fulfill the following two criteria will be able to apply to the PRC courts for interim measures in aid of their arbitrations:
- the arbitration is seated in Hong Kong; and
- the arbitration is administered by one of the institutions that fulfill the qualifications set under the Arrangement.
The following six institutions have been designated as qualifying institutions:
- 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.
Parties can apply for the following three types of interim measures from the PRC courts, either before the arbitration has commenced or during the course of the arbitration:
- Asset Preservation Order: This interim measure prohibits a counterparty from dealing with specified assets. For example, if you suspect that your counterparty may be dissipating assets to frustrate the enforcement of an arbitral award, an asset preservation order will restrain the disposal of those assets.
- Evidence Preservation Order: This interim measure compels a counterparty to produce evidence that is at risk of being destroyed or which may be difficult to obtain later on. For example, if your counterparty has breached an intellectual property licensing agreement by incorporating your intellectual property into goods to be sold, an evidence preservation order will compel that counterparty to preserve the goods .
- Conduct Preservation Order: A conduct preservation order either prohibits a counterparty from doing any specified acts that may upset the status quo or compels a counterparty to take specified acts to maintain the status quo. For example, if you are the buyer of shares in a company and the seller is threatening to breach the share sale agreement by selling them to a third party but you want the share sale contract to be specifically performed, a conduct preservation order will prohibit the seller from disposing of the shares before the arbitral award is handed down.
As a condition for granting the interim measure, the PRC courts may require the applicant to provide security. But if the interim measure is sought before the arbitration is commenced, the PRC court will discharge the interim measure if the applicant cannot show that a qualifying institution is administering the arbitration within 30 days of the grant of the interim measure.
Applications for interim measures in aid of arbitrations seated in Hong Kong may be made regardless of whether the arbitration commenced before or after the Arrangement came into force.
The Arrangement also provides that parties to PRC seated arbitrations may also apply to the Hong Kong courts for interim measures. However, this does not change the status quo because the Hong Kong Arbitration Ordinance (Cap. 609) already allows parties to an arbitration seated anywhere to seek interim measures from the Hong Kong courts.
Tips on how your business can benefit from the Arrangement
If you are a party to a contract with a PRC company, the Arrangement will benefit you because you can now apply to the PRC courts for interim measures against your PRC counterparty if your arbitration is seated in Hong Kong. The availability of interim measures could prove critical to the preservation of your commercial interest if a dispute occurs. For example, if your counterparty is threatening to breach an important confidentiality obligation in your joint venture agreement between a PRC party and a foreign investor, you may now apply to the PRC court for a conduct preservation order to restrain your PRC counterparty from doing so until the arbitral tribunal has determined your dispute. Previously, interim measures were only available to foreign parties if:
- you have to sue your PRC counterparty in the PRC courts; or
- you agree to have your arbitration seated in the PRC.
These two options are unattractive as it gives your PRC counterparty a “home ground” advantage when the dispute resolution process ought to be perceived as neutral and fair.
To take advantage of the Arrangement, you would need to ensure that your dispute resolution clause:
- provides for disputes arising out of and relating to the contract to be resolved by arbitration;
- the seat of the arbitration be in Hong Kong; and
- the arbitration is to be administered by one of the qualifying institutions.
It is important to stress that this Arrangement will not benefit you if you are involved in an ad hoc arbitration, even if it is seated in Hong Kong. This is why it is important for you to fulfill each of the three requirements above.
The choice of the qualifying institution would depend on the nature of your potential dispute. You may wish to examine the arbitral rules of the qualifying institution to confirm if it can administer the type of disputes which you foresee arising.
In conclusion, this is a welcome development for the Hong Kong arbitration community that is likely to attract more parties to choose Hong Kong as their preferred seat of arbitration for sino-foreign contracts. Coupled with the other advantages which Hong Kong possesses, like the rule of law, independence of the judiciary, a huge talent pool of lawyers and professionals highly specialized in arbitration work, Hong Kong is likely to maintain its status as a leading arbitration centre in the Asia Pacific in the years to come.