Arbitrating Against Chinese Companies: Recent Developments from the HKIAC

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When foreign companies do business with Chinese companies, international arbitration can be a key tool for dispute resolution, as it avoids either having a foreign court judgment that is unenforceable in China or having to deal with Chinese courts and home-court advantage for the Chinese company. Chinese courts have a good track record of enforcing international arbitral awards under the New York Convention. 

By contrast, Chinese courts have generally been unwilling to enforce interim measures except for domestic arbitrations or international arbitrations handled by China's domestic provider, the China International Economic and Trade Arbitration Commission ("CIETAC"). Parties outside Chinaare sometimes reluctant to use CIETAC as its list of arbitrators are viewed as friendly to Chinese parties.

On April 2, 2019, however, China entered into an arrangement with the Hong Kong International Arbitration Centre ("HKIAC") whereby Chinese courts are empowered to grant interim measures in support of HKAIC arbitrations. As a practical matter, these will likely be limited to measures intended to preserve assets or property for a final award.

This new arrangement between the Chinese courts and the HKIAC provides for an important additional option when selecting the seat of arbitration. While many foreign parties generally try to avoid arbitration in mainland China, they often feel far more confident with a HKIAC-administered arbitration, due to the favorable treatment of arbitration by Hong Kong law and the Hong Kong courts. In 2018, the HKIAC saw 265 new arbitrations submitted to it, including nearly 40% that did not involve parties from Hong Kong. Particularly for companies from Europe and the United States doing business with Chinese entities, this presents a strong option for an arbitration based in Asia, with the protections needed for interim and other relief, but not itself based in mainland China.

There is, however, a note of caution recently regarding Hong Kong, due to the continuing months of protest there against the Chinese government. While the rules for arbitration in Hong Kong were strengthened in April 2019, there is tremendous uncertainty regarding how the protests will be resolved and how the Chinese government will treat Hong Kong going forward. It is to be hoped that Hong Kong can maintain its position as a bastion for the rule of law in China but, for now, its future is uncertain. Parties doing business with Chinese companies would be wise to consider all of these factors in determining where to seat their arbitrations.

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