People’s Republic of China
1. Are freezing orders (or their equivalent referred to below) available in civil legal proceedings in this jurisdiction and what is their effect?
Yes. The equivalent order in the People’s Republic of China (referred to herein as “PRC”) is known as an asset preservation order. This prohibits a respondent from dealing with the assets referred to in the order until a specified time or further order of the Court. The duration of the asset preservation order depends on the type of asset that is subject to the order. This order only applies to assets within the jurisdiction of the Chinese Court.
2. Are other interim orders commonly made in conjunction with a freezing (or equivalent) order?
No. The applicant cannot seek other interim orders in conjunction with an asset preservation order.
3. Briefly what is the relevant legal test?
The Court must be satisfied that a party’s conduct or other reason will either make enforcement of the judgment in the underlying or prospective legal proceedings impossible or difficult, or that such judgment may cause irreparable damage to a party. The Court may grant an asset preservation order on application or at its own discretion.
4. Briefly what is the process for obtaining a freezing (or equivalent) order?
The applicant submits their application using a standard form (currently only available in Chinese). The applicant must disclose the value and location of the assets it is seeking to preserve. The applicant may present evidence that shows the property sought to be preserved is likely to be destroyed, hidden, transferred or sold, but it is not essential. The application can be made without notice to the other party. Even where the application is made without notice, the applicant does not have enhanced duties of disclosure.
5. Does the applicant have to provide any form of security or commit to compensation if its claim is ultimately unsuccessful and any freezing (or equivalent) order granted causes loss and damage to the respondent?
Yes. Security is usually required by the Court before granting an asset preservation order.
The applicant must always provide security where an asset preservation order is sought pre-action and the value of the security must be equal to the value of property the applicant is seeking to preserve. In existing proceedings, each application will be decided on a case by case basis subject to the discretion of the Court and the value of the security is normally capped at 30% of the value of the property.
Security may not be required in certain circumstances, for example, where the applicant for the preservation order is a financial institution, the solvency of which is established upon approval by the financial regulatory authorities. Security may also not be required where the asset preservation order is sought after judgment has been handed down, but before it has been enforced.
6. Can it be sought against third parties?
An asset preservation order cannot be obtained against a third party who is not a defendant to the underlying proceedings. However, a third party may be bound by an order where it holds or uses the respondent’s property. For example, if the third party has been legally occupying the property, it should continue to hold it and should not deliver it to the respondent for the duration of the order.
7. What assets are covered by a freezing (or equivalent) order?
The asset preservation order can cover any assets (tangible or intangible) within the scope of the underlying legal proceedings that the respondent has beneficial title over, or which are jointly owned by the respondent and third parties. The order only applies to assets within the jurisdiction of the Chinese Court.
8. Can a freezing (or equivalent) order be made in support of substantive proceedings abroad?
There are no explicit statutory rules on this point. A party to foreign proceedings may seek ratification and enforcement of a foreign judgment under the provisions of an applicable international treaty or in accordance with the principle of reciprocity.
9. Can a freezing (or equivalent) order be made in support of arbitration proceedings or awards?
There are no explicit statutory rules on this point but as above, a party to foreign proceedings may seek ratification and enforcement of a foreign judgment under the provisions of an applicable international treaty or in accordance with the principle of reciprocity.
10. At what stage of proceedings can a freezing (or equivalent) order be sought?
At any stage, including prior to commencing the legal proceedings, during existing proceedings or following judgment (if necessary) to assist with enforcement.
11. Are there typically any exceptions to the general prohibition on the respondent’s use of assets subject to a freezing (or equivalent) order?
Yes, there are a number of exceptions, for example, living expenses and essential items necessary for the respondent and their family.
12. What happens after a freezing (or equivalent) order is granted?
Assuming the original order was obtained without notice (as it often will have been), the respondent will be informed. The applicant will also notify third parties (such as banks) if they hold the respondent’s assets. The respondent can challenge the order but the asset preservation order will remain in force for the duration of the objection period.
13. Who pays the costs of the application for a freezing (or equivalent) order?
The applicant pays the costs of the application, the amount to be paid depends on the value of the property sought to be preserved, but is capped at RMB 5,000.
14. What protections are there typically in a freezing (or equivalent) order for third parties to such orders?
There are a number of protections in place for third parties:
(a) bona fide third parties are not bound by a freezing order unless they have been given notice of its terms;
(b) the asset preservation order will not take priority over any existing security;
(c) there are also some specific rules which protect third parties which have purchased, or are in the process of purchasing, property from a respondent.
15. What are the consequences of breach of a freezing (or equivalent) order?
Where the respondent or any other person, without approval, deals with the properties that are frozen, the Court can order the responsible person to recover the properties within a time limit or pay compensation.
16. Does a third party notified of (but not a party to) a freezing (or equivalent) order owe a duty of care to the applicant (meaning it can be liable to the applicant for non-compliance)?
If the third party is ordered by the Court to take custody of the property, they will owe a duty of care.
17. Can a freezing (or equivalent) order be enforced abroad?
Yes, subject to the laws of the relevant jurisdiction.
18. Can freezing (or equivalent) orders from overseas jurisdictions be enforced in this jurisdiction?
Hong Kong and Macau have agreements with the PRC on mutual assistance in the preservation of assets.
Contacts
Mark Hughes Partner Eversheds Sutherland Beijing, China markhughes@eversheds-sutherland.com www.eversheds-sutherland.com Jason Tam Of Counsel Eversheds Sutherland Beijing, China jasontam@eversheds-sutherland.com www.eversheds-sutherland.com
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