Hong Kong enacts Supplemental Arrangement in full

In a previous post, we reported the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region, which was concluded on 27 November 2020. The Supplemental Arrangement was a welcome development that clarified and removed certain restrictions in the mutual enforcement regime between Hong Kong and Mainland China.

Articles 2 and 3 of the Supplemental Arrangement have now taken effect in Hong Kong, following amendments to the Arbitration Ordinance.

On 19 May 2021, the Arbitration (Amendment) Ordinance 2021 (Amended Arbitration Ordinance) came into effect to implement these articles:

• Article 2 extends coverage to all Mainland awards: only arbitral awards made by a specified list of "recognised" Mainland arbitral authorities were enforceable in Hong Kong under the original Arrangement. The amended Arbitration Ordinance removes the concept of recognised Mainland arbitral authorities, pursuant to Article 2 of the Supplemental Arrangement. All Mainland awards, as long as they are rendered pursuant to the PRC Arbitration Law, are now enforceable in Hong Kong under the Supplemental Arrangement.
• Article 3 allows parallel enforcement in Hong Kong and Mainland China: section 93 of the Arbitration Ordinance originally prohibited "parallel enforcement", namely applying to enforce an award in Hong Kong and the Mainland simultaneously. The Amended Arbitration Ordinance has now repealed section 93 pursuant to Article 3 of the Supplemental Arrangement, allowing simultaneous enforcement of arbitral awards in Hong Kong and the Mainland.

The original Section 93 was intended to prevent double recovery, but gave rise to difficulty in practice, where an award was rendered against parties with assets in both Hong Kong and Mainland. If enforcement proceedings in one jurisdiction were ongoing or prolonged, this barred the successful party from proceeding with enforcement in the other jurisdiction to recoup the full amount of the arbitral award.

For example, in A Co v B Co [2021] HKCFI 1477, which may be the last case on this point before the legislative amendment, the Hong Kong Court of First Instance relied on section 93 of the Arbitration Ordinance to set aside an order to enforce an arbitral award made by the Shenzhen Court of International Arbitration. Although the enforcement order had been rendered by the Mainland court before the award creditor applied to enforce in Hong Kong, several award debtors were challenging the enforcement order in the Mainland courts. Since the enforcement proceedings in Mainland had not concluded, Mimmie Chan J held that the enforcement order in Hong Kong ought to be set aside.

The Amended Arbitration Ordinance addresses this difficult situation, and will help to ensure timely enforcement against parties who have assets in both Mainland and Hong Kong, subject to the total amount recovered not exceeding the amount determined in the award.

For more information, get in touch with any of the contacts below, or your usual Herbert Smith Freehills contact.