Hong Kong – China Arrangement on Interim Measures in Aid of Arbitrations: A Giant Leap Ahead?

On October 1st 2019, the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings (hereinafter referred to as “Arrangement”), entered upon between China’s Supreme People’s Court and the Hong Kong Special Administrative Region (hereinafter referred to as “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 arbitrations seated outside the Mainland 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 the only arbitral seat to provide this benefit to international arbitration 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 in light of its origin, procedure and implications that follow.

Why this Arrangement?

Since the reunification of Hong Kong, its exchanges with the Mainland China have increased manifold. T 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) Realisation 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, mutual recognition and enforcement of civil and commercial judgments. The Arrangement further strengthens mutual cooperation and growth, leading to better realisation of the policy.

(b) Need for Strengthening Interregional Judicial Assistance

Because Mainland China and Hong Kong are jointly engaged in efforts to develop the Guangdong province, the likelihood of interregional legal disputes concerning conflict of laws cannot be ignored. That is, both jurisdictions are operating in the same region, which may lead to inconsistent laws and consequently, legal disputes. The Arrangement seeks to alleviate this by providing for increased interregional judicial assistance.

(c) Providing Support to the Hong Kong International Arbitration Centre

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 the Arrangement

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

Types of Interim Measures provided for in the Arrangement

Article 1 of the Arrangement provides details about 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; preserving of arbitral proceedings; preserving evidence and property can be sought from HKSAR.

Procedure of Interim Measures under the Arrangement

Article 3 of the Arrangement provides that before an arbitral award is made, an eligible party can make an application for interim measures to the Intermediate People’s Court having jurisdiction over the place where the residence of the 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 the interim measure.

Implications

However, the Arrangement can have far-reaching implications, the most immediate and conspicuous of which will be a growth in foreign direct investment in China and the 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 both the regions; with this setup, international companies will be more confident while working with Chinese counterparts due to the 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

introduced by the Chinese government aims to connect China to different parts of the world, including the continents of Europe and Africa, and make it stand tall as a global leader. The project includes the provision of infrastructural aid and heavy investment capital by China and once completed, will boost trade and commerce among the connected regions, leading to more business. As a corollary, legal disputes will be inevitable and, therefore, the creation of such an arrangement will facilitate concentration of arbitrations in Hong Kong, making it a hub of arbitration in Asia. Further, with Hong Kong and China being the major economies, their dominance cannot be easily challenged in Eurasian region. This is due to the Hong Kong’s 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 the applicability of the Arrangement. This clearly implies that parties willing to choose other reputed institutions such as ., 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 the Singapore International Arbitration Centre, which has been investing heavily to become the most favourable choice. Recently, SIAC established the world’s first integrated dispute resolution complex. 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.

The special relationship shared by Hong Kong and Mainland China owing to the One Country, Two Systems Policy has indisputably acted as a catalyst in the formation of this Arrangement. However, what needs to be seen is how other arbitral institutions and nations will respond to this development. Given the competitive environment existing between nations in their attempts to become the most preferred choice, it is highly unlikely that they will enter into similar arrangements. This implies that nations will have to make new and innovative developments providing significant benefits to parties in order to keep pace with those conferred by this Arrangement. These developments may take in the form of greater transparency, electronic case management system, paperless work, cross-institution cooperation and cost efficiency.

For instance, India recently amended its Arbitration & Conciliation Act, 1996 to provide for grading of Arbitral institutions by an Arbitration Council which in turn will help the parties to get their disputes administered by an institution rated by experts. Similarly, Korean Commercial Arbitration Board recently revealed a draft version of its Protocol on Video Conferencing in International Arbitration which would enable parties to conduct arbitration through video conferencing so as to reduce the costs involved otherwise.

Conclusion

The very objective of choosing arbitration is to avoid 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 having implications at both, international and domestic level.. Earlier, international parties were reluctant to work with Chinese counterparts due to uncertainty of their status quo and preservation of assets in case of disputes. However, the Arrangement now provides for interim measures from the Mainland China as to Hong Kong seated arbitrations, a feature which will invariably promote international trade and commerce in the region. The Arrangement is also aligned with the objectives of the One Belt One Road Initiative, which seeks to further China’s role as a global leader.. At the domestic front, owing to the substantial increase in trade exchanges between the two regions, such an arrangement is a welcome step and will play a great role in maintaining cordial relations between parties, thereby promoting economic growth.

The emergence of Hong Kong as the preferred seat of arbitration is likely to be intensified owing to the benefit conferred by the Arrangement, as well as the difficulty involved in the adoption of similar arrangements by other nations. This in turn, is likely to increase competition among the different arbitration seats, ultimately pushing development in the field of arbitration to greater heights.

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