For law firms in the region, the Supplemental Arrangement has been welcomed as a compelling development, and one that the market has been waiting for. The Supplemental Arrangement serves as a refinement of the existing Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR, while functioning with fewer grey areas, say lawyers.
In that way, the Supplemental Arrangement “does what it says,” notes Kevin Warburton, partner at Tanner De Witt. He adds that it provides clarity and certainty to parties looking to enforce their arbitral awards.
“It clarifies that, apart from ‘enforcement, the existing Arrangement also covers the ‘recognition’ of the award. Recognition of an arbitral award gives it effect, whereas enforcement of an arbitral award sees to the execution of the terms of the award. The Supplemental Arrangement eliminates the uncertainty of whether an award made in Hong Kong must be recognised before it is enforceable in Mainland China,” Warburton says.
The Supplemental Arrangement also allows for simultaneous enforcement applications in both Hong Kong and Mainland China, a “major step forward,” according to Warburton, as it deals with the risk of delay of enforcement in the second jurisdiction and effectively addresses the concern that the award debtor’s assets in that jurisdiction may no longer be sufficient to satisfy the arbitral award.
Mark Johnson, a Hong Kong-based disputes partner at Debevoise & Plimpton, says the Supplemental Arrangement strengthens the ties between Hong Kong and Mainland China for international arbitration.
“It builds on the existing frame-work, providing an even more stream-lined enforcement regime which not only reinforces Hong Kong as the natural seat for PRC related disputes, but is to the benefit of commercial parties and the arbitral community as a whole,” Johnson says.
Lawyers working in both Mainland China and Hong Kong are expected to see an uptick in PRC-related arbitrations along with an opportunity to leverage their expertise in both jurisdictions to the benefit of their clients, Johnson adds.
Warburton echoes Johnson’s sentiment about firms in both jurisdictions possessing valuable expertise in arbitration concerning cross-border disputes.
“ With the Supplemental Arrangement, Hong Kong is placed in a unique position as a seat of arbitration. This is so because the enhanced enforcement regime not only introduces a simultaneous enforcement mechanism allowing the application for enforcement to be made in both Hong Kong and China, but also empowers the Mainland courts to grant interim relief against the award debtor throughout the arbitral process,” Warburton adds.
The agreement is also expected to improve client experience, with lawyers approaching the situation with more expertise and knowledge, and clients offered more protection.
Shaun Wu, a partner in Paul Hastings’ litigation department, says that it will offer lawyers a chance to get ahead.
“Dispute resolution lawyers especially will now have additional options in strategising cross-border enforcement across Hong Kong and Mainland China. Transaction lawyers pre-plan-ning in advance with dispute resolution and arbitration clauses in contracts will now be able to better manage risks and protect their clients’ interests in the event of a subsequent dispute,” Wu says.
“This is significant especially since many China-foreign cross-border disputes are resolved by arbitration seated in Hong Kong. In particular sectors, Mainland China-based businesses may also tend to have Hong Kong-based assets and holding companies,” says Wu, adding that given Hong Kong and Mainland China’s “close commercial connectivity”, the Supplemental Arrangement “will only enhance arbitration here as a means to effectively resolve disputes”.
Thomas So, partner in Mayer Brown’s litigation and dispute resolution practice, and counsel Simon Wong believe the Supplemental Arrangement “further refines the existing Arrangement.” So and Wong say that China will continue to develop arbitration practices, and other innovative economic initiatives.
“To accommodate its economic transformation and to facilitate the Belt and Road Initiative announced by the Mainland in 2013, China is making great effort to align its arbitration practice and procedures with internationally acceptable standards. A good example is a ground-breaking innovation of experimenting ad hoc arbitrations within its Pilot Free Trade Zones,” So and Wong add.
Mainland China has liberalised the types of disputes that are eligible for arbitration outside the Mainland, “including certain disputes between wholly foreign-owned enterprises registered in the Free Trade Zones”, say So and Wong.
The Mayer Brown lawyers note that the existing Arrangement and the other judicial assistance arrangements signed between China and the HKSAR have so far proven “very successful”, and this is likely to fuel future work in this area.
“We can expect that Mainland China will continue to choose Hong Kong SAR as its ‘testing ground’ for similar future regulatory developments,” they add.
—Gareth Hughes, Debevoise & Plimpton
ONWARD AND UPWARDS
Given a positive reception from the market and the success of the Supplemental Arrangement, lawyers say similar agreements are likely to come into force soon.
Gareth Hughes, another partner at Debevoise & Plimpton, says the market can expect “more of the same” going forward.
“The Supplemental Arrangement is the latest in a series of arrangements between Hong Kong and Mainland China which seek to reinforce the ties between the two when it comes to resolution of disputes,” Hughes says, noting it is not surprising as such measures have already been “impactful.”
“For example, the Interim Measures Arrangement has been particularly successful and beneficial to Hong Kong arbitration. In the first year of its operation, applicants obtained orders from Mainland Chinese courts preserving assets amounting to over $1.3 billion,” Hughes notes.
Warburton of Tanner De Witt believes that Hong Kong and Mainland China will continue to benefit from arbitration developments.
“Given their geographical proximity and cultural similarity, Hong Kong is rightly considered an important arbitration centre for China-related disputes. While there are and will remain fundamental differences in the legal systems on either side of the border, both are inevitably connected,” Warburton says.
The lawyer notes that the Supplemental Arrangement offers a means to enhance the mutual legal assistance regime between Hong Kong and China, along with the existing Arrangement, the introduction of third-party funding, and the Interim Measures Arrangement.
“These developments are certainly beneficial to both Hong Kong and Mainland China, contributing to a more user-friendly system of cross-border dispute resolution,” Warburton says.
“On the one hand, we expect the landscape for China-seated arbitration to be more open and to quickly adapt to the international standards under close scrutiny; on the other hand, we predict that more commercial entities will opt for Hong Kong as the seat of arbitration for disputes with Mainland Chinese elements – they will undoubtedly believe to benefit from the quality of commercial arbitration available in Hong Kong,” Warburton adds.
And, as a result, there is likely to be an increasing number of Mainland China-related disputes arbitrated in Hong Kong and vice versa, according to Warburton.
Like other lawyers, Hughes believes the developments are part of an ongoing process of refinement, and he is optimistic about what this means for the region; “The future looks good,” he says.
“The Supplemental Arrangement is yet another strong signal that coordination and co-operation in arbitration between authorities in Mainland China and Hong Kong will continue to be strengthened. We are also likely to see greater co-operation between law firms based in Hong Kong and Mainland China in arbitration proceedings, whether from the outset or when it comes to the enforcement of awards,” Hughes adds.
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