Hong Kong – Mainland interim relief arrangement: full text and more detail

 

Following Tuesday’s announcement of 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 (Arrangement), the Supreme People’s Court of China has released the full official text (in Chinese).  The Hong Kong Government has also provided a courtesy English translation on its website.  We expect that the official English text will be released closer to the time when the Arrangement comes into force.

 

Application process

Readers of this blog may be very familiar with seeking interim orders in the Hong Kong High Court in aid of on-going or prospective arbitrations seated in Mainland China, under section 45 of the Hong Kong Arbitration Ordinance (Cap. 609).

The key distinction of the “mirror image” in Mainland China is that parties to a Hong Kong-seated arbitration do not apply directly to the competent Intermediary People’s Court.  Rather, the applicant should submit the interim relief application to the relevant arbitration institutions in Hong Kong, which would forward the application to the competent Intermediary People’s Court in Mainland China.

It is possible to apply for pre-arbitration interim measures in Mainland China via the Arrangement in the same procedure described above, although the People’s Court must receive proof of the institution’s acceptance of the arbitration within 30 days after the Court grants the interim measures.

 

General requirements

At the risk of stating the obvious, although parties first submit the interim relief application to an approved Hong Kong arbitration institution, the law of the application is Chinese law.  After the Court has accepted the application, the interim relief hearings must be conducted by Mainland-qualified lawyers.

The application shall include:

  • the application for interim measure;
  • the arbitration agreement;
  • identity/incorporation documents for natural persons and legal entities, respectively;
  • the request for arbitration, with exhibited evidence, and proof that the institution has accepted the case (for on-going arbitrations[1]); and
  • any other supporting materials required by the People’s Court.

There are some practical difficulties and uncertainties to bear in mind.  The Arrangement requires “documents of identity” issued outside the Mainland to be certified in accordance with PRC law.  This may require certification by a China-appointed attesting officer (in Hong Kong) or Chinese consulate/embassy notarisation and authentication procedures (overseas).  The Arrangement also requires “accurate Chinese translation” for all documents submitted to the People’s Court.  Parties must factor in the additional time and cost of meeting these requirements.  The catch-all requirement for “any other materials required by People’s Court” adds additional uncertainty to the process.

The Arrangement also provides a useful list of issues that must be covered in the application to a Mainland court (Article 5).  Applications must also refer to the PRC Civil Procedure Law and other laws or regulations, depending on the types of interim measures sought by the applicant.  Article 5 of the Arrangement lists the following:

  • basic information of the parties;
  • applied interim measures, including the applied amount of assets to be preserved and particulars of the conduct and the time period;
  • facts and justifications on which the application is based, together with the relevant evidence;
  • clear particulars of the property and evidence to be preserved or concrete threads which may lead to a chain of inquiry;
  • information about the property in the Mainland to be used as security or certification of financial standing; and
  • whether any application under this Arrangement has been made in any other court, relevant institution or permanent office, and the status of such application.

 

What are the approved Hong Kong arbitration institutions?

“Arbitral proceedings in Hong Kong” in the Arrangement refers to arbitrations seated in the Hong Kong SAR and be administered by institutions either headquartered, or with permanent offices, in the SAR. The list of such institutions or permanent offices will be provided by the Hong Kong SAR Government to the Supreme People’s Court, and will be subject to confirmation by both sides.

We anticipate that the list of approved arbitration institutions will include at least HKIAC, the CIETAC Hong Kong Center and ICC Hong Kong.  Ad hoc arbitrations seated in Hong Kong will not benefit from the Interim Measures Arrangement.

 

For further information on the Mainland China interim relief regime, please speak to May Tai, Kathryn Sanger, Helen Tang, Stella Hu or your usual Herbert Smith Freehills contacts.

[1] It is not entirely clear here for pre-arbitration applications, whether the applicants need to submit draft request for arbitration; and whether following the commencement of arbitration, the applicants need to provide the request of arbitration, on top of the letter confirming the acceptance of the case.

May Tai
May Tai
Managing Partner - Greater China
+852 2101 4031
Kathryn Sanger
Kathryn Sanger
Partner, Hong Kong
+852 2101 4029
Stella Hu
Stella Hu
Senior Associate, Hong Kong
+852 2101 4248

BEIJING COURT REJECTS APPLICATION TO SET ASIDE TRIBUNAL’S INSTRUMENT RECORDING MEDIATED SETTLEMENT TERMS, CITING LACK OF LEGAL BASIS

In Li Lian Dong and Others v Shen Yi (2018) Jing 04 Min Te 541, a first instance decision made earlier this year, the Beijing 4th Intermediate People’s Court considered whether the court’s power to set aside an arbitral award extends to setting aside the parties’ settlement formally given effect to by the arbitral tribunal in an instrument known under the Arbitration Law of the People’s Republic of China as a “conciliation statement”.

The Court decided that there is no legal ground for Chinese courts to set aside a conciliation statement issued by an arbitral tribunal.  Article 58 of the Arbitration Law provides only for the setting aside of an arbitral award, not a conciliation statement, despite Article 51(2) of the Arbitration Law expressly providing that a conciliation statement has the same legal effect as an arbitral award.

Background

On 12 January 2017, Shen Yi entered into an agreement with Xin Lv Ju (Shanghai) Enterprise Development Limited (Company), Mr Li Lian Dong (the Company’s legal representative) and two other companies to invest in the Company in exchange for the Company’s right to the proceeds from the operation of a certain project (First Transfer Agreement).  On the same day, other parties entered into similar investment agreements with the Company, Mr Li and the other companies.  In 2018, Shen Yi acquired the interests of all these other investors in the project under a second transfer agreement (Second Transfer Agreement).

Subsequently, a dispute arose in relation to the investment.  In April 2018 Shen Yi commenced an arbitration before the Beijing Arbitration Commission pursuant to the arbitration clause in the First Transfer Agreement, naming the Company and Mr Li as the respondents. An arbitral tribunal was constituted.  At the arbitral hearing, the parties agreed to mediation and reached a settlement. At the request of the parties, the arbitral tribunal issued a conciliation statement (No.0216) to confirm the terms of the mediated settlement reached and concluded the arbitration.

Later in 2018, the Company and Mr Li applied to the Court to set aside the conciliation statement, on the basis that (i) Shen Yi failed to produce in the arbitration the Second Transfer Agreement and thus had concealed evidence sufficient to affect the impartiality of the arbitration, and (ii) the arbitration was not in conformity with procedural requirements, both of which are grounds for setting aside an arbitral award under Article 58 of the Arbitration Law. They argued that (pursuant to Article 51(2) of the Arbitration Law) a conciliation statement issued by the arbitral tribunal has the same legal effect as an arbitral award, and can therefore be set aside by the courts on the same grounds as an arbitral award.

Decision

The Court rejected the application to set aside the conciliation statement. In particular, it found that the conciliation statement was not an arbitral award, and the Arbitration Law only provides for setting aside of the latter.

The Court went on to find that there was no factual basis to support the set aside application. In rejecting the applicants’ factual case, it referred to the formal transcript of the arbitration hearing, which it found to clearly record that Shen Yi had produced the Second Transfer Agreement in evidence during the hearing, and the authenticity of the same was not disputed by the applicants at the hearing.  The applicants therefore did not make out their case that Shen Yi had concealed evidence, nor was there procedural irregularity in the arbitration.

Discussion

In, effectively, rejecting Article 58 of the Arbitration Law as empowering the court to set aside a settlement given effect to by the arbitral tribunal through a “conciliation statement”, the Court in this case appears to have preferred similar approaches taken by a number of local Intermediate People’s Courts in the recent years, over the approach taken by the Supreme People’s Court’s (SPC) in at least one case (see SPC’s reply to the Guangdong Province Higher People’s Court in [2010] Min Si Ta Zi No. 45), which is that the grounds in Article 58 of the Arbitration Law can be referred to in dealing with an application to set aside a conciliation statement, but that the review should be limited to the procedure of the rendering of the particular conciliation statement in question and not the substance of the conciliation statement.  Whilst the Court’s decision is one of the latest on this issue, it remains to be seen whether more judicial clarity will be given by the SPC in a formal interpretation document, which may put the sometimes inconsistent approaches taken by local courts to rest.

Michelle Li
Michelle Li
Partner, Shanghai
+86 21 2322 2162
Helen Tang
Helen Tang
Partner, Shanghai
+86 21 2322 2160
Briana Young
Briana Young
Foreign Legal Consultant (England & Wales)/Professional Support Consultant, Hong Kong
+852 2101 4214

HONG KONG COURT GRANTS ANTI-SUIT INJUNCTION TO BIND THIRD PARTY TO ARBITRATION AGREEMENT

In Dickson Valora Group (Holdings) Co Ltd v Fan Ji Qian [2019] HKCFI 482, the Hong Kong Court of First Instance has granted an anti-suit injunction restraining mainland Chinese court proceedings commenced by Fan Ji Qian on the ground that the dispute should be referred to arbitration. Although Fan was not a signatory to the contract containing the arbitration clause, he had nevertheless sought to enforce a contractual right under that agreement, such that he was also bound by any conditions integral to the exercise of this right (including the agreement to arbitrate).

This decision shows that an arbitration agreement can, in certain circumstances, bind third parties. This is something which should be considered when drafting agreements which purport to confer a benefit on non-signatories, particularly if it is intended that third parties exercising rights under the contract should also be bound by the arbitration provisions.

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CIETAC releases 2018 statistics

On 1 February 2019, CIETAC published its 2018 statistics and 2019 work plan. The statistics show a substantial increase in CIETAC’s caseload and the total amounts in dispute, as well as a growing diversity of cases administered by CIETAC.

CIETAC received 2,962 new cases during 2018, representing a 28.89% increase compared to the previous year. 522 of these cases are foreign-related, of which 36 are between non-Chinese parties: 9.66% more than 2017. CIETAC accepted 2,440 new domestic cases in 2018, an increase of 33.92% on the previous year.

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SPC ISSUES PROVISIONS ON ACTION PRESERVATION IN IP RIGHTS DISPUTES

The Supreme People’s Court of China (SPC) has released a new set of judicial interpretations concerning interim injunction applications for intellectual property rights (IP Rights)-related disputes. The Provisions on Application of Laws in Adjudication of Action Preservation Cases Involving Intellectual Property Disputes (Fa Shi [2018] No. 21) (Provisions) were published on 12 December 2018 and take effect on 1 January 2019. Prior to that, a consultation draft of the Provisions was released for public consultation on 26 February 2015.

The Provisions provide further guidance on interim injunctive relief (i.e. action preservation) applications made under Articles 100 and 101 of the Civil Procedure Law 2017 (2017 CPL) in cases concerning IP Rights and unfair competition, and clarify certain key concepts therein. (For more information on interim relief in the PRC, contact briana.young@hsf.com to request a copy of our guide “Interim Relief in Mainland China”.)

Some important articles in the Provisions, which are covered in this post, are:

  • Article 6, which provides for circumstances classified as “urgent circumstances” under Articles 100 and 101 of the 2017 CPL;
  • Article 7, which lists the factors that the courts shall take into consideration in determining whether an action preservation order should be granted;
  • Article 10, which elaborates on the concept of “irreparable harm” under Article 101 of the 2017 CPL in cases related to IP Rights or unfair competition. Risk of “irreparable harm” is an element that needs to be proved in any application for pre-litigation or pre-arbitration action preservation orders; and
  • Article 16, which specifies circumstances under which applications for action preservation will be considered “wrongful”.

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ICC modifies standard arbitration clause to make explicit reference to the ICC International Court of Arbitration

As discussed in our recent blog post, the Moscow Arbitrazh Court and appeal courts recently found that a reference to the arbitration rules of an arbitral institution was not sufficiently clear evidence that the parties had agreed on that specific institution to administer the resolution of their disputes. The case related to the ICC standard arbitration clause and the ICC has applied to the Russian Supreme Court for clarity on its approach.

However, in the meantime, the ICC has issued an additional modified standard arbitration clause “to take account of the requirements of national laws and any other special requirements that the parties may have“. The ICC then proceeds to state that it is “prudent” for parties wishing to have an ICC Arbitration in Mainland China or in Russia “to include in their arbitration clause an explicit reference to the ICC International Court of Arbitration“.

The modified clause proposed by the ICC is as follows:

“All disputes arising out of or in connection with the present contract shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

For further information, please contact Alexei Panich, partner, Nick Peacock, partner, Alexander Khretinin, senior associate, or your usual Herbert Smith Freehills contact.

Alexei Panich
Alexei Panich
Partner
+7 49 5363 6515
Nicholas Peacock
Nicholas Peacock
Partner
+44 20 7466 2803
Alexander Khretinin
Alexander Khretinin
Senior Associate
+7 49 5783 6777

HKIAC signs cooperation agreement with Russia’s IMA

On 6 March 2018, the Hong Kong International Arbitration Centre (HKIAC) and the Institute of Modern Arbitration of the Russian Federation (IMA) signed a Cooperation Agreement that aims to support and promote the development of international arbitration and other dispute resolution options in Russia and Hong Kong.

This is a further development in HKIAC’s on-going efforts to meet growing demand in the Russian market for disputes to administered by established Asian arbitration institutions, such as HKIAC and the Singapore International Arbitration Centre (SIAC), which has signed a similar cooperation agreement with IMA.

In recent years, HKIAC has built up a panel of 30 Russian-speaking arbitrators, translated the HKIAC rules into Russian, and hosted and participated in a number of events in Russia. HKIAC has also announced that it is developing a new set of Administered Arbitration Rules, with innovative features “that will bring a new level of arbitration experience to users in Russia and other parts of the world”.

According to a recent survey by the Russian Arbitration Association, Russian users have indicated that Asian centres including SIAC, HKIAC and CIETAC are viable alternatives to the more traditionally-used European arbitral institutions such as ICC, SCC, LCIA and the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC). In addition, the survey indicates that Singapore and Hong Kong are increasingly popular seats, and the laws of these jurisdictions are respectively the sixth and seventh most popular choices among the survey respondents.

 

SCIA AND SAC ARBITRATION INSTITUTIONS MERGE TO FORM NEW ARBITRATION CENTRE IN SHENZHEN

On 8 January 2018, the South China International Economic and Trade Arbitration Commission, also known as the Shenzhen Court of International Arbitration (SCIETAC/SCIA) and the Shenzhen Arbitration Commission (SAC) announced that they have merged to form one arbitration institution known as the “Shenzhen Court of International Arbitration (Shenzhen Arbitration Commission)” (SCIA-SAC). The merger took effect 25 December 2017.

It is the first time that two international arbitration centres have merged in China. The SCIA-SAC merger reflects the institutions’ joint ambition to become a leading international arbitration centre, and their common goal of facilitating Chinese outbound investment. Continue reading

SPC publishes new judicial interpretations on arbitration

The Supreme People’s Court of China (SPC) has released two judicial interpretations (Interpretations) on arbitration. The Interpretations were passed on 20 November 2017 and 4 December 2017. The texts of both were made public on 29 December 2017 and became effective on 1 January 2018. The Interpretations are the latest in a series of steps by the SPC to improve the regime for both domestic and cross-border arbitration in mainland China.

The Interpretations primarily address the judicial review of arbitration cases. The important provisions that have been given effect include:

  • Extending the existing “reporting system” to domestic arbitrations in order to achieve judicial consistency
  • Granting parties limited opportunities to participate in the reporting system to improve transparency
  • Encouraging parties to state expressly the law they intend to govern a foreign-related arbitration agreement
  • Clarifying that the decisions of the PRC Courts under the “reporting system” are not subject to appeal.

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China proposes dedicated “Belt and Road” court

Supreme People’s Court Monitor has published a highly informative article on proposals by the SPC relating to China’s”Belt and Road” initiative. These include establishing a dedicated court, along the lines of the Singapore International Commercial Court, to hear Belt & Road disputes. Click here to read the piece.

Our thanks to Susan Finder of SPC Monitor for permission to re-publish.