I. Introduction
With international trade flows boosting, international commercial arbitration is becoming increasingly accepted among parties as an efficient means of resolving international economic and trade disputes, due to its confidentiality, flexibility, speed and enforceability. In the event of non-compliance with an arbitral award by the losing party, it is critical for the winning party to be able to enforce the award against the losing party in accordance with relevant governing law.
There are widespread concerns among the disputed parties on whether the arbitral awards issued outside China can be effectively enforced through Chinese courts. The concerns are mostly due to the lack of knowledge of the Chinese legal system and its practice. This article will provide an overview of the procedure for enforcing foreign arbitral awards under the Chinese legal scheme. It will also briefly touch on the potential grounds for Chinese courts declining to enforce foreign arbitral awards.
II. Legal Scheme for Recognition and Enforcement in China
The legal framework governing recognizing and enforcing foreign arbitral awards in China is three-tiered, namely, international treaties or agreements signed by China, legislation passed by the National People’s Congress (NPC) and its Standing Committee, and the Opinions or Notices issued by the Supreme People’s Court of China (SPC).
i. New York Convention
In 1958, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) was signed at the United Nations Conference. There are over 150 contracting states to the New York Convention which provides conditions for contracting states to recognize and enforce foreign arbitral awards. It officially came into force in China on 22 April 1987.
China made two reservations when joining the New York Convention. One is that the Convention applies only to the recognition and enforcement of awards made in the territory of another contracting State. It is known as “reciprocity reservation”. The other one is that the Convention is to be made only to the differences arising out of legal relationships, whether contractual or not, that are considered “commercial” under national law. It is known as “commercial matters reservation”.
ii. The Civil Procedure Law
The Civil Procedure Law of PRC sets down the principles for the recognition and enforcement of foreign arbitral awards within China’s civil procedural legal system. Article 290 of the Civil Procedure Law stipulates that where an arbitral award of a foreign arbitration institution needs recognition and enforcement by Chinese courts, the parties involved should apply directly to an Intermediate People’s Court at the location of the respondent’s residence or the location of the respondent’s properties. The court would handle the matter under international treaties (i.e. New York Convention) concluded by China or under the principle of reciprocity. Once granted after review and examination by a Chinese court, the enforcement shall be executed under the procedure stipulated in the Civil Procedure Law.
iii. Notices issued by SPC
To facilitate the implementation of the New York Convention in China, SPC issued a Notice on Enforcement of the Convention on the Recognition and Enforcement of Foreign Arbitrational Awards in 1987 (the “1987 Notice”), which clarifies the rules applicable to the New York Convention including jurisdiction, filing deadlines, standards of review for recognition and enforcement, etc.
To further clarify the rules on recognizing and enforcing foreign arbitrational awards, a Notice on Relevant Issues of the People’s Court Dealing with Foreign Arbitration was issued by SPC in 1995 and was further revised in 2008 (the “2008 Notice”). It clarifies the circumstances under which Chinese courts may refuse to recognize or enforce foreign arbitral awards. Additionally, it also strengthens the supervision of local courts on recognizing and enforcing foreign arbitral awards by establishing an internal reporting system. Under this reporting system, when an intermediate court is inclined to refuse to recognize or enforce a foreign arbitral award, it is required to report to the People’s High Court (appellate court) for further review. If the People’s High Court has the same inclination, the case has to be submitted to SPC for final review and examination before a refusal of the application can be issued. From this Notice, we can conclude that the attitude of Chinese courts is still dominated by ruling in favour of recognition and enforcement of foreign arbitral awards.
III . Recognition and Enforcement Procedure
The party to an arbitral award can file the application with an Intermediate People’s Court that has jurisdiction. If the respondent is a natural person, the party seeking recognition and enforcement shall apply with the Intermediate People’s Court of the place where the respondent is domiciled in China. If the respondent is a legal entity, the application shall be filed with the Intermediate People’s Court in the location where the principal place of business of such legal entity is situated. Alternatively, the application can be filed with the Intermediate People’s Court of the place in which the respondent’s property is located.
Technically speaking, recognition and enforcement are two separate proceedings that can be dealt with by the same court. In practice, the recognition proceedings are heard by the Civil Division of the Intermediate People’s Court which manages cross-border legal issues. Upon a successful application for recognition, the Enforcement Division of that court will handle the enforcement procedure thereafter.
Pursuant to Article 4 of New York Convention, the applying party should supply the Chinese court with the authenticated award (or certified copy), the original agreement that includes the arbitral clause or an arbitration agreement (or certified copy). If the said award or agreement is not made in Chinese, the applying party shall provide a translation of these documents. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.
Regarding the time limit for the application, pursuant to Civil Procedure Law[1] and the Interpretation on Civil Procedure Law[2] issued by SPC, the application shall be submitted within two years, calculated from the last day of the performance period specified in the arbitral award. If the award did not contain any performance period, the party should be given a reasonable period to perform. Thus, it would be more reasonable to calculate from the second day of service of the arbitral award on the party, rather than from the date of issuing the arbitral award.[3]
It is worth noticing that there have been cases in practice where enforcement applications have been dismissed outright for exceeding the application deadline. Therefore, it is recommended that the successful party in the arbitration takes the initiative to apply for recognition and enforcement of the award as soon as it becomes available, leaving the losing party little time to create obstacles for the enforcement.
IV . Property Preservation Measure During Recognition and Enforcement Procedures
As a temporary measure taken by the Chinese courts in civil disputes, the function of property preservation is to guarantee the effective enforcement of judgments by freezing and seizing the assets of the respondent before the final decision/judgment is delivered, to prevent the respondent from transferring its assets during the proceedings.
Even though property preservation is a common method utilized in civil litigation in China, it remains controversial whether the courts should grant this interim measure in recognition and enforcement of foreign arbitral awards proceedings. Neither New York Convention nor domestic laws or notices issued by SPC has provided clear guidance on this issue. Due to the blankness of international and domestic laws on this issue, some courts have rejected the property preservation application with the view that such an application lacks legal grounds.[4] Nevertheless, there are cases where the courts have
granted property preservation applications in recognition and enforcement of foreign arbitral awards proceedings, taking into account the original design intention of the property preservation system.[5]
In practice, different courts may make different rulings and it is a case-by-case situation. We anticipate direct guidance will be provided through legislation at the domestic level to resolve the dilemma.
V. Grounds of Denial: Conditions Affecting Enforcement
Article 4 of the 1987 Notice and Article 5 of the New York Convention set out the following circumstances in which the courts may refuse an application for recognition and enforcement of a foreign arbitral award:
First, the arbitration agreement or clause is entered into by a person with limited capacity or is void under the applicable laws. Second, there are violations of due process in arbitral proceedings. For example, the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was unable to present his case for reasons not attributable to that party. Third, the dispute settled by the award was exceeding arbitral authority. If the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, the court may refuse to recognize or enforce the award. Fourth, the improper composition of the arbitral tribunal would result in a denial of recognition or enforcement of an arbitral award. Fifth, the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which that award was made. Sixth, recognition and enforcement of an arbitral award may be refused if the subject matter over which the two parties disagree is not capable of settlement by arbitration under the law of China. For example, disputes arising from marriage, adoption, and guardianship are expressly excluded from arbitration by the Arbitration Law in China. Seventh, the application shall be refused if the recognition or enforcement of the award would be contrary to the public policy in China.
The first five circumstances will only be examined by the courts upon the request of a party. However, the last two circumstances (arbitrability and public policy) are reviewable by the Chinese courts ex officio.
Unlike litigation proceedings, when hearing cases of application for recognition and enforcement of foreign arbitral awards, the Chinese courts only examine procedure issues, i.e. whether there is a valid arbitration agreement or clause, whether there are any procedural violations, whether it violates PRC public policy, etc. The Chinese court will not review substantive issues, such as the rights and obligations of the parties. Ensuring the legality of the signed arbitration agreement or clause and the procedure of the arbitration proceedings is therefore crucial to the recognition and enforcement of foreign arbitral awards in China.
VI . Conclusion
Based on our research from the judgement database, there are 243 cases involving recognizing and enforcing foreign arbitral awards from 2001 to 2022, of which only 43 cases resulted in the refusal of recognition or enforcement. The case results yielded show that the refusal is mainly due to procedural defects, with the largest case number involving ineffectual arbitration agreements or procedure defects. The less frequently invoked ground is the violation of public policy.
In recent years, the courts in China have adhered to the strict application principle in refusing to recognize and enforce foreign arbitral awards to create an “arbitration-friendly” environment. It is foreseeable that the judicial environment in China will become more and more favourable to the development of arbitration under the influence of a series of initiatives to support the development of arbitration in China, especially by SPC.
1 Article 246
2 Article 545
3 As per the explanation provided by SPC in the Response to the Application for Recognition and Enforcement of Arbitral Award by McCaw Nepton Limited
4 See Korea Line Corporation v. HNA Group Co., Ltd. (2016) Xiong 72 Xie Wai Ren No.1
5 See OUELIPPO HEALTH CARE LIMITED v. LIN Gaoshen (2019) Hu 01Xie Wai Ren No.5
