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Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between Hong Kong and the Mainland

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02 December 2020

On 27 November 2020, the Department of Justice of the HKSAR Government and the Supreme People’s Court of the People’s Republic of China (the PRC) signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (the Supplemental Arrangement). The Supplemental Arrangement is a welcome development as it removes certain restrictions in the current enforcement regime.

Existing Arrangement

The Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (the 1999 Arrangement) was signed in June 1999 and came into force in February 2000. The 1999 Arrangement is the framework under which arbitral awards made in Hong Kong could be enforced in Mainland China and awards made in the Mainland could be enforced in Hong Kong. The limited grounds upon which enforcement could be refused under the 1999 Arrangement largely mirror those in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).   

The Supplemental Arrangement seeks to amend the 1999 Arrangement by introducing four important updates.

1. Express reference to the recognition of arbitral awards

Article 1 of the Supplemental Arrangement clarifies that the procedures provided under the 1999 Arrangement shall be interpreted to cover both recognition and enforcement of arbitral awards of Hong Kong or the Mainland.

Under the New York Convention, recognition and enforcement of arbitral awards are viewed as separate concepts or procedures – the former refers to the process of giving effect to and conferring binding status on an arbitral award by a national court and the latter refers to the national court’s execution of the terms of the arbitral award.

As the 1999 Arrangement only used the term “enforcement” and made no reference to the “recognition” of arbitral awards made in Hong Kong or on the Mainland, Mainland courts have given inconsistent interpretations of the 1999 Arrangement, leading to divergent procedures for seeking recognition and enforcement of Hong Kong awards in different cities and provinces of the Mainland. The Supplemental Arrangement seeks to remedy this defect in the 1999 Arrangement and brings the regime more in line with the New York Convention.

This amendment came into immediate effect on 27 November 2020.

2. Removing the requirement that a Mainland award has to be issued by one of the recognised arbitral authorities

With respect to the enforcement of Mainland awards in Hong Kong, Article 2 of the Supplemental Arrangement removes the current restriction that a Mainland award has to be rendered by a recognised Mainland arbitral authority in order to benefit from the mutual enforcement regime.

The 1999 Arrangement was only applicable to Mainland awards which were “made pursuant to the Arbitration Law of the People’s Republic of China by the arbitral authorities in the Mainland (the list to be supplied by the Legislative Affairs Office of the State Council…)” (emphasis added). The prescribed list of recognised Mainland arbitral authorities was accordingly supplied to the HKSAR Government from time to time, and only awards issued by those recognised Mainland arbitral authorities could be enforced in Hong Kong pursuant to the 1999 Arrangement (as reflected in the Hong Kong Arbitration Ordinance (Cap. 609)).

By removing this restriction, the Supplemental Arrangement expands the scope of arbitral awards under the mutual enforcement regime and aligns it with the approach under the New York Convention, which focuses only on the place in which an arbitral award is rendered (i.e. the seat of arbitration) rather than the location of the arbitral institution. The flexibility introduced by this amendment also provides the added benefit of futureproofing against possible reforms of the PRC Arbitration Law, which currently prohibits ad hoc arbitrations and only allows institutional arbitrations administered by domestic institutions, save for limited exceptions in free trade zones.

This amendment will only become effective when the relevant legislative procedures in Hong Kong are completed.

3. Allowing simultaneous enforcement applications in Hong Kong and on the Mainland

A very important update to the enforcement regime is introduced by Article 3 of the Supplemental Arrangement, which amends Article 2(3) of the 1999 Arrangement to allow an award creditor to file applications for enforcement of an arbitral award with the courts of Hong Kong and the Mainland at the same time.  It also establishes a mechanism for the courts of the two places to exchange information on the status of the enforcement of an arbitral award.

Article 2(3) of the 1999 Arrangement currently provides that, if the party against whom the enforcement application is filed has assets in both the Mainland and Hong Kong, the applicant “shall not file applications with relevant courts of the two places at the same time.  Only when the result of the enforcement of the award by the court of one place is insufficient to satisfy the liabilities may the applicant apply to the court of another place for enforcement of the outstanding liabilities”. This has caused enforcement issues in the past, as an award creditor needs to make a choice at the outset whether to pursue enforcement in Mainland China or Hong Kong, and if the chosen enforcement forum turns out to be unsuccessful, it may be too late to make an enforcement application in the other forum because of limitation periods (generally, the limitation period for enforcement of awards is two years in Mainland China and six years in Hong Kong). 

The removal of this restriction is significant as award creditors will no longer have to choose between Hong Kong and the Mainland to file the enforcement application and can seek recourse against assets in both jurisdictions at the same time.

The current restriction is also reflected in the Hong Kong Arbitration Ordinance.  Therefore, this amendment introduced by the Supplemental Arrangement will only become effective when the legislative procedures in Hong Kong are completed.

4. Confirming the availability of post-award preservation and mandatory measures

Article 4 of the Supplemental Arrangement confirms the power of the Hong Kong and Mainland courts to impose preservation or mandatory measures before or after accepting the application for enforcement of an arbitral award. This came into immediate effect on 27 November 2020.

This is another positive development following 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 (the Interim Measures Arrangement) which entered into force on 1 October 2019. The Interim Measures Arrangement have made it possible for parties to seek interim measures from courts in Mainland China in aid of arbitral proceedings in Hong Kong. However, parties cannot avail themselves of the Interim Measures Arrangement after the conclusion of the arbitral proceedings (see Article 3 of the Interim Measures Arrangement).

The Supplemental Arrangement fills the void and ensures that interim measures are available throughout the entire lifespan of an arbitration, including prior to the commencement of the proceedings (under the Interim Measures Arrangement), during the arbitral proceedings (under the Interim Measures Arrangement), and after the conclusion of the proceedings at the enforcement stage of the award (under the Supplemental Arrangement). 

Notable PRC and Hong Kong cases on enforcement of awards

The Hong Kong Department of Justice and the Supreme People’s Court of the PRC also released 10 notable cases relating to the mutual enforcement of arbitral awards on 27 November 2020. These cases illustrate the approach taken by PRC courts and Hong Kong courts in considering the grounds for refusal of enforcement of awards. View the list of cases.