New judicial interpretation enables property preservation in China before a Hong Kong arbitral award is recognised and enforced

On 26 November 2020, the Supreme People’s Court issued the Supplementary Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (the “Supplementary Arrangement”). Article 4 of this Supplementary Arrangement provides that a court can, before or after accepting an application for recognizing and enforcing a Hong Kong arbitral award, take preservation on or compulsory measures for safeguarding the property of the party subject to enforcement in accordance with the legal provisions of the locality of the court if the party concerned requires to do so.

Before the issuance of the Supplementary Arrangement, such preservative measures were only available where a Hong Kong seated arbitration tribunal issued interim measures during pending arbitration proceedings. Such interim measures are to be recognized and enforced cross-border under 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 effective as of 1 October 2019 (the “Assistance Arrangement”). But neither the Assistance Arrangement nor the Arrangement of the Supreme People's Court on Reciprocal Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region effective as of 1 February 2000 contains any express stipulations on preservative measures during the process of recognition and enforcement of arbitral awards, i.e. after the underlying arbitration proceedings had been completed.

This is different to the respective Arrangement of the Supreme People's Court on Reciprocal Recognition and Enforcement of Arbitration Awards between the Mainland and the Macau Special Administrative Region. Article 11 of the PRC-Macau Arbitration Arrangement expressly stipulates that a court can, before or after accepting an application for recognizing and enforcing an arbitration award, take preservative measures regarding the property of the party against whom the application is filed in accordance with the legal provisions of the locality of the court if the party concerned requires to do so.

In practice, different local courts had taken different approaches in granting such preservative measures before a Hong Kong arbitral award is recognised.

• Some People's Courts approved applications for preservative measures against the property of party subject to enforcement during the recognition and enforcement procedures of foreign arbitral awards (e.g. (2015) Hu Hai Fa Min Ren Zi No. 1-2) on the basis of Articles 100, 102 and 103 of the PRC Civil Procedure Law. There have also been a few other decisions where property preservation has been granted during the process of recognition and enforcement of a foreign arbitral award.
• Other People's Courts rejected respective applications (e.g. (2016) Qiong 72 Xie Wai Ren No. 1-2), arguing that (i) there is no such requirement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), (ii) there was no relevant agreement between the PRC and country where the award was made (i.e. the UK in the relevant case) and (iii) there are no specific PRC laws or regulations in this regard.

In a PRC Supreme People’s Court’s reply to the Hubei High People’s Court issued in 2017, the Supreme People’s Court stated that a court may, by taking reference to Article 100 of the PRC Civil Procedure Law, grant a property preservation provided that the applicant has provided sufficient security. However, there is uncertainty as to whether the Supreme People's Court's reply to the Hubei High People's Court applies only to that specific case concerned or applies as a general principle in other cases handled by other courts too.

Now Article 4 of the Supplementary Arrangement provides a clear legal basis enabling the winning party of a Hong Kong arbitral award to apply for preservative measures in a local Chinese court even before the award is recognised and enforced. Considering that the recognition and enforcement proceedings may take months, this new provision may significantly increase the winning party’s chance to get fully compensated as that granted under the award before the losing party transfers or otherwise dispose its property subject to enforcement to escape enforcement.