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Introduction

Hong Kong’s Arbitration Ordinance (Cap. 609) (“AO“) has adopted Articles 17-17H of the UNCITRAL Model Law on interim measures and preliminary orders.[1] However, for recognition and enforcement of interim measures (Articles 17H and 17I) and court-ordered interim measures (Article 17J), the AO has adopted its own regimes tailored for Hong Kong.[2]

For court-ordered interim measures, section 45 AO empowers the Court of First Instance (CFI) to grant interim measures for any arbitrations which have been or are to be commenced in or outside Hong Kong.

Pursuant to section 45(4), the court may decline to grant an interim measure if the measure is already the subject of the arbitration and the court considers it more appropriate for the tribunal to deal with it. For arbitrations outside Hong Kong, section 45(7) AO requires the court to consider that its power is ancillary to the arbitration and aims to facilitate the process of a court or tribunal with primary jurisdiction over the arbitration.

In Company A and another v Company C [2024] HKCFI 3505, the CFI had to consider whether to grant interim measures in aid of an arbitration abroad administered by the International Centre for Dispute Resolution (ICDR), the international division of the American Arbitration Association (AAA).

The court granted the interim measures sought, concluding that it would best facilitate the tribunal if the status quo was preserved.

Background

SZ held a 51% equity interest in Company C, the Defendant (D) in the court action. D in turn held a 44% stake in Company B, the second Plaintiff (P2).

The dispute arose out of a settlement agreement between the two Plaintiffs (Ps) and D. Under the settlement, D had reaffirmed its commitment to support the initial public offering of P2’s shares.

Ps commenced an ICDR arbitration against D claiming damages of around USD 55 million for breach of the settlement. D counterclaimed for around USD 2 million.

On 13 April 2024, during the arbitration, SZ announced on the Shanghai Stock Exchange its intention to dispose of its equity interest in D for around USD 10 million to a third party. Under the contemplated transaction, D’s operations and assets would be transferred to SZ and/or connected companies. On 25 April, SZ further announced that the shareholder resolution for the disposal of D was passed on 24 April.

SZ’s announcements led Ps to believe that D intended to fraudulently divest its assets to frustrate any potential award in Ps’ favour. On 3 May, Ps applied to the tribunal for emergency relief, seeking orders restraining D from completing the transfer and requiring D to deposit security of around USD 55.5 million in an escrow account.

The tribunal gave directions for submissions on Ps’ application, but it did not order any preliminary interim relief to stop the transfer pending the tribunal’s decision. It agreed however that Ps could seek such relief from the Hong Kong courts.

On 24 May, Ps applied to the CFI ex parte (on notice) for (i) an injunction restraining D from transferring its assets to SZ or associated entities, and (ii) a worldwide Mareva injunction restraining D from disposing of its assets up to around USD 55.5 million. The court granted the injunctions on the same day until the inter partes hearing on 31 May.

On 27 May, Ps took out the proper application for the injunctions to the court. Its terms mirrored the emergency relief sought in the arbitration.

The tribunal knew of Ps’ application to the court. On 28 May, the tribunal indicated that it was prepared to grant a preliminary injunction in favour of Ps and invited Ps to submit a draft order and D to submit objections.

On 31 May, D offered undertakings, among others, not to transfer any of its assets to SZ or any associated entity, and not to remove from Hong Kong any of its assets up to around USD 55.5 million, pending the tribunal’s determination of Ps’ emergency application.

On 12 June, a hearing took place before the tribunal. Shortly thereafter, the tribunal issued several procedural orders, directing the parties to confer in good faith and agree on an escrow arrangement to address Ps’ concerns. However, the parties subsequently failed to agree on all terms, including the terms of the escrow relief to be granted by the tribunal.

On 22 October, the court heard P’s application. The escrow agreement was still not signed. At the end of the hearing, the court granted both injunctions pending the tribunal’s final orders on Ps’ applications in the arbitration and pending the issue of the final award, with costs to Ps.

The court delivered the reasons for its decision on 5 December.

The court’s findings

D opposed Ps’ application on grounds that (i) the tribunal had already granted the interim measures sought by P, and (ii) the court should decline the relief pursuant to section 45(4) AO as the measure was already the subject before the tribunal. D contended that it was neither appropriate for the court to deal with the matter, nor was it just or convenient for the court to grant the relief.

The court had to consider whether it was more appropriate for the tribunal to deal with Ps’ application. The court recognized that it should exercise its jurisdiction to grant interim measures sparingly and only for special reasons. This was due to the policy of minimal curial intervention in arbitrations and the need to recognize arbitral autonomy.

The court concluded that because its power to grant interim measures was intended to facilitate the process of the tribunal abroad, the orders should be granted to support the tribunal and facilitate the orders so far made in the arbitration:

  • The tribunal intended that the parties entered into an escrow agreement. This did not happen due to D’s obstructive and uncooperative conduct. At the time of the court hearing, the tribunal still had to rule on Ps’ emergency relief application and the escrow agreement had yet to be finalized for the tribunal’s acceptance.
  • The object of the AO is for the court to facilitate fair and speedy arbitration without unnecessary expense. The court’s power under section 45 AO serves to facilitate the process of the tribunal. D’s delay and non-compliance should therefore not be condoned by any court.

Due to D’s delays and obstruction of the tribunal’s directions on the escrow agreement, the court found it appropriate, just and convenient to grant Ps’ application to preserve the status quo pending the tribunal’s further and final orders and award in the arbitration. Additionally, the court considered it appropriate and just to permit enforcement of any interim relief already granted by the tribunal as an order or direction of the court.

Takeaways

The comprehensive regime under the AO on interim measures and preliminary orders plays an important part in achieving the object of the AO to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense.

The CFI’s decision reflects the Hong Kong courts’ robust attitude towards this object. It confirms that where arbitrations are seated abroad, the courts are cognizant of the fact that their power to grant supporting interim measures is ancillary and they are circumspect in considering whether an interim measure would facilitate the process of the tribunal.

Interim measures, whether from emergency arbitrators, tribunals or courts, can be critical for a claimant in an imminent or ongoing arbitration. The availability of interim measures in aid of arbitrations depends in particular on the chosen seat and arbitral rules. For example, parties arbitrating in Hong Kong can benefit from flexible options for a wide range interim measures, including from the Hong Kong courts. In addition, parties can apply directly to the Mainland courts for asset freezing orders that are directly enforceable in Mainland China if their arbitration is administered by certain eligible institutions in Hong Kong (e.g., HKIAC, ICC, CIETAC or SCIA).[3]


[1] See Division 3, sections 35 to 43 AO. Chapter IVA, Articles 17 to 17J, were introduced into the Model Law when amended in 2006.

[2] See sections 61 and 43 AO (replacing Articles 17H and 17I), and section 45 AO (replacing Article 17J).

[3] The process for Hong Kong arbitration is governed by a landmark arrangement with Mainland China on court-ordered interim measures. Read more about it here.

Author

Philipp Hanusch is a partner in Baker McKenzie’s International Arbitration Team in Hong Kong and a member of the Firm’s Asia-Pacific International Arbitration Steering Committee. Philipp specialises in international commercial arbitration with a focus on shareholder, joint venture and M&A disputes. He has represented parties in arbitrations under various rules, including the HKIAC Rules, ICC Rules, CIETAC Rules, ICDR Rules and UNCITRAL Arbitration Rules. He is on the HKIAC List of Arbitrators and a member of the ICC-HK Standing Committee on Arbitration and ADR. He has been repeatedly appointed as arbitrator under the ICC Rules and HKIAC Rules. Philipp can be reached at Philipp.Hanusch@bakermckenzie.com and +852 2846 1665.

Author

James Ng is a senior associate in Baker McKenzie's International Arbitration team in Hong Kong. He has acted for clients in complex and high-value arbitrations under the CIETAC, HKIAC, ICADR, ICC, LCIA, SHIAC, SIAC, and UNCITRAL Arbitration Rules, involving commercial, construction, hotel management, IP, M&A, JV and shareholders disputes. He is a SIAC panelled arbitrator and a Fellow of the Chartered Institute of Arbitrators. James Ng can be reached at James.Ng@bakermckenzie.com and + 852 2846 2925.