Hong Kong Mainland Interim Assistance Arrangements for Onshore Property Preservation
The 2019 Arrangement allows parties in Hong Kong institutional arbitrations to freeze Mainland assets ex-parte by securing local preservation insurance.
Article 108 Damages
Meaning
Financial liability arising from the improper use of judicial preservation measures creates a statutory obligation for the applicant to indemnify the respondent for all verifiable economic losses incurred. The provision for article 108 damages operates as a necessary check on the power of litigants to freeze the property of their opponents during a dispute. It ensures that any party who requests an asset freeze or a conduct restriction does so with a high degree of certainty and legal justification.
If the main lawsuit is eventually dismissed or if the preservation is found to have no basis in fact, the respondent gains the right to sue for compensation. This liability covers the actual harm suffered by the defendant while their assets were inaccessible. The people court oversees these claims to ensure that the judicial process is not used as a weapon for unfair competition or harassment.
It creates a balanced environment where the protection of a claimant does not come at the expense of a defendant’s basic economic survival.
Liability Standard
Determining the basis for article 108 damages requires the court to assess whether the original application for preservation was wrongful under the circumstances at the time. A ruling is typically considered wrongful if the applicant loses the substantive case on its merits or if the value of the preserved assets far exceeds the potential judgment. The standard is generally one of strict liability where the focus remains on the outcome of the case rather than the intent of the petitioner.
If the court finds that the freeze was not justified, the applicant must pay for the resulting harm regardless of whether they acted in good faith. This strict approach encourages parties to be conservative in their requests for preservation. It also protects the integrity of the judicial system by penalizing the abuse of interim measures.
Respondents must prove the existence of the loss and the direct link between the preservation and the economic damage.
Calculation Method
Quantifying the amount of article 108 damages involves a detailed review of the specific financial impact of the asset freeze on the business operations of the respondent. If bank accounts were frozen, the damages might include the interest loss on the funds or the cost of obtaining alternative financing to cover operational expenses. When real estate or machinery is sealed, the calculation considers the loss of rental income or the reduction in production capacity.
The court may also look at the loss of business opportunities or the cancellation of contracts that occurred because the defendant could not use their property. Indirect losses and speculative profits are generally excluded from the assessment to prevent excessive awards. The respondent must provide tax records, accounting statements, and witness testimony to substantiate the claim for compensation.
Judges apply a reasonable standard to ensure that the indemnity reflects the actual market value of the disruption. This process ensures that the recovery is fair and grounded in evidence.
Bond Recourse
Recovering article 108 damages is simplified by the presence of the security bond that the applicant was required to provide when the freeze was first ordered. The respondent can apply to the court to satisfy the damage award directly from the cash deposit or the letter of guarantee held by the judicial authority. This mechanism provides a guaranteed source of funds for the injured party and avoids the need for a separate enforcement action against the original applicant.
If the damages exceed the value of the bond, the respondent can still seek the remaining amount through the standard execution process. The court will release the bond back to the applicant only after the respondent’s right to claim damages has expired or the claim has been fully satisfied. This system provides a clear path for restitution for those who have been unfairly affected by judicial measures.
It serves as a reminder that the use of court powers carries significant financial risks for the petitioner. Article 108 damages maintain the equilibrium of the civil litigation process in the mainland.