Meaning
Interim judicial measures issued by Chinese courts secure the assets of a respondent before the formal commencement of arbitral proceedings. By utilizing pre arbitration property preservation, a claimant can freeze the bank accounts, real estate, factory equipment, and warehouse inventory of a Chinese supplier to prevent them from dissipating assets. This urgent remedy ensures that any future arbitral award can be successfully executed rather than remaining a paper judgment.
It requires the applicant to submit a formal application accompanied by a financial guarantee to cover potential damages to the respondent.
Substantive Condition
Strict statutory requirements govern the approval of these pre-emptive applications by intermediate people’s courts. The applicant must show that the situation is urgent and that their rights will suffer irreparable harm if the preservation is not granted immediately. Furthermore, the applicant must file their arbitration claim with the designated institution within thirty days of the court executing the preservation order.
Failure to meet this strict deadline results in the immediate release of the frozen assets.
Guaranty Obligation
Financial security must be provided by the applicant to protect the respondent against losses from wrongful preservation. This security often takes the form of a cash deposit or a litigation insurance policy from a licensed domestic insurer. The value of the security usually equals the value of the assets being frozen.
This requirement poses a major financial hurdle for foreign buyers seeking to freeze large factory operations.
Strategic Consequence
Freezing a supplier’s operating accounts creates immediate pressure that often leads to a rapid settlement. A factory cannot pay its workers or buy raw materials while its bank accounts are frozen by court order. However, the applicant must balance this tactical advantage against the risk of liability if their main arbitration claim fails.
