Legal update: the Supplemental Arrangement Concerning the Mutual Enforcement of Arbitral Awards between China and Hong Kong04Feb2021
Hong Kong and Mainland China signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (“HKSAR”) (the “Supplemental Arrangement”) on 27 November 2020. The Supplemental Arrangement embodies amendments to the existing arrangement, made in accordance with the spirit of the New York Convention. It provides further clarity and certainty to parties looking to enforce their arbitral awards in the two jurisdictions. A summary of the existing arrangement can be found here.
The Supplemental Arrangement
The amendments provided for in the Supplemental Arrangement focus on four issues.
Article 1 Recognition and Enforcement
Firstly, it clarifies that, apart from “enforcement”, the existing arrangement also covers the “recognition” of the award. The Supplemental Arrangement eliminates the uncertainty of whether an award made in Hong Kong must be recognised before it is enforceable in the Mainland.
Article 2 Removal of the restriction of awards made by certain arbitral institutions
Secondly, while the existing arrangement restricted the enforcement of Mainland arbitral awards in Hong Kong to those made by certain recognised arbitration institutions, the Supplemental Arrangement lifts this restriction so that the key to enforceability is the seat of arbitration instead of the institution. All arbitral awards made in the Mainland pursuant to the Arbitration Law of the People’s Republic of China may now be enforced in Hong Kong. Please note, however, that the Arbitration Law provides that an arbitration agreement must include the chosen arbitration commission or institute for it to be valid. Hence, arbitral awards made pursuant to ad hoc arbitrations are not included for this purpose.
Article 3 Simultaneous enforcement applications
Thirdly, a major change as a result of the Supplemental Arrangement is the permission for simultaneous enforcement applications in both Hong Kong and Mainland China up to the amount awarded. Under the existing arrangement, even though an award debtor may have assets in both Hong Kong and the Mainland, an award creditor may only begin enforcement proceedings in one jurisdiction at a time.
Where the award debtor’s assets in the first jurisdiction are insufficient to satisfy the award, the award creditor bears a risk that an application against the award debtor’s assets in the second jurisdiction for the outstanding award may be time-barred by the time enforcement proceedings in the first jurisdiction are concluded. This amendment targets to eliminate this concern. It also reduces the risk that the award debtor’s assets in that jurisdiction may no longer be sufficient to satisfy the arbitral award because of dissipation.
Article 4 Interim Measures throughout the arbitral proceedings
Lastly, the existing arrangement, together with the Arrangement Concerning Mutual Assistance in Court-Ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of HKSAR, which came into effect on 1 October 2019 (“Interim Measures Arrangement”) only gave the Hong Kong and Mainland courts power to order interim measures before the making of arbitral awards to preserve the position of the parties to the arbitration. The Supplemental Arrangement now provides for applications after the conclusion of the proceedings in the enforcement stage, meaning that “interim” measures are available both before and after the making of awards.
In the Mainland, the Supplemental Arrangement came into effect on 27 November 2020. In Hong Kong, Articles 1 and 4 came into force on 27 November 2020, whereas Articles 2 and 3 will take effect after the amendments to the Arbitration Ordinance (Cap 609) are enacted.
The Supplemental Arrangement is a welcome step in both the commercial and legal sectors. It enhances the mutual legal assistance regime between Hong Kong and China along with the existing arrangement, the introduction of third-party funding, and the Interim Measures Arrangement. In fact, it was partly the feedback from many in the arbitral field and parties who utilised the existing arrangement in award enforcement that prompted the Supplemental Arrangement. These developments are certainly beneficial to both jurisdictions, contributing to a more user-friendly system of cross-border dispute resolution.
It is the intention of the two governments to promote Hong Kong as a financial centre and dispute resolution hub within the region. This is especially so given the focus of development in the Greater Bay Area. On one hand, we expect the landscape for China-seated arbitration to be more open and to quickly adapt to the international standards under close scrutiny. On the other hand, more commercial entities will have a strong incentive to opt for Hong Kong as the seat of arbitration for disputes with PRC elements – such a choice is likely to benefit from the independence and quality of commercial arbitrations in Hong Kong.
We believe that the respective governments will continue to review the system in place and hear feedback from practitioners to determine the future development of the arrangement.
How we can help
As a leading Hong Kong law firm, Tanner De Witt is experienced in both applying for and opposing enforcement of arbitral awards on behalf of our clients. We have found that the Courts in Hong Kong will not simply rubber-stamp enforcement applications, but will look into the substance of the Mainland awards.
We are prepared to respond to the increasing needs of cross-border enforcement and look forward to providing assistance to clients.
Pamela Mak / Kevin Warburton
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.