Introduction
On 27 November 2020, the Department of Justice of the Hong Kong Special Administrative Region (Hong Kong) and the Supreme People's Court of the People's Republic of China (PRC) signed the "Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR" (Supplemental Arrangement). The Supplemental Arrangement amends and supplements the existing arrangement (1999 Arrangement) signed in June 1999 and implemented in February 2000, and introduces changes to strengthen the arrangement for mutual enforcement of arbitral awards between the two jurisdictions.
Enhancements under the Supplemental Arrangement
The Supplemental Arrangement introduces the following important changes to the 1999 Arrangement:
- Article 1 clarifies that the procedures for the enforcement of PRC and Hong Kong awards under the 1999 Arrangement, shall be interpreted to include the procedures for both the "recognition" and the "enforcement" of those awards.
| Impact on clients: Previously the 1999 Arrangement did not refer to "recognition", which can be argued as a step prior to the "enforcement" of an award, leading to debates and divergent approaches before the PRC courts regarding the procedures for enforcing Hong Kong awards in the PRC. This amendment removes this uncertainty and will facilitate the enforcement of Hong Kong awards in the PRC. |
- Article 2 removes the restrictions that a PRC award has to be issued by one of the recognised arbitral authorities prescribed by the Legislative Affairs Office of the State Council of the PRC.
| Impact on clients: This amendment expands the scope of arbitral awards under the mutual enforcement regime, and seeks to align the position with the international approach under the New York Convention, which focuses on the place of the award, rather than the arbitral authorities. |
- Article 3 permits an applicant to file applications for enforcement in both jurisdictions at the same time, which was previously not allowed under the 1999 Arrangement. It further provides that the courts of the two places shall exchange information on the status of the enforcement of an award, at the request of the other court.
| Impact on clients: This is an important update. Previously under the 1999 Arrangement, an award creditor must elect whether to first pursue enforcement actions in the PRC versus Hong Kong, which causes delay by the time the award creditor needs to go to the second jurisdiction for enforcement of the award. The Supplemental Arrangement removes this enforcement issue, by allowing the simultaneous and timely enforcement of award in both jurisdictions. |
- Article 4 confirms that the courts in both jurisdictions may impose preservation or mandatory measures before or after accepting the application for enforcement of an arbitral award.
| Impact on clients: This amendment is a welcomed development, in addition to the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the HKSAR (2019 Interim Measures Arrangement) which came into effect in October 2019. The amendment confirms that interim measures and asset preservation orders are available not only before and during the arbitral proceedings, but also at the enforcement stage. |
In terms of timing, the Supplemental Arrangement was implemented in the Mainland by way of judicial interpretation as promulgated on 27 November 2020. In Hong Kong, items 1 and 4 above took effect on the same date, while items 2 and 3 will come into force after the legislative amendments to the Hong Kong Arbitration Ordinance.
Enhanced Attraction of Choice of Hong Kong-Seated Arbitration in Commercial Agreements
The Supplemental Arrangement provides the welcomed enhancements set out above. It further increases the attractiveness for commercial parties to choose arbitration seated in Hong Kong as the dispute resolution mechanism, in particular for transactions involving China-related elements or properties located in China.
In the derivatives context, the ISDA Arbitration Guide contains a model arbitration clause for Hong Kong-seated arbitration conducted in accordance with the Hong Kong International Arbitration Centre Administrated Arbitration Rules, which demonstrates Hong Kong's status as one of the preferred arbitration venues for international finance transactions.
In the financing context, Hong Kong-seated arbitration is increasingly favoured by creditors given, among other things, the ability for finance creditors to enforce qualified Hong Kong awards in the PRC under the 1999 Arrangement, and to apply to the PRC Courts for interim relief support under the 2019 Interim Measures Arrangement.
As outlined in our previous briefing, Hong Kong is the only venue outside of the Mainland to have such direct interim measures mechanism in place. Since the types of interim relief include orders to preserve property, parties seeking to ultimately enforce arbitration awards in the PRC may have higher chance of recovery as the risk of dissipation of assets is reduced. The Supplemental Arrangement further enhances these important aspects.
