Obtaining asset preservation in mainland China and Hong Kong

By John Zhou and Zhou Yinlin, East & Concord Partners
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Hong Kong’s integration into mainland China within the context of the Greater Bay Area (GBA) has seen the number of cross-jurisdictional disputes increase year by year. Encapsulated by the idea of “One Country, Two Systems, Three Jurisdictions”, this rapid development raises the practical challenge of how parties can preserve assets in both the mainland and the Hong Kong Special Administrative Region (SAR) and so ensure the protection and realisation of their rights.

Obtaining asset preservation in both places is based on the relevant regulations in mainland China, the 2019 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, Hong Kong’s High Court Ordinance and Practice Directions, among others. Guidance can also be found in past examples from both court systems.

Preservation of assets in mainland China

The mainland’s judicial preservation system had never been open to other jurisdictions. The above-mentioned arrangement for the first time opened up mainland judicial preservation, with some restrictions. Two years on, there have been some successes. As of 27 September 2021, the Hong Kong International Arbitration Centre alone has preserved RMB10.9 billion (USD1.7 billion) of assets through 23 mainland courts.

周原_John_Zhou_Concord-s
John Zhou
Partner
East & Concord Partners

The arrangement is open only to Hong Kong arbitration proceedings and is subject to the two conditions – that the seat of arbitration be Hong Kong, and that the case is administered by a qualified arbitration institution. There are six qualified arbitration institutions: the Hong Kong International Arbitration Centre; the China International Economic and Trade Arbitration Commission’s Hong Kong arbitration centre; the Asia Office of the ICC International Court of Arbitration; the Hong Kong Maritime Arbitration Group; the South China International Arbitration Centre (HK); and eBRAM.

The arrangement also requires that a party apply to a mainland court before the rendering of the arbitration award. If the need for preservation is urgent, a party may apply to a mainland court for preservation before applying for arbitration, but is required to initiate the arbitration proceedings promptly and deliver the Proof of Acceptance of Arbitration to the mainland court within 30 days after the preservation ruling is rendered.

In limiting the submission of applications to before the rendering of an award, no consideration was given to the need for preservation when a party applies to a mainland court for enforcement after obtaining the award, a shortcoming of the arrangement. However, in practice, there are mainland courts that support applications for asset preservation submitted by parties before applying for enforcement of the award, such as the ruling in the case of Yue 72 Cai Bao No. 78 (2018) by the Guangzhou Maritime Court, where Farenco Shipping applied for asset preservation regarding Eastern Ocean Transportation.

周殷霖_Zhou_Yinlin_Concord-s
Zhou Yinlin
Associate
East & Concord Partners

Based on this, article 4 of the Supplementary Arrangement, which was implemented on 27 November 2020, has plugged this deficiency. Since then, parties in Hong Kong arbitration proceedings are no longer subject to time restrictions when applying to mainland courts for the preservation of assets.

It is worth mentioning that the arrangement does not place any restrictions on the status of an applicant. An applicant that is neither a Chinese citizen nor a resident of the Hong Kong SAR may also apply to a mainland court for asset preservation.

A party is required to submit the application for asset preservation to the intermediate people’s court of the domicile of the respondent or the place where the property of the respondent is located in mainland China. This must be done on the strength of the written application for preservation, the documents for the security provided in connection with the preservation, the identity document of the party, the arbitration agreement, the proof of case acceptance issued by the qualified arbitration institution, and other such statutory documents. If there is more than one competent court, then, under article 4 of the Interpretations and Application of the Arrangement, a party is required to apply to a court that has the authority to accept the application for enforcement of the arbitration award.

Mainland courts will refuse to accept non-compliant application documents or, alternatively, will examine the application by such means as requiring the applicant and its lawyers to provide a written response or appear for an interview. They will then rule on whether to approve or reject the application.

Although the fee for an application to a mainland court for asset preservation is determined on the amount of assets to be preserved, the maximum allowable is RMB5,000.

Preservation of assets in Hong Kong

Unlike mainland China, pursuant to section 21M of the High Court Ordinance, there are no restrictions on the acceptance by Hong Kong courts of applications for Mareva injunctions from parties to legal actions and arbitration proceedings in other jurisdictions. In Bank of China v Yang Fan (2016), an application by the Bank of China, a party to a case subject to the jurisdiction of a mainland court, to freeze Hong Kong assets of a certain individual in the amount of RMB500 million was upheld.Parties in need should refer to Practice Direction 11.2 issued by the Hong Kong judiciary to prepare an originating summons, affidavit/affirmation, exhibits, skeleton argument, draft order, undertaking, etc., and apply to the Court of First Instance of the High Court of Hong Kong by referencing Practice Direction 5.3 and Practice Direction 11.1.

After an application is accepted by Hong Kong’s Court of First Instance a hearing will be held before a judge. Based on an examination of the documents and the hearing, the judge will render an order on whether to issue a Mareva injunction.

The High Court of Hong Kong charges a fixed fee of HKD1,045 (USD134) for applications for Mareva injunctions.

There is no longer any obstacle to the preservation of mainland assets through Hong Kong arbitration proceedings and the means of preserving Hong Kong assets are likewise open and clear. The opening up of mainland China’s judicial preservation system to Hong Kong arbitration proceedings, however, has provided a strong boost to foreign-related commercial transactions, leading the authors to anticipate that Hong Kong arbitration proceedings will surely become the preferred choice of more parties involved in foreign-related disputes.

John Zhou is a partner at East & Concord Partners. He can be contacted on +86 21 5191 7900 (ext 602), or by e-mail at johnzhou@east-concord.com

Zhou Yinlin is an associate at East & Concord Partners. He can be contacted on + 86 21 5191 7900 (ext 610), or by e-mail at
zhouyinlin@east-concord.com

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