This article provides an overview of the avenues available for the enforcement of international and domestic arbitral awards in China and highlights things to consider when applying for enforcement in China.
TYPES OF ARBITRAL AWARDS
Arbitral awards can be divided into five categories for the purpose of enforcement in China, depending on where the award was made, the identity of the arbitration institution (if any) administering the arbitration in which the award was made and whether the arbitration covered by the award involves a foreign element:
- Foreign arbitral awards. They can be further classified as Convention awards or Non-Convention awards.
- Recent court decisions suggest that there may be a new category of “non-domestic” arbitral awards which are enforceable pursuant to New York Convention.
- Foreign-related arbitral awards.
- Domestic arbitral awards.
- Arbitral awards made in Hong Kong, Macau or Taiwan.
The categorization is relevant in determining which enforcement regime applies and therefore the grounds available for refusing enforcement.
Foreign Arbitral Award
A foreign arbitral award is an award made outside China. It could either be made in a contracting state to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) (a Convention award), or in a non-contracting State (a Non-Convention award). The awards made in Hong Kong, Macau and Taiwan are for the purposes of enforcement in China treated as foreign awards.
New York Convention provides a basis for an arbitral award made in one contracting state to be recognisable and enforceable in another contracting state. At the time of this article, New York Convention has 146 contracting states. China’s accession to the New York Convention took effect in 1987. In 1987, the Supreme People’s Court issued a Circular on the Implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Entered by China (“SPC’s Circular”). The SPC’s Circular expressly provides that China will recognise and enforce awards made in other contracting states, which can be administered and foreign ad-hoc Convention awards. It goes on to provide that where the stipulations of the Chinese law differ from those of the New York Convention, the latter should be followed. This is echoed by Article 267 of the Civil Procedure Law, which requires the People’s Courts to follow any international convention entered by China in dealing with applications for recognition and enforcement of foreign arbitral awards.
The disputes which form the subject matter of the Convention award sought to be enforced in China have to arise out of contractual or non-contractual commercial legal relationships. They include any relationship of economic rights and obligations arising out of contract, tort or relevant stipulations of the law, such as sale and purchase of goods, lease of property, construction contract, transfer of technology, joint ventures, insurance and product liability. Disputes between a foreign investor and the government of a host state are excluded.
Non-Domestic Arbitral Award
Recent court decisions in China (Zueblin Int’l GmbH v. Wuxi Woco-Tongyong Rubber Engineering Co. Ltd in Wuxi Intermediate People’s Court on 19 July 2006) (“Wuxi Case”) and Dufercos S.A. v Ningbo Arts & Crafts Import & Export Co. Ltd in Zhejiang Intermediate People’s Court on 22 April 2009 (“Ningbo Case”)) suggest that there may exist a new category of awards called “non-domestic awards” which are enforceable pursuant to the New York Convention. These court cases involved applications for enforcement of ICC awards made in arbitrations seated in China. The awards could not be regarded as foreign awards because they were made locally in China, and since foreign rather than domestic arbitration institution was involved in the administration of the arbitral proceedings, they could not be considered as domestic awards either.
In the Wuxi case, the arbitration clause contained in a construction contract reads “Arbitration: 15.3 ICC Rules, Shanghai shall apply”. Zueblin commenced arbitration proceedings on the basis of the arbitration clause. An arbitral tribunal constituted in accordance with the Rules of Arbitration of the International Chamber of Commerce proceeded to conduct the arbitration in Shanghai and issued an award in favour of Zueblin. Following the ICC rules, the award was certified with the stamp of the ICC Secretariat.
Zueblin applied to the Wuxi Intermediate People’s Court for enforcement of the ICC award, which was objected to by Wuxi Woco-Tongyong Rubber Engineering Co. Ltd on the ground that there was no valid arbitration agreement between the parties. Taking into account that both parties did not dispute the application of the New York Convention to the case, the Wuxi Court held that the case concerned the recognition and enforcement of a foreign arbitral award, presumably based upon Article 267 of the Civil Procedure Law which treated arbitral awards rendered by foreign arbitration institutions (rather than awards made outside China) as foreign awards, with the result that the New York Convention applied. It held that by virtue of the second sentence of Article 1 of the New York Convention, which stipulates that “[This Convention] shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought”, the ICC award should be considered as a non-domestic award. The Wuxi Court found that the arbitration agreement had been ruled previously by another People’s Court as invalid for failing to specify an arbitration institution, a decision which was endorsed by the Supreme People’s Court (through the internal reporting system as discussed below). It therefore ruled that the award should not be enforced.
The Ningbo case concerned a challenge against the enforcement of an ICC award made in Beijing. Similarly, the Ningbo Intermediate People’s Court opined that the award was a non-domestic award within the meaning of the second sentence of Article 1 of New York Convention and, therefore, ruled that the award should be enforced pursuant to the New York Convention.
China is not a common law country and its court precedents have no legally binding effect. The court decisions have not resolved the question of whether foreign arbitration institutions can conduct arbitrations seated in China and produce awards that are definitely valid and enforceable in China. It remains risky for parties to provide for arbitration in China under the administration of a foreign arbitration institution in their arbitration agreement.
Foreign-related Arbitral Award
A foreign-related arbitral award is an award made in China. It has to be made in an arbitration which is administered by a Chinese arbitration institution and has any of the following foreign elements:
- At least one party to the arbitration is a foreign party. Foreign-invested enterprises established in China such as sino-foreign joint venture companies and wholly foreign-owned enterprises are not regarded as foreign parties;
- The legal facts as to the establishment, modification and termination of the legal relationship between the parties happened outside China; or
- The subject matter of the arbitration is located outside China.
Domestic Arbitral Award
A domestic arbitral award is an award made in China. The arbitration proceedings are under the administration of an arbitration institution established in China and do not involve any foreign element.
Awards made in Hong Kong, Macau or Taiwan
Awards made in Hong Kong, Macau or Taiwan are governed by the respective arbitration arrangements China has entered into with each of these regions. Treatment of Hong Kong awards are similar to that given to Convention awards.
ENFORCEMENT OF ARBITRAL AWARDS
The legislative structure for enforcement of arbitral awards involving a foreign element in China, which is distinct from execution of awards, is pro-arbitration. The grounds for refusing enforcement of Convention awards, non-domestic awards, foreign-related awards and Hong Kong awards are substantially procedural in nature and are in line with international practice. As we will see below, the Supreme People’s Court has set up an internal court reporting system to ensure that every court decision to refuse enforcement of these kinds of awards has been seriously examined at different levels of the court system up to the Supreme People’s Court’s. Different rules permitting Chinese courts to conduct a substantive review of the merits of the awards apply to domestic awards, with enforcement of foreign Non-Convention awards being governed by a further separate regime.
In cases where enforcement of foreign arbitral awards was refused, a portion of them are for the reason that there was no valid arbitration agreement between the parties. When examining the issue of validity, the People’s courts will apply the express choice of law for the arbitration agreement agreed upon by the parties, failing which the law of the seat of arbitration agreed upon by the parties. If no agreement can be ascertained, Chinese law will be applied to determine the issue. On the requirements of a valid arbitration agreement, parties negotiating an arbitration agreement governed by Chinese law should be careful that the arbitration agreement satisfies the requirements under Chinese law, one of which obliges the parties to specify the arbitration institution agreed upon by the parties in the arbitration agreement. In the Wuxi case discussed above, since the arbitration clause only identified ICC rules without going a step further to specify that the International Court of Arbitration of the ICC was the administering institution, the clause was ruled invalid.
The SPC’s Circular and Article 267 of the Civil Procedure Law are the principal pieces of law and regulation that govern enforcement of Convention awards in China. Article 4 of the Circular provides that China courts should enforce a Convention award if none of the following grounds for refusing enforcement as set out in Article 5(1) and (2) of the New York Convention apply:
- The parties to the arbitration agreement were under the law applicable to them under some incapacity, or that the arbitration agreement is not valid under the law to which the parties have subjected it or, failing which, under the law of the country where the award was made;
- The party against whom the enforcement is sought was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
- The award deals with a dispute not contemplated by or not failing within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced;
- The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing which, was not in accordance with the law of the country where the arbitration took place;
- The award has yet to become binding on the parties or has been set aside or suspended by a competent authority (usually the courts) of the country in which, or under the law of which, the award was made;
- The subject matter of the dispute is not capable of settlement by arbitration under the law of the PRC; or
- The recognition or enforcement of the award would be contrary to the public policy in China.
As non-domestic award may be enforced pursuant to the New York Convention, the grounds set out above for Convention awards are applicable to non-domestic award.
Hong Kong award
The grounds for the refusal of enforcement of Hong Kong awards mirror those applicable to Convention awards.
Article 258 of the Civil Procedure Law stipulates the grounds upon which an award may be refused enforcement, as set out below. They are very similar in nature to grounds (2), (3), (4), (6) and (7) applicable to the enforcement of Convention awards discussed above:
- The parties did not provide for arbitration agreement in their contract or after a dispute has arisen, the parties have not reached any written arbitration agreement;
- The respondent (i.e. the party against whom the enforcement is sought) was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present his case owing to reasons not attributable to the respondent;
- The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the arbitration rules;
- The matter submitted to arbitration falls beyond the scope of the arbitration agreement or the arbitration institution has no jurisdiction to arbitrate; and
- The recognition or enforcement of the award would be contrary to the social and public interest of China.
China may from time to time enter into bilateral treaties with individual non-Convention states for the purpose of promoting and regulating mutual recognition and enforcement of civil judgments and / or arbitral awards. Arbitral awards rendered in non-Convention states may be enforced in China if the treaties provide for such recognition and enforcement. In principle an application to enforce a Non-Convention award in China may be brought in accordance with the principle of reciprocity as stipulated under Article 267 of the Civil Procedure Law. There is however no reported court case providing guidance on the application of the principle in the context of enforcement of arbitral awards.
The scope for refusing enforcement is wider for domestic awards. Under Article 213 of the Civil Procedure Law and the relevant Supreme People’s Court’s Interpretation, the People’s Courts may refuse to enforce a domestic award on any of the following grounds, some of which empowers the court to review the merits of the award:
(1) The matter submitted to arbitration falls beyond the scope of the arbitration agreement or the arbitration institution has no jurisdiction to arbitrate;
(2) The composition of the arbitral tribunal or the arbitration procedure was not in accordance with the arbitration procedures specified in the Arbitration Law and the arbitration rules adopted by the parties;
(3) The main evidence for concluding the facts of the case is insufficient;
(4) There is incorrect application of the law;
(5) Arbitrators were involved in any conduct of embezzlement, bribery, practicing favoritism for himself or relatives or rendering an award in violation of the law; or
(6) The recognition or enforcement of the award would be contrary to the social and public interest of China.
Other than the above grounds, an arbitral award will also risk non-enforcement if the application for enforcement is made out of time. According to Article 215 of the Civil Procedure Law, an application for enforcement of an award has to be lodged with the relevant People’s Court within 2 years or the award will become unenforceable. Compared to the limitation periods adopted in common law countries, the time limit is relatively short. The 2-year period counts from the last day of performance of the award as stated in the award, or where no deadline for performance is stated, from the date when the award becomes effective.
A party applying for enforcement has to be alert that the papers for the application must be in order to enable the People’s Court to accept the case within time. The papers required to be submitted for this purpose include those set out in Article V of the Convention, incorporated in Schedule 1 to the SPC’s Circular, plus other documents as prescribed under the relevant PRC regulations on enforcement of arbitral awards.
With a view to ensuring strict implementation of the enforcement procedure for foreign and foreign-related awards (which include Hong Kong awards), in 1995, the Supreme People’s Court established a reporting regime  to monitor the process. Under the reporting system, a People’s court which intends to refuse enforcing an arbitral award has to report it to the Higher People’s Court in the same jurisdiction region for review, and if the Higher People’s Court agrees not to enforce, it has to report its review and comments to the Supreme People’s Court. It is only until the approval of the Supreme People’s Court is obtained could the award be refused enforcement. Insofar as enforcement of awards pursuant to the Convention is concerned, the SPC has issued regulations in 1998 demanding the enforcing courts to render rulings on whether to recognise and enforce an award and to report any ruling of refusal to enforce to the Supreme People’s Court, within two months of the court’s acceptance of the case. The same regulation also provides that save exceptional circumstances, the enforcement of the award has to be completed within 6 months of the ruling. There are no express time limits that are applicable to the entire review process for foreign-related arbitral awards. Despite the prescribed time periods, in practice the time taken for issuing the ruling can be a lot longer, particularly where issues of local protectionism are involved.
 The reporting regime is stipulated in the Circular of the Supreme People’s Court on the Handling of Related Issues regarding Foreign-related and Foreign Arbitration Matters (1995).