23 January 2019

Eight features of the new enforcement arrangement between Mainland China and Hong Kong solidifying HK’s role as a dispute resolution provider on BAR

Paul Starr, Suraj Sajnani, Dong Long

On 18 January 2019, the Government of the Hong Kong Special Administrative Region and the Supreme People’s Court of the People’s Republic of China signed a ground-breaking agreement that broadens the scope of judgments which may be enforced between Mainland China and Hong Kong (“New Arrangement”). 

While Hong Kong is within the PRC, Mainland China and Hong Kong are separate legal jurisdictions.  As such, judgments from the Mainland can only be enforced in Hong Kong, and vice-versa, by way of a special arrangement. Currently, the 2006 Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned (“2006 Arrangement”) permits such enforcement, but only if certain criteria were met. Those criteria include that (i) the judgment must be for money only and (ii) the judgment must arise out of a choice of court agreement which essentially requires that the parties had entered into an exclusive jurisdiction agreement, prior to the dispute, agreeing that all disputes would be referred exclusively to PRC or HK courts, as the case may be. 

The New Arrangement significantly broadens the scope of judgments that may be enforced between the two jurisdictions.  Here are its top eight features:

  1. The New Arrangement operates by way of an excepted list, which means that all legally effective commercial and civil judgments are enforceable other than in areas listed in the Arrangement.  Those areas include: bankruptcy / insolvency, family, matrimonial, probate, maritime, and certain patent / intellectual property cases. For commercial disputes, the exclusion of bankruptcy / insolvency is most significant as this means that enforcement against a cross-border company by way of winding-up continues to have limited impact, as recognition of such winding-up will continue to be fraught with difficulty;
  2. Monetary and non-monetary judgments can be enforced under the New Arrangement. Importantly, this would include orders for specific performance. However, anti-suit injunctions or interim relief from Hong Kong courts, and preservation measures from PRC courts are not enforceable under the Arrangement;
  3. A court where enforcement is sought may, before or after accepting an application for enforcement, impose property preservation measures;
  4. The New Arrangement only applies to ‘legally effective judgments’, which in the case of the Mainland means a second instance judgment or a first instance judgment which cannot be appealed or for which the appeal time limit has expired. For Hong Kong, even if a judgment remains appealable, it is still enforceable, however, enforcement may be stayed pending the appeal;
  5. The party requesting enforcement must seek from the court where judgment was originally sought a certificate that the judgment is legally effective and enforceable, and in the case of a default judgment, certification that the party against whom enforcement is sought was properly summoned;
  6. The “choice of court agreement” requirement under the 2006 Arrangement has been abolished.  In its place is a jurisdictional test which can be satisfied without parties’ agreement to an exclusive jurisdiction clause at the time of contract formation. In essence, provided that the place where enforcement is sought did not have exclusive jurisdiction of the dispute and the courts of the place where judgment was granted properly exercised jurisdiction (by way of one of the means referred to in the New Arrangement), the jurisdictional test is satisfied;
  7. Similar to the approach taken for enforcement of arbitral awards pursuant to the New York Convention, there are limited grounds upon which enforcement can be refused, including: improper exercise of jurisdiction, fraud, breach of natural justice, and breach of basic principles of law or public policy;
  8. Costs and interest awards can be enforced under the New Arrangement.

The New Arrangement does not affect the recognition or enforcement of arbitral awards, which continue to be enforced through the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and Hong Kong (for which see our brief here). The New Arrangement is not yet effective. It will come into effect on a date to be determined. Upon its entry into force, it will terminate the 2006 Arrangement, which will continue to apply only to choice of court agreements signed before the commencement of the New Arrangement.

The New Arrangement signals yet another step in the direction to solidify Hong Kong’s role in the Belt and Road Initiative as the prime location for dispute resolution, ahead of other jurisdictions which are not privy to any special agreements whereby national judgments can be enforced against assets in Mainland China. It adds to the growing range of assets for parties looking to resolve their Belt and Road disputes in Hong Kong, such as the recent HKIAC 2018 rules for which our client alert is found here.

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