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Updates on the mutual enforcement of arbitral awards between the PRC and the HKSAR

2020-12-29

Introduction

Prior to the transfer of sovereignty over Hong Kong in 1997, mutual enforcement of arbitral awards between the PRC and Hong Kong was carried out pursuant to the New York Convention (the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards). However, as Hong Kong then became a Special Administrative Region of the PRC in 1997, such an arrangement ceased to apply as it is only applicable between sovereign states. Without the New York Convention in place, there had been a period when it was difficult to enforce PRC arbitral awards in Hong Kong and vice versa before the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (the “Arrangement”) came into effect in February 2000. Pursuant to the Arrangement, enforcement of PRC arbitral awards in Hong Kong and enforcement of Hong Kong arbitral awards in the PRC are again made possible. Yet, the Arrangement contains several limitations which had, in the past, led to some applications for enforcing arbitral awards prone to being refused by the PRC and Hong Kong Courts.


The Supplemental Arrangement

On 27 November 2020, the PRC Supreme People’s Court and the Hong Kong Government concluded the “Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region” (the “Supplemental Arrangement”) and thereby revising and clarifying the Arrangement via the introduction of the following four updates:-

1.        Article 1 of the Supplemental Arrangement provides that the interpretation regarding the procedure of enforcing arbitral awards in either the PRC or Hong Kong cover not just the enforcement stage but also the recognition stage;

2.        Article 2 of the same removes the current limitation in which Hong Kong Courts could only enforce arbitral awards made by “recognized Mainland arbitral authorities”. With this new update in place, arbitral awards rendered pursuant to the Arbitration Law of the PRC other than those issued by “recognized Mainland arbitral authorities” may also be enforceable. Similarly, Article 2 also made clear that any arbitral award issued pursuant to the Arbitration Ordinance (Cap. 609) (the “Ordinance”) may also be enforceable in the PRC Courts;

3.        Article 3 allows award creditors seeking to enforce arbitral awards to file applications before both PRC and Hong Kong Courts in a concurrent manner. Either Courts could also request the other Court to provide information in relation to the enforcement proceedings to ensure that the total amount recovered by both Courts would not exceed the amount of the arbitral award;

4.        Article 4 expressly clarifies that parties to the arbitral award may seek for the PRC and Hong Kong Courts to impose preservation or mandatory measures throughout the entire arbitration proceedings, at any time before or after the Court’s acceptance of an application to enforce an arbitral award.

All of the above four Articles have already been implemented by way of judicial interpretation as promulgated by the Supreme People's Court on 27 November 2020 in the PRC immediately following the execution of the Supplemental Arrangement. Articles 1 and 4 have also come into immediate effect in Hong Kong on the same date, but Articles 2 and 3 would have to wait for amendments to be made under the Ordinance first before they become effective.


Implications

The Supplemental Arrangement clarified and enhanced the existing Arrangement in the following four major aspects.

1.        Alignment with the New York Convention

In the Arrangement, there was uncertainty as to whether a recognition of the arbitral award was necessary before Courts could determine the enforceability of such. With the clarification in place pursuant to Article 1 of the Supplemental Arrangement, the term “recognition” is expressly mentioned when discussing the enforcement of arbitral awards. This brings the Arrangement in line with the New York Convention, which interprets enforcement of arbitral awards as a two-stage process, namely, the recognition and execution stages.

2.        Removal of restriction that arbitral awards should be made by “recognized Mainland arbitral authorities”

Pursuant to the Arrangement, arbitral awards made in the PRC are enforceable only if they are made by “recognized Mainland arbitral authorities”. This means that parties who chose to arbitrate in the PRC can only conduct arbitration at institutions officially recognized by the Chinese government if the parties wish the award to be enforced in Hong Kong. However, under Article 2 of the Supplemental Arrangement, arbitral awards made by foreign arbitration institutions such as the International Chamber of Commerce (ICC) are now enforceable. Further, the Supplemental Arrangement has also expressly clarified that any ad hoc and institutional arbitral awards issued by arbitrations in Hong Kong pursuant to the Ordinance may also be enforceable by the PRC Courts.

In light of the above, this greater flexibility afforded by the Supplemental Arrangement may help promoting the use of arbitration in Hong Kong and more so particularly in the PRC, such that foreign parties may be involved with a view to arbitrate at a foreign arbitration institution.

3.        Parallel enforcement in the PRC and Hong Kong

Under the Arrangement, if an award creditor is unable to recover the amount awarded or fails to enforce the arbitral award in court, the award creditor may apply to the courts of another jurisdiction to enforce the award. However, cases show that unfairness and difficulty have arisen where the assets of the award debtor have been dissipated or the limitation period has expired as legal proceedings in another jurisdiction has been delayed, as in the case of CL v SCG [2019] 2 HKLRD 144.

According to the Supplemental Arrangement, enforcement proceedings in the PRC and Hong Kong may be brought at the same time. If the award debtor has assets in the PRC and Hong Kong, the award creditor may apply to the PRC and Hong Kong Court for recognition and enforcement of the arbitral award pursuant to Article 3. The PRC and Hong Kong Courts will keep each other informed of the progress of the enforcement proceedings so that the award creditor may recover as much as he/she can pursuant to the arbitral award. Such an amendment helps to address the unfair situation of award creditors failing to enforce the awards, and allowing them to seek recourse in both jurisdictions at the same without having to proceed on an either-or basis

4.        Power of courts to make post-award interim measures

The Supplemental Arrangement clarified that the enforcing courts have powers to make post-award interim measures for arbitral awards made outside the jurisdiction, including freezing orders and injunctions against the award debtor, in accordance with domestic laws under Article 4. It is therefore open for the award creditor to apply for such interim measures even after he/she obtains the arbitral award. As such, the interests of award creditors are given more protection under the Supplemental Arrangement in all phases throughout the entire arbitration proceedings.


Key takeaways

The Supplemental Arrangement has introduced key improvements and undoubtedly fill the practical lacunae which have arisen under the Arrangement. With stronger support from and powers of the PRC and Hong Kong Courts, the Supplemental Arrangement is likely to further facilitate the mutual enforcement of arbitral awards between the PRC and Hong Kong. Pursuant to the Supplemental Arrangement, award creditors have better chances to enforce and recover arbitral awards. In this regard, arbitration in Hong Kong is likely to be more attractive and beneficial to parties who conduct cross-border transactions.




For enquiries, please feel free to contact us at:

E: arbitration@onc.hk                                                       T: (852) 2810 1212
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www.onc.hk                                                                F: (852) 2804 6311

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2020

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