On 2 April 2019, the Supreme People’s Court of the People’s Republic of China and the Department of Justice of the Hong Kong Special Administrative Region, signed the abovementioned reciprocal arrangement, which came into force on 1 October 2019 and has a significant impact for local and international commercial parties by allowing the courts in each jurisdiction to award interim measures in support of arbitrations seated in the other territory. We explore the impact of this arrangement.
On 2 April 2019, the Supreme People’s Court of the People’s Republic of China and the Department of Justice of the Hong Kong Special Administrative Region, signed the abovementioned reciprocal arrangement, which came into force on 1 October 2019 and has a significant impact for local and international commercial parties by allowing the courts in each jurisdiction to award interim measures in support of arbitrations seated in the other territory.
This development, applying only to commercial arbitrations (i.e. excluding investment arbitrations) commenced after 1 October 2019, or commenced before 1 October 2019 but not completed as of this date, makes Hong Kong the only seat outside the PRC to have this power. Prior to this arrangement coming into effect, no interim measures obtained from an emergency arbitrator or arbitral tribunal in foreign seated arbitrations were enforceable in the PRC courts, which instead could only issue interim measures in support of arbitrations seated in the PRC and administered by PRC arbitral institutions. The arrangement also allows parties to a PRC seated arbitration to apply to the Hong Kong courts for interim measures. However, given the rules in Hong Kong already allowed parties to any arbitral proceedings, irrespective of its seat or location, to apply to the Hong Kong courts for interim measures, this element of the arrangement only serves to confirm the previous position.
Applications made under the arrangement can be made before or after the commencement of arbitral proceedings. The interim measures that can be applied for include orders for: (i) property preservation (e.g. freezing orders); (ii) evidence preservation; and (iii) prohibiting harmful or damaging conduct (e.g. preclusion from using a trademark).
This arrangement seeks to improve Hong Kong’s popularity as a seat for transactions that involve Chinese assets, operations, contracts or counterparties, by providing certainty of the ability to apply for interim measures. However, in order to benefit from the arrangement, any arbitration clause should clearly and unambiguously state Hong Kong as the seat of arbitration using one of the six qualifying and approved institutions (the agreed list of which was issued on 26 September 2019 and includes the HKIAC).
Indeed, as of 11 October 2019, the HKIAC announced that it had already received five applications in respect of ongoing HKIAC administered arbitrations, all of which sought ex-parte orders for the preservation of property in Mainland China from the relevant PRC court. The HKIAC subsequently transferred these applications to the relevant court. The Shanghai Maritime Court granted the first of these on 8 October 2019, just one week after the arrangement came into effect.
It should be noted that, alongside the differing scope of interim measures available (for example, PRC courts are more reluctant than their Hong Kong counterparts to order injunctive relief beyond preservation measures against assets or property), the standards and procedures for arbitration between Hong Kong and the PRC also differ (for example, parties seeking interim measures in Hong Kong may apply directly to the court while applications made to PRC courts are usually made via the arbitration institution itself). Announcements made following the arrangement coming into place confirm that both Hong Kong and the PRC will apply their own standards when reviewing applications made in support of arbitrations seated in the other jurisdiction. Encouragingly, both sides have been providing additional cross-border judicial training following the arrangement to ensure this process is managed smoothly and effectively.