Arbitration agreement with mainland China gives Hong Kong unique advantage

The Supreme People's Court in China and the Hong Kong government agreed earlier this month to make interim measures orders from one territory enforceable in the other. This means that arbitration proceedings in one territory can preserve evidence or freeze assets in the other territory.

It is the only agreement of its kind that China has signed and it will give qualified arbitration centres in Hong Kong an advantage over those located elsewhere, an important consideration in the very competitive world of international arbitration. The deal is concrete proof of the benefits of the 'one country, two systems' approach to China-Hong Kong government.

The arrangement is also a vote of confidence in the arbitration institutions in mainland China which administer foreign-related arbitrations. These institutions have grown rapidly in recent years and the Chinese authorities clearly believe that they have the ability to face the increased competition from Hong Kong that this agreement will generate.

The China Arbitration Association (CAA) headquartered in Taipei has expanded its cross-border arbitration services in recent years and registered its first overseas branch, the CAA International Arbitration Centre (CAAI) in Hong Kong, in December. Whether the CAAI will be listed as a participating centre under the agreement will be a crucial factor in its development.

Parties to an arbitration seated outside China are not usually entitled to apply to a Chinese court for an 'interim measures' order that will take effect in China. Until now both parties would have to agree to submit the dispute to an arbitration institution in mainland China if they want an interim measures order to freeze the assets of the other party or preserve evidence in mainland China.

The agreement now provides the legal basis for cross-border interim measures orders and allows parties who plan to apply for interim measures orders to choose Hong Kong as the seat of arbitration. This will encourage parties to choose Hong Kong as the seat of arbitration.

The arrangement is reciprocal: parties are entitled to apply for an interim measures order to a court in Hong Kong before or during the arbitration proceeding when the seat of arbitration is in mainland China. But this will have less impact – it was the case before that courts in Hong Kong will grant interim measures orders for arbitrations seated in mainland China. The arrangement will, then, make the biggest difference to arbitrations seated in Hong Kong where an order is sought in China.

The arrangement applies when the seat of arbitration is Hong Kong and when the arbitral proceedings are administered by:

• arbitral institutions established or headquartered in Hong Kong, with their principal place of management located in Hong Kong;
• dispute resolution institutions or permanent offices set up in Hong Kong by international intergovernmental organisations of which the People's Republic of China is a member;
• dispute resolution institutions or permanent offices set up in Hong Kong by other arbitral institutions which satisfy criteria set by the Hong Kong government regarding the number of arbitration cases and the amount in dispute.

While the list of institutions and permanent offices is yet to be provided by the Hong Kong government to the Supreme People's Court, it is understood that the Hong Kong International Arbitration Centre (HKIAC), CIETAC Hong Kong Arbitration Centre and the Secretariat of the International Court of Arbitration of the International Chamber of Commerce in Hong Kong will be the qualified arbitral institutions or permanent offices covered by the arrangement.

Helena Chen is an arbitration expert at Pinsent Masons, the law firm behind Out-Law.com.