Preservation of property in commercial arbitration

The preservation of property plays a useful role in the implementation of arbitral awards and the protection of the interests of the parties involved. The relevant provisions of the PRC Arbitration Law have evolved into a system with its own characteristics as regards adjudication and the implementation powers of the court.

Conditions for applications

In arbitration proceedings, only the parties involved may apply for the preservation of property. Under the Arbitration Law and in practice, parties applying for the preservation of property should meet the following conditions.

• The preservation of property only applies in cases involving a monetary claim.
• An application for the preservation of property must be supported by legally established facts and reasoning. The Arbitration Law stipulates that such applications can only be entertained where an arbitral award is difficult or impossible to enforce due to the behaviour of one of the parties, or for other reasons. In practice, the “behaviour of the parties” means acts by any party to evade its obligations by concealing, transferring, damaging or selling property. “Other reasons” may relate to objective circumstances, such as where the relevant property consists of fresh or seasonal goods not suited for long-term preservation.
• Applications for the preservation of property should be made to the arbitration
• commission handling the dispute, which will transfer it to a court.
• Applications for the preservation of property must be made within a certain period of time. The Arbitration Law does not clearly stipulate a time limit. In practice, an application should be made after an arbitration case has been accepted but before an award is made. Applications made before arbitration commences will usually not be accepted.

Target property

The most common property preservation measures are the sealing, seizure and freezing of the target property.

Sealing is mainly appropriate for houses, factories and other real property. Small valuable items and licences can also be seized, as can large assets such as ships, aircraft and vehicles.

Freezing is mainly aimed at accounts held at financial institutions. Generally, an account may not be frozen for more than six months. If there is a need for an extension, the applicant should apply to the arbitration bodies before the original order expires, and an extension may be granted by a court. Each renewal period should not exceed six months. If there is no application for renewal, the property is automatically regarded as unfrozen.

Application materials

Applicants should submit the arbitration application and relevant evidence, the arbitration case acceptance notice, the identity documents of both parties, the property preservation application and guarantee materials. They should also provide details of the target property and supporting documents.

• If the target property is a motor vehicle, the licence number of the vehicle and the official ownership certificate should be submitted.
• If the target property is real property, its location and the name of its owner should be provided, as well as the registration materials issued by the real estate registration authorities.
• If the target property is a personal bank deposit, the name and address of the bank where the account was opened should be given, along with the depositor’s name, ID number and account number. If the target property is the deposit of a work unit, the name and address of the bank where the account was opened should be given, as well as the account number.
• If the target property is shares or funds in a share account, the name of the shareholders should be provided along with the account number and the name and location of the securities exchange.
• In the case of other property, such details as its name, type, size, quantity, value, owner and location should be provided, along with related evidence.

Application procedures

The basic steps when applying for the preservation of property are as follows.

• The parties should apply in writing to the arbitration commission after the arbitration case has been accepted but before any award has been made. The type, value and location of the subject matter of the application or the target property, along with the reasons for the application, should be stated in the application.
• After the arbitration commission has reviewed the application, it will pass it to the basic-level court in the place of domicile of the person who is the object of the application, or in the place where the property is located, for a final ruling. In foreign-related arbitration cases the foreign arbitration institution should pass the application to the intermediate people’s court in the domicile of the person who is the object of the application or in the place where the property is located.
• If the court requests, the applicant must provide a guarantee. After receiving a preservation application from an arbitration commission, a court may require the applicant to provide a guarantee. If the applicant fails to do this, the application will be rejected.
• Property preservation is determined by the courts. Unless the urgency of the situation requires that a ruling be made within 48 hours, the court has discretion over timing. The court will reject any application that does not meet the required conditions. If the conditions are met, the courts will usually issue a ruling in writing which will take effect immediately. A dissatisfied party may not appeal, but may reapply. During the period of the reapplication there should be no suspension of the execution of the court’s ruling.
• Implementation. Once a court rules that preservation measures should be adopted, the ruling should be delivered and executed immediately. The enforcement division of the court is usually responsible for implementation.

If an error occurs because of an application for the preservation of property (for example, the applicant’s arbitration request is rejected or only partly supported by the ruling of the arbitral tribunal), the applicant will be responsible for compensating the party that is the object of the application for any losses caused.

Charles Pan is a senior consultant and Kevin Cong is an associate in the Shanghai office of Yao Liang Law Offices