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In August 2018, the Beijing Arbitration Commission (“BAC”) closed its first arbitration case involving emergency arbitration procedures in China (“GKML Case“). This case, with the claimants represented by Baker McKenzie Fenxun, is significant in that it not only featured the first emergency arbitrator proceeding (“EA proceedings“) in China but also the enforcement of the emergency arbitrator order (“EA Order“) in Hong Kong, and therefore has set a precedent and example for future practices of similar proceedings.

Articles 62 and 63 of the BAC Arbitration Rules 2015 Edition (“BAC Rules“) provide for EA proceedings to parties who want to apply for interim measures prior to the constitution of the tribunal. There are similar provisions in the rules of many Chinese arbitration institutions. However, until the GKML Case, there had never been an emergency arbitrator case in China. As such, BAC had to build its practice from scratch starting from this case.

This article discusses and analyzes the tests and criteria adopted in the first ever EA proceedings in China.


The case involved a dispute under two investment contracts. The investor claimants (“Claimants“), who are Hong Kong companies, sought repurchase of their shares in the target company (“Company“) by the Company and its controlling shareholder when the agreed profit levels had not been achieved. The respondents comprise the Company, which was incorporated in Cayman Islands, and the controlling shareholder, a Chinese national, with assets in Hong Kong (“Respondents“). The investment contracts have a BAC arbitration clause with PRC law as the governing law.

The Claimants needed to urgently prevent the Respondents from dissipating their assets in Hong Kong and other jurisdictions. After considering several options, they chose to apply for an EA Order from BAC and have it enforced in Hong Kong.

The EA Order was granted at the end of September 2017 after a hearing by teleconference and processing of some 10 days. It was then submitted to the Hong Kong High Court, which immediately gave leave for enforcement on the day of application, invoking section 22B of the Hong Kong Arbitration Ordinance and allowing 14 days for the Respondents to lodge objections. Upon the lapse of the 14 day period, the enforcement order took effect as the Respondents had not lodged any motion to set aside.

Relief Sought by the Claimants

Upon the filing of the Request for Arbitration with the BAC, the Claimants immediately filed an application for an emergency arbitrator order seeking the following interim relief:

  1. Asset Information Disclosure: The Respondents be ordered to disclose information on their assets generally;
  2. Disposal Restraint: The Respondents be restrained from disposing of, transferring, hiding away or encumbering their assets generally, and in particular some known assets such as the loan debt owed to the Company by a Hong Kong listed company (“Listco“), the shares in the Listco and deposits in bank accounts;
  3. Anti-suit Injunction: The Respondents be ordered not to take any actions in any jurisdictions, including bringing suits or applications before courts, to resist the enforcement of the EA Order;
  4. No Assistance: The Respondents be ordered not to encourage, direct or hint to any third party to take any actions which are otherwise restrained by this Order.

Analysis of Criteria and Approach Adopted by the Emergency Arbitrator

Article 63 of the BAC Rules does not lay down any criteria for considering whether and what to grant an applicant for interim measures in EA proceedings.  As such, the emergency arbitrator (“EA“) has a wide discretion. Considering that the interim measures would primarily be enforced in Hong Kong, the EA drew guidance from the Hong Kong Arbitration Ordinance and the approach of the Hong Kong courts for issuing Mareva injunctions.

The EA Order was granted upon applying the following tests:

  1. Whether the applicant has an arguable case, in other words, whether it has a reasonable likelihood of success in merits;
  2. Balance of convenience;
  3. Urgency;
  4. Whether the interim measures applied for are reasonable and enforceable.

The EA Order expounds on the above tests, in particular:

1. Arguable Case

Under this heading, the EA discussed three issues related to the merits of the dispute: i) whether the repurchase conditions as stipulated in the investment contracts  had been triggered;  ii) whether a settlement agreement entered into by the controlling shareholder of the Claimants with some affiliates of the Respondents should be considered as the Claimants’ waiver of the repurchase rights; and iii) whether a general meeting resolution of the Company which the Claimants voted in favor of and the implementation thereof could have terminated the investment contracts.

Taking into account the submissions of the parties on the above three issues, the EA opined that, while definitive determinations on the issues may be left to the tribunal, he could not conclude on the basis of the preliminary submissions that the applicants would not have a reasonable likelihood of success on merits. Therefore, he found in favor of the Claimants under this heading.

2. Balance of Convenience

The EA discussed what dissipating actions the Respondents could possibly take without subjugation to interim measures and weigh their respective impact on the Claimants and Respondents. With reference to the two prospective dissipating actions the Claimants suggested the Respondents might take, i.e. i) the Company distributing the shares in the Listco as per the shareholder resolution; and ii) novating the loan debt owed by the Listco to the Company to others, the EA opined that the first action was to implement a shareholder resolution which the Claimants had voted in favor of and hence should not be restricted, whereas the second may be detrimental to the Claimants as it would undermine the Respondents’ debt discharging capabilities to the Claimants.

In weighing the balance, the EA considered that any restraining measures on the Respondents’ disposal of their assets would be temporary and would not substantially diminish the value of the assets whereas, on the contrary, the Respondents’ possible disposal without restraint would seriously impair the Claimants’ chances of recovery from the Respondents.

The EA seemed to include urgency as one of the tests but did not elaborate on it in the discussions.

Hence the EA found in favor of the Claimants under this heading.

3. Reasonableness and enforceability of the interim measures

Since the interim measures were to be primarily enforced in Hong Kong, the EA gave regard to the enforceability of the prospective EA Order in Hong Kong. In this regard, he opined that the request for Asset Information Disclosure did not seem to be urgent and, most importantly, might not be enforceable in Hong Kong, not being one of the interim measures allowed under the Arbitration Ordinance.

As to the request for Disposal Restraint, the EA granted the request with respect to the known assets while dismissed the request for restraint on the general assets of the Respondents, citing that such a restraint would probably not be enforceable in Hong Kong and would impose undue burden on the Respondents.

With regard to the Anti-suit Injunction request, the EA opined that, first, the Respondents’ procedural rights should not be restrained by way of the EA procedure; second, whether the Respondents can resist the enforcement of the EA Order should be decided by the courts of enforcement; and lastly, any improper actions on the part of the Respondents resisting the implementation of the EA Order would be duly taken into account by the tribunal and should not be treated as a separate relief.

The EA also granted the request for No Assistance.

4. Security

The EA drew additional comfort from the fact that the Claimants had provided, by way of an insurance policy, security for 30% of the value of the assets being sought to be restrained in line with the court practice in China.

Enforcement in Hong Kong

Upon the ex parte application of the Claimants, the Hong Kong High Court ordered  (“Enforcement Order“) that:

  1. The applicants have leave to enforce in Hong Kong in terms of the EA Order, pursuant to section 22B of the Arbitration Ordinance;
  2. The Enforcement Order be extended to third parties so that any person notified of this Enforcement Order will be held in contempt of court should it knowingly assist in or permit a breach of the Enforcement Order, and some named agencies such as the Computershare Hong Kong Investor Services Limited and the Listco are specifically restrained from transferring any shares of or making payments to the Respondents.

Observations and Comments

The EA has obviously drawn guidance in terms of the tests and criteria from the Hong Kong court practice in granting Mareva injunctions considering that the EA Order would primarily be enforced in Hong Kong.

In relation to the test for an “arguable case”, firstly, we are of the view that the EA would only make a preliminary assessment of the Claimants’ case based on the prima facie evidence produced by the parties. The EA would not make definitive determinations on the merits. Secondly, the threshold for the likelihood of success is set at a “reasonable” level, which is obviously lower than what is required for the Claimants to win in the full proceedings. In practice, it may well mean that the EA would find in favor of the Claimants so long as he sees no decisive factors capable of precluding the Claimants case de facto or de jure, to the extent he can determine on the basis of the prima facie evidence. The fact that some issues are undeterminable by him at that stage would not hold back the EA from granting interim measures.

We also observe that in this case, the EA was careful not to grant wide-ranging relief of an unlimited or general nature. This has been illustrated by the fact that the EA was not prepared to grant a request for general disclosure of asset information or a general restraint over the Respondents’ unspecified assets. We consider that in such circumstances, the Claimants will have to conduct further investigations to identify the Respondents’ assets and specify these details in its application in order to have it covered.

It is worth noting that the tests and criteria are quite different from those adopted by PRC courts when considering asset preservation applications. PRC courts will usually grant the applications and give little regard to the balance of convenience so long as the applicants have a prima facie case and provide adequate security for the applications. As such, the bar for applying for asset preservation orders in China is much lower than that for Mareva injunctions in Hong Kong. Besides, the PRC asset preservation order will forbid any disposal or use of the subject assets unless such use will not diminish the value of the assets, whereas Mareva injunctions usually permit fair-priced commercial dealings in the ordinary course of business.


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