Enforcing Foreign Awards in China
Requiring forced arbitration agreements limits consumer rights and protections. - Conor Lamb
In 1987 the People’s Republic of China sanctioned the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. On 10 April 1987, the Supreme People’s Court of China issued a Notice of the Supreme People’s Court for the Implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The Supreme Court Notice contains solely five articles setting out the principal rules supported by the New York Convention. Till this day the Supreme Court Notice has not been amended. Due to the lack of explanation and case precedents, the applicants seeking to enforce a foreign arbitral award in the People’s Republic of China should have regarding the issues set out below.
Most of the foreign arbitrational awards are enforceable in China. In 2019, the foreign arbitrational awards are recognized and enforced with a successful rate of 87.5%. The arbitrational awards from Hong Kong, Macau, and Taiwan are recognized and enforced consistent to relevant arrangements between them and Mainland China.
Enforceability of International Arbitral Awards
The legal basis for applying of recognition and enforcement of foreign arbitral awards in China are:
I. The New York Convention
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards was signed at the United Nations Conference on International Commercial Arbitration on June 10, 1958. It is currently the foremost vital convention on the worldwide scope of recognition and enforcement of arbitral awards. It provides conditions for contracting states to recognize and enforce foreign arbitral awards. There are 157 contracting states to the New York Convention, together with all members of the G20 except the European Union. New York Convention officially came into force in China on April 22, 1987.
II. Notice of the Supreme People's Court on the Enforcement of the Convention on Recognition and Enforcement of Foreign Arbitrational Awards
To facilitate the graceful implementation of the New York Convention on April 10, 1987, the Supreme People's Court issues a Notice on Enforcement of the Convention on the Recognition and Enforcement of Foreign Arbitrational Awards. The Notice includes the jurisdiction, application period, standard of examination on recognition and enforcement, etc.
III. The Civil Procedural Law
The People's Republic of China, Civil Procedural Law came into existence in 1991. It set down the principles for the recognition and enforcement of foreign arbitral awards within the civil procedural legal system of China. Article 283 of this law stipulates that where an arbitral award of a foreign arbitration organization needs recognition and enforcement by a People's Court of the People's Republic of China, the parties involved should submit an application directly to an intermediate People's Court at the location of the enforcee's residence or the location of the enforcee's properties. The People's Court shall handle the matter consistent with the international treaty in accordance with the principle of reciprocity.
IV. Notice of the Supreme People's Court on the Handling of problems regarding the Foreign-related Arbitration and Foreign Arbitration
To enhance supervision of native courts in respect of recognition and enforcement of foreign arbitral awards, the Supreme People's Court prepares a Notice of the Supreme People's Court on the Handling of problems regarding Foreign-related Arbitration and Foreign Arbitration. According to this Notice, when a party concerned applies to a people's court for the recognition and enforcement of an arbitral award made by a foreign arbitration, if the people's court considers that the foreign arbitral award in question fails to comply to the international conventions China or with the principle of mutual benefit, the people's court must refer to the higher people's court of the concerned jurisdiction. If the higher people's court agrees with non - enforcement it should report its examination opinions to the Supreme People's Court. Solely once the Supreme People's Court decision non - enforcement will be created.
V. The Arbitration Law of the People's Republic of China
Arbitration Law 1995 is the initial legislation in China stipulating arbitration matters. It is a milestone within the legislative history of China. The most purpose of this legislation is to remould the native arbitration system in China. Some articles of the legislation regulate international commercial arbitration related to China.
Types of the enforceable arbitrational award
- Arbitrational awards created within the territory of another contracting state
- Arbitrational awards arising out of legal relationships
Recognition and enforcement process of the foreign arbitrational award
The party to an arbitrational award will apply for recognition and enforcement in the People’s Republic of China. Recognition and enforcement are totally different procedures. Recognition proceedings are going to be heard by a civil division handling foreign cases in an intermediate court. If the court acknowledges an arbitral award, the court can issue a ruling recognizing the arbitral award in the People’s Republic of China. Once the arbitral award is recognized, then the applicant should apply to the enforcement division of the same court.
Kind of arbitral awards which will not be recognized and enforced
Article 4 of the Supreme Court Notice and Article 5 of the New York Convention explains that the People’s Republic of China courts will refuse the application for recognition and enforcement of a foreign arbitral award. Refusal of such application is due to improper arbitration proceedings conducted in a foreign country.
Article 5.(2) (a) of the New York Convention states if the court sees that the subject matter of the dispute isn’t capable of settlement by arbitration beneath the laws of the place of recognition and enforcement, then the court could refuse to enforce the award.
Under the People’s Republic of China Arbitration Law, solely contractual disputes and other disputes over rights in property between citizens, legal entities, and alternative organizations can be arbitrated. Family, succession disputes, and administrative disputes are specifically prohibited from being settled through arbitration.
2. Public policy
Article 5 (2) (b) of the New York Convention states that the recognition or enforcement of the arbitral award could also be refused if the court finds that it will be against the public policy of the place of recognition and enforcement. In TCL Air-conditioner (Zhongshan) Limited v Castel Electronics Pty Ltd, the Supreme People’s Court held that the violation of public interest will be deciphered as a violation of the fundamental principle, national sovereignty, public security, violation of essential public policy, different circumstances which can encroach the essential public interest.
According to Article 2 of the Notice of the Supreme People’s Court on Handling Foreign-related Arbitration and Foreign Arbitral Issues, if an Intermediate People’s Court decides not to acknowledge and enforce an award then that Court should submit its decision to the relevant Higher People’s Court for review. If the Higher People’s Court decides to uphold the lower court’s then it should report its decision to the Supreme People’s Court. The Supreme People’s Court will consider the matter and answer with a judicial decision.
To avoid difficulties, parties seeking to recognize and enforce foreign arbitrational awards within the People’s Republic of China should consider the location of the relevant assets while bearing in mind the potential obstacles related to asset preservation and therefore the potential grounds for refusing recognition and enforcement.