First Emergency Arbitration Procedure in China

The Beijing Arbitration Commission (BAC) recently administered the first emergency arbitration proceeding in mainland China. Wei Sun was the emergency arbitrator who heard the application and he has since published a discussion of the matter online. Although the decision has not been made public, the case was also discussed online by the applicants' counsel who referred to it as the "GKML case".

Background

The two applicants, who were the Claimants in the main arbitration, were companies registered in Hong Kong. The first respondent was a company registered in the Cayman Islands and the second respondent was a Chinese national with assets in Hong Kong. The second respondent was the controlling shareholder of the first respondent and the dispute related to a share repurchase agreement. The applicants applied under Article 63 of the current Beijing Arbitration Commission Arbitration Rules, which came into force on 1 April 2015 ("2015 BAC Rules"), for an emergency arbitrator to grant the following interim relief measures:

1. Disclosure by the respondents of information about their assets;
2. An order preventing the respondents from dissipating their assets;
3. An order preventing the respondents from commencing a lawsuit or similar procedure to deter enforcement; and
4. An order preventing the respondents from encouraging others to act contrary to 1 – 3 above.

Applicable rules

Article 63 of the 2015 BAC Rules provides that, after the BAC has accepted a case, any party seeking interim measures may by written application to the BAC apply for the appointment of an emergency arbitrator in accordance with the applicable law. The BAC will then appoint an emergency arbitrator within two days of receiving payment of application fees from the applicant. In this case, Wei was appointed on the same day that the applicants submitted the request for emergency arbitration.

Article 63(4) grants the arbitrator broad discretion to determine the interim application procedure by providing that "an emergency arbitrator shall consider the application for interim measures in such manner as he or she deems appropriate, and shall ensure that the parties have a reasonable opportunity to present their cases".

Under Article 63(5) the emergency arbitrator shall issue a decision within 15 days of appointment. In this case, the decision was rendered within 11 days.

Decision

Wei noted the broad discretion under Article 63(4) and, taking into account the arbitration rules of other institutions such as the ICC, SCC, ACICA and HKIAC, applied the following criteria for determination of the requests:

1. The claimants' likelihood of success on the merits of their case;
2. The urgency of the case; and
3. The reasonableness of the interim measures sought.

On application, Wei found (i) the applicants had a reasonable possibility of success on the merits and (ii) the harm that would be caused to the applicants if the respondents were to dispose of their assets outweighed the damage that would be caused to respondents if the interim measures were to be granted. Wei then considered the reasonableness of each separate measure being requested, and found that:

1. The general disclosure of the respondents' assets was not urgent and the applicant should not be able to take advantage of this information for later use;
2. While it is important to maintain the status quo of the respondents' assets, an injunction preventing asset dissipation should be confined to those assets specifically identified by the applicant.
3. An injunction preventing the respondents from commencing a lawsuit or similar proceeding would violate their basic procedural rights.
4. It was reasonable to prohibit the respondents from encouraging others to engage in conduct restricted by the interim order.

Consequently, Wei issued an interim order prohibiting the respondents from disposing of the assets specifically listed by the applicants and from instructing or encouraging others to do the same.

The claimants then applied ex parte to the Hong Kong High Court for enforcement of the decision. The Court granted leave to enforce the emergency arbitration order in Hong Kong and held that it be extended to third parties so as to restrain them from transferring shares or making payments to the respondents.

Procedural observations by the emergency arbitrator

In his discussion of the case, Wei said he used three techniques to improve the efficiency of the proceeding. These were:

1. allowing electronic submission of documents;
2. providing a list of issues to keep the parties' arguments focused on key concerns; and
3. conducting the hearing by teleconference.

Wei said he offered the parties a "second chance" to present their cases through the submission of post-hearing briefs before 6pm on the 10^th day of proceedings. He also noted that it was important to cooperate closely with the secretary in the proceedings and in this matter he had the benefit of effective and strong secretarial support from the BAC.

Wei commented on the role of an emergency arbitrator, suggesting they may "act as the “guardian” to parties prior to the constitution of the arbitral tribunal, defusing conflicts and saving time and costs, but it is also critical to be aware of the limitations of the [emergency arbitration] proceeding in the existing legal framework, especially with respect to the enforceability both domestically and internationally".

Discussion

The GKML decision is significant not only because it is the first emergency arbitration held in mainland China, but also because it offers certain insight as to the criteria considered by an emergency arbitrator in determining whether to grant interim measures. However, it is unclear whether similar criteria would be adopted in future emergency arbitration proceedings in mainland China.

The use of emergency arbitration proceedings has been on the rise globally and it remains to be seen whether this milestone will encourage further emergency proceedings in mainland China.