(By Zhang Shouzhi, Hu Ke and Xu Beibei)

Provisional measures in offshore arbitration are either ordered by the arbitral tribunal, or issued by an offshore court in aid of arbitration. It has always been of great concern whether such provisional measures can be enforced by the Courts in China.

I. Definition and Purpose of Provisional Measures

Provisional measures in international arbitration are those interim measures of protection granted by an arbitral tribunal or a court of competent jurisdiction at the request of a party before or during the arbitration proceeding. These interim measures provide appropriate measures to preserve evidence, assets or status quo in accordance with the laws and rules applicable to such arbitration. As there are differences among arbitration laws in other jurisdictions around the world, provisional measures are also called “interim measures”, “preservation measures”, or “interim measure of protection”, which will be collectively referred to as “Provisional Measures”in this article.

If an arbitral tribunal or a court of competent jurisdiction takes proper, timely and compulsory Provisional Measures, such measures can serve the purpose to maintain the status quo, preserve evidence, and prevent malicious transfer of assets. Therefore, such measures are widely used in international arbitration.

Normally, the party to whom the Provisional Measures are applied against is inclined to carry out the Provisional Measures as directed and show deference to the arbitral tribunal or the court, in order to avoid bearing unfavorable consequences in arbitration proceedings, the arbitral award, or expense allocations and other aspects under the applicable rules. Sometimes, however, in order to conceal evidence or transfer assets, a party would rather risk bearing such unfavorable consequences than carry out the Provisional Measures. Under such circumstances, the enforcement of Provisional Measures becomes critical.

II. Provisional Measures under Chinese Arbitration Laws

Before answering the above question, we need to understand the Provisional Measures in arbitration under China law. According to the relevant laws and regulations and judicial practice, there are several features regarding Provisional Measures under Chinese arbitration law:

First, in respect of Provisional Measures, there are only two categories under the PRC Arbitration Law(“Arbitration Law”), namely asset preservation and evidence preservation The former applies to circumstances where “the arbitral award might not be able to be enforced or become difficult to be enforced due to the acts of the other party or other reasons” (Article 28 of the Arbitration Law), and the assets to be preserved are limited “within the scope of the case or the assets involved in the case” (Article 94 of the PRC Civil Procedure Law, “Civil Procedure Law”). The latter applies to circumstances where “the evidence might be lost forever or may be difficult to be obtained in the future” (Article 74 of the Civil Procedure Law) and it is targeted at the evidence relevant to the case. Under Chinese Arbitration laws, there are no Provisional Measures aimed at preventing or refraining from taking action such as injunctions (as in Article 17.2 (a) and 17.2(b) of the UNCITRAL Model Law on International Commercial Arbitration), nor are there measures to force the witness to appear in court (as in Article 44.2(a) of English Arbitration Act 1996).

Second, as to the requesting party who can apply for Provisional Measures, only parties in an onshore arbitration (administered by domestic arbitration commissions) can apply for Provisional Measures. The Civil Procedure Law and the Arbitration Law only deal with Provisional Measures arising from onshore arbitrations and remain silent on whether the parties in offshore arbitrations can apply to the Chinese court for Provisional Measures such as asset protection and evidence preservation.

Third, as to the jurisdiction and power to grant Provisional Measures, the People’s court in China has exclusive jurisdiction to determine whether or not to adopt the Provisional Measures. Pursuant to Articles 28 and 36 of the Arbitration Law, arbitration commissions only forward the requesting party’s applications for asset and/or evidence preservation to the People’s Court, and they have no competence to order Provisional Measures. Similarly, the arbitral tribunals do not have the authority to enforce the Provisional Measures. This is obviously a strict restriction, and also a major distinction of Chinese Arbitration laws as opposed to the arbitration laws of the UK and France as well as the Model Law.

Fourth, as to the timing for requesting Provisional Measures, under Chinese Arbitration laws, the requesting party can apply it only during the arbitration proceeding. The Civil Procedure Law has specific provisions on asset preservation prior to litigation, but neither the Civil Procedure Law nor the Arbitration Law touches upon asset/evidence preservation prior to an arbitration proceeding. Pursuant to Article 12 of the Provisional Regulation of the Supreme Peoples Court on Questions Concerning the Enforcement by Peoples Court, the asset preservation in foreign-related arbitrations can possibly made only during the arbitration proceeding. Though there are incidental cases where some courts followed the principle underlying the asset preservation prior to litigation and directed the measure of asset preservation prior to arbitration, most courts still decline to support the applications for asset preservation prior to arbitration.

III. Enforceability of Provisional Measures Ordered by an Offshore Arbitral Tribunal

In offshore arbitration, the arbitral tribunal may grant Provisional Measures in the form of order, injunction or award in accordance with the applicable arbitration rules or laws. There can be several scenarios:

A. Provisional Measures in the Form of Order or Injunction

The Provisional Measures in the form of order or injunction granted by the arbitral tribunal, are temporary, interim and procedural, which are apparently not the "arbitral awards" under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) and the Arrangement of the Supreme Peoples Court Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (the “Arrangement”). Therefore, such Provisional Measures made in the territory of a contracting state to the New York Convention or in the Hong Kong SAR cannot be recognized and enforced in Mainland China under the New York Convention or the Arrangement.

B. Provisional Measures in the Form of Award

Under many arbitration laws and rules, the arbitral tribunal can grant the Provisional Measures in the form of “award”. For example, Article 17(2) of the Model Law, which has been adopted by Hong Kong and Singapore, states that “an interim measure is any temporary measure, whether in the form of an award or in another form”. Another example is Article 23 of the ICC Arbitration Rules, which grants the arbitral tribunal the power to order interim measures in the form of award whenever it deems appropriate.

This raises the question whether a party to arbitration can apply to a Chinese court in order to recognize and or enforce an “award” concerning Provisional Measures based on the New York Convention or the Arrangement.

As of today no case has been found in judicial practice to verify the specific criteria of the Chinese court. However, it might be difficult to convince the Chinese court to accept applications for recognizing and enforcing the award concerning the Provisional Measures, for the following reasons:

First, the Provisional Measures even in the form of award are temporary, interim and procedural in nature and subject to the final award, which means that such measures can be revoked or amended by the arbitral tribunal in the subsequent arbitration process. As the New York Convention does not define the term “award”, the prevailing view in judicial practice among the courts of some contracting jurisdictions, is that the New York Convention does not apply to interim awards. Some judges in the Chinese courts have held the opinion that a precondition to recognizing and enforcing foreign awards in China is that such awards must be final. Therefore, the Provisional Measures even in the form of award, in the eye of the Chinese court, might still not qualify as “arbitral awards” under the New York Convention or the Arrangement and thus they cannot be recognized or enforced in China.

Second, as to the award concerning Provisional Measures, there might be a question of whether the matter can be settled through arbitration under the China law.

Article V(2) of the New York Convention provides that, “recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) the subject matter of the difference is not capable of settlement by arbitration under the laws of the country.” Article 7(2) of the Arrangement is similar on same subject. As mentioned above, under Chinese Arbitration laws, the Peoples court has exclusive jurisdiction to grant Provisional Measures, while the arbitration commissions and arbitral tribunals have no power to do so. This means that Provisional Measures might be considered not able to be arbitrated under China law.

No case has been found in China that the recognition and enforcement is refused based on the lack of ability to be arbitrated under Article V (2) and there is no conclusive decision yet on whether Provisional Measures are matters which cannot be settled by arbitration. However, in Hemofarm DD, et al. v. Jinan Yongning Pharmaceutical Co. Ltd., where Hermofarm DD applied for recognizing and enforcing ICC arbitral award No. 13464/MS/JB/JEM (the “Yongning Case”), Shandong High People’s Court held that “the dispute arising out of or in connection with the legality and justification of the application for asset preservation in litigation was not arbitrable.” Commentaries said that, “ICC made award on matters which had already adjudicated by the Chinese court, which offended the exclusive jurisdiction of the Chinese courts under the current Chinese law to grant and enforce the provisional measures on the disputed assets under the arbitration agreement.”

In summary, under the current Chinese Arbitration laws, even if the Provisional Measures take the form of “award”, such awards might still be ineligible for recognition and enforcement by the Chinese court.

IV. Enforceability of Provisional Measures Ordered by an Offshore Court

Most national arbitration laws have specific provisions on the measures issued by court in aid of arbitration. Such provisions grant the court the power to take Provisional Measures upon the request of parties. It raises the question whether such Provisional Measures ordered by an offshore court can be enforced by the Chinese court. Such possibility is slim.

First, Chinese laws are silent on the Chinese courts power and obligations in respect of Provisional Measures in offshore arbitration. Therefore, there is no legal basis under the Chinese law for the Chinese court to adopt Provisional Measures supporting offshore arbitration.

Second, the recognition and enforcement of the Provisional Measures in connection with arbitration ordered by an offshore court are not within the jurisdiction of the New York Convention or the Arrangement. Thus such Provisional Measures cannot be enforced under the New York Convention or the Arrangement.

Third, under the bilateral judicial assistance treaties on mutually recognizing and enforcing judicial judgments between China and other countries, it is very uncertain whether orders regarding Provisional Measures issued by the court qualify as “judgments” within the treaties and no cases can be found in the public domain to test on this issue. Some bilateral treaties concluded by China and other countries expressly exclude the Provisional Measures from the civil judgments that can be recognized and enforced between countries, such as the treaties on judicial assistance in civil and commercial matters between China and Kuwait, the United Arab Emirates and Tunis.

Last, from the perspective of judicial practice, no cases in the Chinese court can be found in the public domain which recognize and enforce judgments and orders granted by foreign and Hong Kong courts on Provisional Measures.

V. Conclusion

In summary, under the current Chinese Arbitration Law, the Provisional Measures arising out of or in connection with offshore arbitration are unlikely to be recognized and enforced by the Chinese courts. Though the party who refuses to comply with the Provisional Measures may bear unfavorable consequences under the arbitration rules and applicable laws, the final arbitration award might also become worthless for the prevailing party as a result of the uncooperative behavior of the disobedient party. As China-related international arbitrations increase, this problem will become more serious. It is advisable that in-house counsels and practicing attorneys give this issue considerable thought when drafting relevant arbitration clauses.

The Yongning Case suggests that it is possible for a party to circumvent the arbitration clauses and apply directly to the Chinese court for appropriate Provisional Measures to freeze assets or obtain evidence in connection with the dispute, and ultimately increase their chance to succeed.

(Edited by: China West Lawyer)