An introduction to Property Preservation Procedures in Arbitration

As property preservation procedures is increasingly valued and adopted by parties in arbitration practices, and the strict meaning of property preservation procedures in arbitration is different from that of prior a litigation or that of during a litigation. This article is to mainly introduce property preservation system in arbitration, and by taking property preservation procedures adopted by the Beijing Arbitration Commission (the BAC) for instance, the author is to introduce materials required to be submitted by parties and relating parties who should pay attention to in preservation procedures.

Article 92 of Civil Procedure Law of the People's Republic of China (Civil Procedure Law) stipulates that in the cases where the execution of a judgment may become impossible or difficult because of the acts of either party or for other reasons, the people's court may, at the application of the other party, order the adoption of measures for property preservation. In the absence of such application, the people's court may have itself, when necessary, order the adoption of measures for property preservation. Article 93 of the Civil Procedure Law provides that any interested party whose lawful rights and interests would, due to urgent circumstances, suffer irretrievable damage without immediately applying for property preservation, may, before filing the lawsuit, apply to the people’s court for the adoption of property preservation measures. Article 28 of Arbitration Law of the People's Republic of China（Arbitration Law）sets out that whereas due to the acts of the other party or other reasons, the arbitration award cannot be or is hard to be executed, the parties concerned may apply for putting the property under custody. And whereas a claimant has applied for a custody to the property, the arbitration commission shall, according to the relevant provisions of the Civil Procedure Law, submit the application of the claimant to the people's court. However, neither Civil Procedure Law nor Arbitration Law provides that a party may apply for property preservation before commencing arbitration proceedings, so if a party has chosen to bring the dispute to arbitration committee, as far as it is construed under the current laws, the party has lost the right to apply for property preservation before commencing arbitration proceedings, which is a concern of both practical arbitrational circles and theoretic arbitrational circles. As the revision of Civil Procedure Law is in full swing at present, many people, as well as the author, are calling for adding provision of prior arbitration property preservation to Civil Procedure Law, thus, not only rights and interests of parties can be protected, but also development and perfection of China’s arbitration case will be promoted.
In practice, in accordance with relevant laws and arbitration rules of the BAC, if a party applies for property preservation in arbitration proceedings, it shall be made to the BAC, and according to Notice of Beijing Supreme People’s Court Concerning that All Cases of Arbitrational Enforcement Shall Be Governed by Intermediate People's Courts (J.G.F.F. Zi [2006] No. 357)(All cases where one of the parties applies for enforcement of the arbitral award or the mediation agreement or where one of the parties applies to arbitration organizations for property preservation shall be decided by the Intermediate People's Court of the address of the enforcee or of the location of the property subject to enforcement), the BAC shall transfer such application to the property preservation division of the people’s court. As for the specific court that enforces property preservation, that whether the preservation of this case shall be adjudicated by Beijing tier 1 Intermediate People's Court or Beijing tier 2 Intermediate People's Court shall be determined in accordance with the location of the property to be preserved or the registered address of the party to be preserved. Through communication between the BAC and all Beijing Intermediate People's Courts, specific requirements for commencing property preservation procedures are established as follows (the requirements set out in this article are just a summary of practical experience of the BAC and the courts, and interpretation of the property preservation division of the people’s court shall prevail):

1.If one of the parties applies for property preservation, the party shall provide detailed property clue of the person to be preserved, that is, subject of the preservation shall be clarified. Perishable articles and chemical materials, special funds and special accounts can hardly be preserved. Movable property is not advisable for preservation either, for it is difficult to clarify its title. Where one of the parties applies for preservation of bank account, the name of the bank and the account number shall be provided; where one of the parties applies for preservation of house property, house location information and the number of the house property ownership certificate shall be provided; where one of the parties applies for preservation of a automobile, the license plate number of the automobile shall be provided; where one of the parties applies for preservation of land-use right, the number of the land-use right certificate shall be provided; where one of the parties applies for preservation of non-tradable stock, the name of the stockholder, the stock code, the quantity to be preserved and stock price (according to the annual report of the previous year) shall be provided; where one of the parties applies for preservation of tradable stock, the party shall provided risk commitment letter, for preservation of tradable stock is of high risk; where one of the parties applies for preservation of movable property, the party shall set out the name, quantity, specifications and price of the preservation subject (according to reference price of similar goods in market of the same time); where one of the parties applies for preservation of patent, trademark and copyright, the party shall provide patent number, trademark number and copyright number; as for preservation of matured debt, it can hardly be performed in practice, for it is highly risky; and as for preservation of a ship, it shall be submitted to a maritime court with jurisdiction.

2. Application materials for property preservation shall include: property preservation application form, arbitration application form, copies of business licenses of both parties (with review seal of the present year or the previous year), identification of attorney of the legal representative of the applicant, and also main property clue.

3. According to Rules of Beijing Higher People’s Court Concerning Several Issues in Relation to Property Preservation（tentative）, if one of the parties applies for property preservation, the party shall offer security against self-owned assets or cash. If the applicant is a bank, letter of guarantee may be issued by the bank or its superior bank; if the applicant is a natural person, security shall be offered against cash of 100% amount of the property value; if the applicant is an ordinary business entity as legal person, at least 60% of the property value shall be provided in cash, and the rest in other forms; if the applicant is a whole-people owned enterprise as legal person, at least 30% of the property value shall be provided in cash, and the rest in other forms. Security or property provided by the applicant shall be of clear title and shall not be mortgaged or sealed up. Where security cannot be offered, the court shall not accept property preservation application.

4. At least one item of property clue shall be under jurisdiction of the court which the party applies to for preservation, otherwise, according to relevant laws, the court shall not hear the case.

5. A foreign applicant shall provide notarization, identification materials and their translated versions provided by a qualified translation organization.

6. The term of seal-up and freeze preservation adopted by courts is three months of a single apply. If a party wants to extend the preservation, the party shall apply to the tier 1 Intermediate People's Court and go through renewal procedures on the 15th day before the expiration, otherwise, the preservation shall release automatically. A party shall not apply for preservation indefinitely.

7. the BAC only carries out formative review of a party’s preservation materials. Any physical problem (wrong preservation subject, defects in property preserved, etc.) occurring during preservation procedures shall be interpreted by the court enforcing preservation.

* The author is a case manager of Beijing Arbitration Commission

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