Joe Liu.As a number of Indian companies look to enter the Chinese market, it becomes increasingly important to consider the legal implications of such a move. In a tie up with the Hong Kong International Arbitration Centre, Bar & Bench brings to you important legal insights on doing business in China..Suppose an Indian party obtains a monetary award against a Chinese party in an arbitration seated outside mainland China and the Chinese party fails to pay the award. Unless the Chinese party has accessible assets outside the mainland, the Indian party will need to enforce the award through the Chinese courts. Therefore, as far as Indian parties are concerned, the ability to enforce awards in mainland China is critical..There is a general perception that the enforcement regime in mainland China has improved in recent years, primarily as a result of the reporting system that requires the approval of China’s Supreme People’s Court (SPC) for any lower court’s decision to refuse enforcement of a foreign or foreign-related award. But the real question is how is this mechanism implemented or how do the Chinese courts deal with enforcement applications in practice?.The starting point is the statistics. According to a survey conducted by the SPC and 17 Higher People’s Courts, from 2002 to 2006, out of 74 applications for enforcement of foreign awards, 58 applications were granted (78.4%) and five awards were refused enforcement (6.8%). From 2000 to September 2011, lower courts sought SPC’s approval on non-enforcement of 56 foreign awards and SPC decided not to enforce 21 awards (37.5%).[1] Between 2010 and 2012, out of 27 foreign awards reported to the SPC, seven were not enforced (25.9%).[2] These statistics are indicative of the progress made by China in establishing a pro-arbitration attitude and general judicial reluctance to interfere in foreign awards..Recent cases reflect the Chinese courts’ increasing sophistication and growing analytical ability when dealing with enforcement applications. Decisions in these cases signal a notable tendency of the Chinese courts to follow the strict terms of the New York Convention and a judicial willingness to respect parties’ agreement and choice of foreign law. Based on our review of these cases and our discussions with Chinese judges, we have the following observations:.Hong Kong awards maintain a stellar track record in respect of enforcement in mainland China. The Chinese courts have not refused to enforce any awards made in Hong Kong or issued by the Hong Kong International Arbitration Centre (HKIAC) over the past five years. This is a record many other jurisdictions and arbitral institutions have not been able to achieve. This is significant and strengthens Hong Kong and HKIAC’s attractiveness as the preferred place to arbitrate for China-related disputes.[3]The reporting system has generally been followed and has effectively enhanced the uniformity of the Chinese courts’ decisions on enforcement of foreign and foreign-related awards. However problems remain in the system. Parties have sometimes complained about the lack of clarity and delays incurred in the reporting system. There is also no effective mechanism for parties to monitor the progress of their cases. To address these issues, we understand that the SPC has been organizing trainings with local court judges every year and is in the process of issuing judicial guidelines regarding the implementation of the reporting system later this year.It is possible to discern reluctance on the part of the Chinese courts to invoke public policy to refuse enforcement.[4] The SPC has repeatedly confirmed that a violation of mandatory Chinese law does not warrant non-enforcement of an arbitral award on the ground of public policy. In a recent case, a Chinese court enforced two HKIAC awards despite allegations that the awards concerned arrangements regarding a variable interest entity and a valuation adjustment mechanism which were illegal under Chinese law.[5]The Chinese courts place great emphasis on the strict compliance of the arbitral process with the parties’ agreement and any applicable rules or law. Non-compliance of parties’ agreement was a ground that was most frequently used by the Chinese courts to refuse enforcement of foreign awards between 2000 and 2010.[6].The Chinese courts have shown a growing willingness to apply foreign law to determine the validity of the arbitration agreement. In the past, the Chinese courts had applied Chinese law to invalidate arbitration clauses, which led to non-enforcement of a number of awards.[7].As to the long-standing question of how to determine the nationality of an arbitral award under Chinese law, the Chinese courts appear to be prepared to look at the seat of arbitration to determine the nationality of an award.[8].Joe Liu is the Deputy Managing Counsel at the Hong Kong International Arbitration Centre. As a member of the HKIAC Secretariat, Joe works closely with the team to develop the dispute resolution services provided by the HKIAC and to promote the use of Hong Kong/HKIAC arbitration worldwide..[1] Guixiang Liu & Hongyu Shen, Recognition and Enforcement of Foreign Arbitral Awards in China: A Look Back on a Decade of Court Practices, Beijing Arb. Q. 4 (No. 1, 2012), page 6..[2] These statistics were provided by Judge Hongyu Shen at a seminar entitled “Arbitration in Mainland China: Law and Practice” on 22 October 2013, as part of the 2013 Hong Kong Arbitration Week..[3] In 2013, HKIAC handled 140 arbitrations involving Chinese parties, whereas ICC handled 58 such cases, SIAC handled 41 and SCC handled 7. Only 0.8% of the parties who referred disputes to LCIA were from China in 2013..[4] We have seen only two cases in which the Chinese courts refused to enforce a foreign or foreign-related award on the public policy ground. See USA Productions et al v. Women Travel, Ta [1997] No. 35 (SPC), 26 December 1997; Hemofarm DD et al v. Yongning Pharmaceutical [2008] Min Si Ta Zi No. 11, 2 June 2008..[5] Fujian Across Express Information Technology Co., Ltd and others v China MediaExpress Holdings, Inc, [2014] Rong Zhi Jian Zi No. 51..[6] See Exiang Wan & Xiaohong Xia, Reason for the refusals of the recognition and enforcement of foreign arbitral awards in Chinese courts – New York Convention Case Studies, 13 Int’l L. Rev. Wuhan U. 8 (Wuhan U. Press 2010)..[7] Among all the foreign awards not enforced in mainland China from 2000 to 2010, 30% of them were refused enforcement for lack of valid arbitration agreement. See Exiang Wan & Xiaohong Xia, Reason for the refusals of the recognition and enforcement of foreign arbitral awards in Chinese courts – New York Convention Case Studies, 13 Int’l L. Rev. Wuhan U. 8 (Wuhan U. Press 2010), page 8..[8] See the SPC Notice of Relevant Issues on the Enforcement of Hong Kong Arbitral Awards in the Mainland, Fa [2009] No. 415, 30 December 2009, which clarifies that ad hoc awards made in Hong Kong and awards issued by foreign arbitral institutions in Hong Kong are treated as Hong Kong awards and enforceable in mainland China under the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong, rather than the New York Convention.
Joe Liu.As a number of Indian companies look to enter the Chinese market, it becomes increasingly important to consider the legal implications of such a move. In a tie up with the Hong Kong International Arbitration Centre, Bar & Bench brings to you important legal insights on doing business in China..Suppose an Indian party obtains a monetary award against a Chinese party in an arbitration seated outside mainland China and the Chinese party fails to pay the award. Unless the Chinese party has accessible assets outside the mainland, the Indian party will need to enforce the award through the Chinese courts. Therefore, as far as Indian parties are concerned, the ability to enforce awards in mainland China is critical..There is a general perception that the enforcement regime in mainland China has improved in recent years, primarily as a result of the reporting system that requires the approval of China’s Supreme People’s Court (SPC) for any lower court’s decision to refuse enforcement of a foreign or foreign-related award. But the real question is how is this mechanism implemented or how do the Chinese courts deal with enforcement applications in practice?.The starting point is the statistics. According to a survey conducted by the SPC and 17 Higher People’s Courts, from 2002 to 2006, out of 74 applications for enforcement of foreign awards, 58 applications were granted (78.4%) and five awards were refused enforcement (6.8%). From 2000 to September 2011, lower courts sought SPC’s approval on non-enforcement of 56 foreign awards and SPC decided not to enforce 21 awards (37.5%).[1] Between 2010 and 2012, out of 27 foreign awards reported to the SPC, seven were not enforced (25.9%).[2] These statistics are indicative of the progress made by China in establishing a pro-arbitration attitude and general judicial reluctance to interfere in foreign awards..Recent cases reflect the Chinese courts’ increasing sophistication and growing analytical ability when dealing with enforcement applications. Decisions in these cases signal a notable tendency of the Chinese courts to follow the strict terms of the New York Convention and a judicial willingness to respect parties’ agreement and choice of foreign law. Based on our review of these cases and our discussions with Chinese judges, we have the following observations:.Hong Kong awards maintain a stellar track record in respect of enforcement in mainland China. The Chinese courts have not refused to enforce any awards made in Hong Kong or issued by the Hong Kong International Arbitration Centre (HKIAC) over the past five years. This is a record many other jurisdictions and arbitral institutions have not been able to achieve. This is significant and strengthens Hong Kong and HKIAC’s attractiveness as the preferred place to arbitrate for China-related disputes.[3]The reporting system has generally been followed and has effectively enhanced the uniformity of the Chinese courts’ decisions on enforcement of foreign and foreign-related awards. However problems remain in the system. Parties have sometimes complained about the lack of clarity and delays incurred in the reporting system. There is also no effective mechanism for parties to monitor the progress of their cases. To address these issues, we understand that the SPC has been organizing trainings with local court judges every year and is in the process of issuing judicial guidelines regarding the implementation of the reporting system later this year.It is possible to discern reluctance on the part of the Chinese courts to invoke public policy to refuse enforcement.[4] The SPC has repeatedly confirmed that a violation of mandatory Chinese law does not warrant non-enforcement of an arbitral award on the ground of public policy. In a recent case, a Chinese court enforced two HKIAC awards despite allegations that the awards concerned arrangements regarding a variable interest entity and a valuation adjustment mechanism which were illegal under Chinese law.[5]The Chinese courts place great emphasis on the strict compliance of the arbitral process with the parties’ agreement and any applicable rules or law. Non-compliance of parties’ agreement was a ground that was most frequently used by the Chinese courts to refuse enforcement of foreign awards between 2000 and 2010.[6].The Chinese courts have shown a growing willingness to apply foreign law to determine the validity of the arbitration agreement. In the past, the Chinese courts had applied Chinese law to invalidate arbitration clauses, which led to non-enforcement of a number of awards.[7].As to the long-standing question of how to determine the nationality of an arbitral award under Chinese law, the Chinese courts appear to be prepared to look at the seat of arbitration to determine the nationality of an award.[8].Joe Liu is the Deputy Managing Counsel at the Hong Kong International Arbitration Centre. As a member of the HKIAC Secretariat, Joe works closely with the team to develop the dispute resolution services provided by the HKIAC and to promote the use of Hong Kong/HKIAC arbitration worldwide..[1] Guixiang Liu & Hongyu Shen, Recognition and Enforcement of Foreign Arbitral Awards in China: A Look Back on a Decade of Court Practices, Beijing Arb. Q. 4 (No. 1, 2012), page 6..[2] These statistics were provided by Judge Hongyu Shen at a seminar entitled “Arbitration in Mainland China: Law and Practice” on 22 October 2013, as part of the 2013 Hong Kong Arbitration Week..[3] In 2013, HKIAC handled 140 arbitrations involving Chinese parties, whereas ICC handled 58 such cases, SIAC handled 41 and SCC handled 7. Only 0.8% of the parties who referred disputes to LCIA were from China in 2013..[4] We have seen only two cases in which the Chinese courts refused to enforce a foreign or foreign-related award on the public policy ground. See USA Productions et al v. Women Travel, Ta [1997] No. 35 (SPC), 26 December 1997; Hemofarm DD et al v. Yongning Pharmaceutical [2008] Min Si Ta Zi No. 11, 2 June 2008..[5] Fujian Across Express Information Technology Co., Ltd and others v China MediaExpress Holdings, Inc, [2014] Rong Zhi Jian Zi No. 51..[6] See Exiang Wan & Xiaohong Xia, Reason for the refusals of the recognition and enforcement of foreign arbitral awards in Chinese courts – New York Convention Case Studies, 13 Int’l L. Rev. Wuhan U. 8 (Wuhan U. Press 2010)..[7] Among all the foreign awards not enforced in mainland China from 2000 to 2010, 30% of them were refused enforcement for lack of valid arbitration agreement. See Exiang Wan & Xiaohong Xia, Reason for the refusals of the recognition and enforcement of foreign arbitral awards in Chinese courts – New York Convention Case Studies, 13 Int’l L. Rev. Wuhan U. 8 (Wuhan U. Press 2010), page 8..[8] See the SPC Notice of Relevant Issues on the Enforcement of Hong Kong Arbitral Awards in the Mainland, Fa [2009] No. 415, 30 December 2009, which clarifies that ad hoc awards made in Hong Kong and awards issued by foreign arbitral institutions in Hong Kong are treated as Hong Kong awards and enforceable in mainland China under the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong, rather than the New York Convention.
