Interim measures in support of commercial arbitration in China 1

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1 Interim measures in support of commercial arbitration in China 1 Arthur X. Dong In China, arbitral tribunals do not have the power to implement interim protection measures, regardless of the institutional rules to be applied to the arbitration. Moreover, the arbitral tribunals are prevented from implementing interim protection measures even if its rules would grant it such a right. In simple terms, the parties to arbitration must first make their applications for property preservation or evidence preservation to the relevant arbitration institution. From there, the arbitration institution then transfers the party's application to the people s court. The arbitral institution is prohibited from considering the merits of the motion. Based on the recent amendment to Civil Procedure Law of the People s Republic of China ( Civil Procedure Law, the latest version become effective from 1 January 2013), parties are allowed to apply for interim measures directly with the judicial court before initiating arbitration proceedings, which is deemed a sign of pro-arbitration judicial policy. Types of interim measures The Civil Procedure Law and Arbitration Law of the People s Republic of China ( Arbitration Law, which became effective from 1 September 1995) provides for interim measure in two contexts relevant to arbitration: evidence and property preservation: Chinese law provides for interim relief protecting evidence which may be lost or would be difficult to collect in the future. Civil Procedure Law, art 81. The law does not distinguish between physical property and other forms of property (Civil Procedure Law, art 100). Article 101 of the Civil Procedure Law limits 1 First published on Lexis PSL Arbitration A link to the Practice Note can be found at: 1

2 interim protective measures for property to the scope of the claims or to the property relevant to the case. The Civil Procedure Law, in its most recent version, now extends protection in a civil action to prohibit certain acts and/or to mandate the other party to perform certain actions towards preservation. Civil Procedure Law, art 100. When to apply for interim measures a. Prior to initiating the arbitration proceedings Emergency interim measures are now available to parties prior to the commencement of arbitration under the Civil Procedure Law. Article 81 stipulates in emergency situations in which evidence may be lost or would be difficult to collect in the future, an interested party may, before the case or arbitration is filed, apply for preservation of such evidence with the people's court. Article 101 also provides for property preservation before the trial or arbitration in emergencies. b. Simultaneous with the initiation of arbitration or during the arbitration proceedings The Civil Procedure Law provides that in circumstances in which evidence could be lost or would prove difficult to collect in the future, the party concerned may apply with the people's court for preservation of such evidence in the proceedings. Civil Procedure Law, art 81. The same legislation for the property preservation is found in art 100. Where to submit the application Pre-arbitration applications for interim relief submitted directly to the court For applications for evidence preservation made pre-arbitration, the applicant should file its application directly to the court at: (1) the place where the evidence to be 2

3 preserved is located or; (2) the place where the respondent is domiciled, or; (3) the people's court with jurisdiction over the case. Civil Procedure Law, art 81. While for the preservation of property, the moving party should file to the court at: (1) the place where the respondent is domiciled, or (2) the place where property subjected to be preserved is located, or; (3) the people's court with jurisdiction over the case. Civil Procedure Law, art 101 Application for interim relief made simultaneously with the filing of arbitration proceedings submitted to the arbitration institution In China, neither the arbitral institution nor arbitral tribunal has the power to rule on interim measures. Instead, the party applies to the arbitral institution (not the tribunal) for interim protection. However, once the party applies for preservation measures, the Civil Procedure Law requires the arbitral institution to refer the party s application for a decision to the [competent] people s court. Specifically, when there s a foreign element involved, the court will be the intermediate court. While if it s a purely domestic case, the court should be the basic court, the lowest level court in the hierarchical judicial system. See Civil Procedure Law, art 272, Arbitration Law, arts 28, 46 and 68. The arbitral institution is relegated to the role of postman or gatekeeper in that it is bound to forward the application to the court with no power to make a ruling. No time limit is specified for the arbitral institution to forward the party s application to the court, which could lead to additional delay and stymie the efficaciousness of the application. CIETAC Arbitration Rules (2015 version) provide for interim measures under art 23, where it states: Where a party applies for conservatory measures pursuant to the laws of the People's Republic of China, the secretariat of CIETAC shall forward the party's application to the competent court designated by that party in accordance with 3

4 the law. CIETAC rr, art Likewise, the BAC Arbitration Rules (2015 version) take into account the preservation of property and evidence. Under art 16.1, a party may apply for an order to preserve the other party s property, or to require the other party to take or refrain from taking certain actions. Similarly, under art 16.2, A party may apply for an order to preserve evidence if such evidence might become destroyed or lost, or might subsequently become difficult to obtain. However, the import of the arbitration rules is limited by the fact that the interim measures are within the sole domain of the combination of the Civil Procedure Law and the Arbitration Law. a. Emergency arbitrator and the power of arbitration tribunal to rule on interim measures Despite much debate in Chinese legal and academic circles, there is currently no authority for the establishment of an emergency arbitrator. With this in mind, several arbitration institutions in China already provide a provision for emergency arbitrator in their arbitration rules in anticipation of a change of law, but as it stands an award from an emergency arbitrator could not be enforced by judicial court in China. CIETAC rr (version 2015) art 23.2, BAC rr (version 2015) art 63, China (Shanghai) Pilot Free Trade Zone Arbitration Rules (Effective on 1 May 2014) art 21. These arbitration rules are targeted at other jurisdictions, such as Hong Kong or Singapore, in order to allow for emergency arbitrator in those countries where it is provided for by law. Another scenario where these emergency arbitrator rules may come into play is if they are chosen to be applied in an arbitral seat which allows for emergency arbitrator. While keeping in mind that in China arbitration tribunals do not have the power to implement interim protection measures, all of the newly promulgated arbitration rules 4

5 by the main arbitration institutions in China contain this kind of provision. Similar to the situation with the emergency arbitrator above, this kind of rule is intended to allow for enforcement of an interim measure in other jurisdictions such as Hong Kong or Singapore. Also these provisions will apply when the parties choose a Chinese arbitration institution to administer the case, but chooses another jurisdiction (e.g. CIETAC arbitration with a Paris seat), which allows the tribunal to rule on interim measures, under the laws of the seat of arbitration. For example, CIETAC rr grant the arbitral tribunal the authority to order any interim measure it deems necessary or proper in accordance with the applicable law if requested by a party. CIETAC rr, art In the same vein, the CIETAC Rules 2015 also allow the arbitral tribunal to require the requesting party to provide appropriate security in connection with the measure. CIETAC rr, art 23.3 b. Which court level has jurisdiction to hear applications for interim relief Foreign- Related Cases In foreign-related cases the intermediate people s court has the authority to hear applications for interim measures. Foreign-related refers to the following situations as defined in the Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of the Law of the People's Republic of China on the Application of Laws to Foreign-Related Civil Relations (I), Fa Shi [2012] No.24, art 1: A party or both of the parties concerned is/are a foreign citizen(s), a legal person(s) or other organization(s) in a foreign country or a person(s) without nationality; The habitual residence of a party or both of the parties concerned is outside the territory of the People's Republic of China; 5

6 The subject matter is outside the territory of the People's Republic of China; The legal facts that establish, change or eliminate civil relations occurred outside the territory of the People's Republic of China; or Other situations that may be recognized as foreign-related civil relations. In these cases, the intermediate people s court is the appropriate court to hear both applications for preservation made before and after arbitration has been initiated. The only difference being that in pre-arbitration preservation applications the application is made directly to the intermediate people s court. If the application is made after the arbitration has been commenced then the application is made to the arbitration tribunal, who must forward the application to the intermediate people s court. Wholly domestic cases For cases lacking a foreign element, the procedure is more straight-forward. The party is required to apply to the people s court at the basic level and must also satisfy to the connection requirements for applications in accordance with Civil Procedure Law 101. Likewise, for preservation measures applied for after arbitration is commenced the arbitration tribunal must forward the application to the people s court. SPC s Regulation on the Enforcement Issues (Fa Shi [1998] No.15), Arbitration Law arts 28 and 46. Venue: where the respondent is domiciled or the court where property/evidence is located Regardless of whether the arbitration is domestic or foreign-related, the forum-selection test will be applied equally, with the only difference being whether the case will be heard in the intermediate people s court or in the basic level people s court. 6

7 To determine the proper people s court, the arbitration institution will be guided by Civil Procedure Law, arts 81, 100, 101, 272. Based on these provisions, the party s application should be referred to the people s court of the place where the respondent is domiciled, or where the property is located, or where the evidence is located. The threshold standards Threshold standards for pre-arbitration application The test for the court to apply when making a decision on interim measures in pre-arbitration applications is whether the interested parties whose rights and interests would, due to urgent circumstances, suffer irretrievable damage without immediately applying for property preservation, may, before filing a lawsuit, apply to the people's court for the adoption of property preservation measures. As mentioned above, the updated Civil Procedure Law offers recourse in the form pre-arbitration interim relief. The relevant standard for awarding pre-arbitration interim relief is set out in Article 101 of the Civil Procedure Law. The law allows interested parties, whose legitimate rights and interests would, due to urgent circumstances, suffer irreparable damage without immediate application for property preservation, to apply to the people's court for protection prior to filing a notice of arbitration. In pre-arbitration protection filings, the applicant shall provide security; otherwise, his application shall be rejected. The people's court shall make a ruling within 48 hours after receiving the application. Where it rules to take preservative measures, the ruling shall be enforceable immediately. The applicant has 30 days to commence arbitration after the people's court has adopted the preservation measures or the people's court shall cancel the property 7

8 preservation. Civil Procedure Law, art 101. Threshold standards after arbitration is initiated The threshold standard for requesting interim measures is slightly lower for applications that occur after arbitration has been commenced. When arbitration is underway, the people s court may, upon a party s request, make a ruling to preserve the assets of the other party or order the other party to perform certain acts or to prohibit the other party from committing certain acts. Civil Procedure Law, art 100. The legal standard for the preservation of assets requires the moving party to show that the execution of a judgment may become impossible or difficult or otherwise harmful to the parties concerned because of the acts of one party or for other reasons. Id. The people s court is authorized to act on its own accord where no application is filed by either party, if preservation measures are deemed necessary. Id. In adopting property preservation measures, the people's court may order the applicant to provide security; if the applicant fails to provide security, its application shall be rejected. Timing for the court to take action The people's court is required to make a ruling within 48 hours after receiving the application in emergency situations. Civil Procedure Law, Article 100. Although emergency situations are not explicitly defined in the law, it is understood that an emergency situation arises if evidence may be lost or it will be difficult to collect the evidence in future or, in cases involving property, where the execution of an award may become impossible or difficult or otherwise harmful to the parties concerned. If the people s court rules to take preservative measures, the ruling shall be enforceable immediately. The mechanics of property attachment and time limits for property to be attached 8

9 Under Chinese laws and regulations, property preservation procedures are well-established. The mechanisms for property preservation are to seal-up, seize, freeze, or any other legally available method. In Provisions of the Supreme People s Court on Seal-up, Detainment, or Freezing of Property in the Civil Enforcement by People s Court, Fa Shi [2004] No. 15, the timing for property to be attached is limited in duration as the table shows, unless otherwise specified. Property Type Time Limit bank deposits or funds 6 months movable property 1year real property/other property rights 2 years Chinese law allows the applicant to apply for an extension of the property detention. If faced with such a case, the relevant people s court shall go through the formalities of continuous seal-up, distrainment or freezing prior to the expiry of the time period of the seal-up, distrainment or freezing, provided that the extension of the time period shall not exceed on half of the time period specified in the preceding paragraph. Id. Remedies for respondent affected by interim measures order Counter security measures as a release In cases that involve property disputes, the court shall cancel the property reservation if the person against whom the application for property reservation is filed provides 9

10 security. Civil Procedure Law, art 104. Application for review The party on the losing end of an application for interim relief has one attempt to get the order overturned. Under art 108 of Civil Procedure Law, an unsatisfied party may apply for reconsideration. As stated, such reconsideration is only allowed once and execution of the original order shall not be suspended during the reconsideration. Wrongfully made interim measures If an application for property preservation is wrongfully made, the applicant shall compensate the person against whom the application is made for any loss incurred from property preservation. Civil Procedure Law, art