The Supreme People's Court (the "SPC") of the People's Republic of China (the "PRC") has recently issued a letter to the Higher People's Courts in Mainland China confirming a bilateral arrangement which enhances the enforceability of arbitral awards made in Hong Kong. The Arrangement concerning Mutual Enforcement of Arbitral Awards between Mainland China and the Hong Kong SAR (the "Arrangement") was concluded in June 1999 in an attempt to resolve the problem of enforcement of arbitral awards following the return of Hong Kong to the Mainland after the handover from Britain in 1997.
The Hong Kong Arbitration Ordinance was amended in January 2000 to give effect to the Arrangement and put in place a mechanism by which awards made in the two jurisdictions would be mutually enforceable. Notwithstanding this development, differences in judicial approaches of the PRC Courts to the question of enforceability of arbitral awards made in Hong Kong had lead to confusion as to the reliability of courts' decisions on enforcement, particularly in the case of ad hoc awards, as this form of arbitration is not permitted in the PRC.
The effect of the Arrangement is that the following Hong Kong awards are enforceable in Mainland China:
- ad hoc arbitral awards made in Hong Kong
- arbitral awards made in Hong Kong by the International Court of Arbitration ("ICC")
- arbitral awards made in Hong Kong by other foreign arbitration institutions
The issue by the PRC Court of a confirmation as to the effect of the Arrangement should alleviate concerns, particularly among foreign investors, as to the likelihood of awards made in Hong Kong being enforced in practice in the PRC.
Arbitral awards made in Hong Kong can also be enforced in multiple jurisdictions worldwide pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Potential enforceability issues in Mainland China
While the approach adopted by the SPC is welcomed, there are two more issues which may need further clarification.
Interim awards
The first issue concerns the enforceability of interim awards. It is not clear whether the "award" mentioned in the SPC's letter is intended to refer to an interim award, as well as a final award. The UNCITRAL Rules (Article 26), ICC Rules (Article 23.1) and HKIAC Rules (Article 24.2) among others all make provision for interim measures in arbitrations which are governed by those rules. Interim awards are temporary measures adopted by the arbitral tribunal prior to the issuance of the final award, usually to preserve certain assets or evidence, or to order a party to take or refrain from certain actions. The intention is to preserve the status quo until the final outcome of the arbitral proceedings. The key feature is that an interim award is provisional and temporary, and may be revoked by any final award rendered thereafter.
PRC law is silent as to the enforceability of interim awards. There is no such concept under the PRC Civil Procedural Law and Arbitration Law and arbitral tribunals do not have the power to grant interim measures which are exclusively within the remit of the Chinese courts.
Partial awards
The second issue concerns the enforceability of partial awards, meaning those which deal with one or more issues in a case, but not with the entirety of the matters in dispute. This is also a concept which does not exist under PRC law and, to date, no publically available case law has addressed this issue. A partial award, though, is different from an interim award in that it usually represents a final decision of the arbitral tribunal.
In practice, where the law is silent as to a certain issue and in the absence of any other guidance, the Chinese courts will usually be inclined to take a narrow, restrictive approach. It is therefore likely that interim awards made in Hong Kong will not be enforceable in Mainland China for the lack of legal basis for their enforcement. However, given the similarity in law between the effect of a partial and a final award, there is a line of thinking that a partial award made in Hong Kong will be enforceable in Mainland China, although this is yet to be addressed by the courts.
Comment
Hong Kong is keen to enhance its reputation as an international dispute resolution centre. For example, in November 2008, the ICC opened its first Asian office of the Court's Secretariat in Hong Kong in what it said was a response to increasing demand in the region for its services. The Hong Kong International Arbitration Centre, which operates panels of arbitrators and provides information on arbitration in Hong Kong and overseas, has also seen its caseload increase substantially in recent years.
There is no doubt that the position of the Hong Kong SAR is such that it is uniquely placed to offer foreign parties looking to invest in Mainland China a forum for dispute resolution that is more accessible than the Mainland itself.
The notification of the PRC Court to confirm the Arrangement, thereby sending a clear message that arbitral awards made in Hong Kong are enforceable on the Mainland, represents another advance for Hong Kong in establishing itself as a major international arbitration centre. It will remain to be seen, however, whether partial and interim awards can enjoy the same flexibility.