32 MARKET COMMENTARY
INTERNATIONAL ARBITRATION 1/3LY
‘FOREIGN-REL ATED’ AWARDS AND THE SE AT OF ARBITRATION Several judicial interpretations have been issued to provide guidance on the enforcement of foreign awards with a view to improving the consistency of judicial standards on this issue. These include a guidance document specifically addressing ‘foreign-related’ arbitration, which in the PRC comprise civil cases inwhich one or more parties are foreign, or where the subject matter or nexus of the case takes place abroad. In relation to the seat of arbitration, WunschARB discerned a negative trendwhereby some Chinese courts consider the jurisdiction of the arbitral institution as the seat of the award, which is causing confusion. For example, an award of the International Chamber of Commerce (ICC) would be considered French, regardless of the seat of arbitration. This policymay emanate froma published letter of reply sent by the SPC to the HPC of Shanxi Province (which had the status of a judicial interpretation), and concerned the enforcement of an ICC award seated in Hong Kong. The letter indicated that because the ICC is established in France, and both China and France are parties to the New York Convention, the recognition and enforcement of the award should be governed by the New York Convention, rather than the “Agreement concerningMutual Recognition and Enforcement of Arbitral Awards Between theMainland and the Hong Kong Special Administrative Region”. Therefore, it seems that ICC awards being enforced in Chinamay be considered ‘French’ by Chinese courts. However, the extent to which awards under the auspices of other arbitral institutions outside PRCwill be considered seated in the location of those institutions, is not clear. Moreover, WunschARB note that the approach of the courts is not consistent, with some courts adopting a different approach and determining the seat by the place of arbitration; thus compounding the uncertainty and complexity around this issue. GROUNDS FOR NON-ENFOR CEMENT Moving towardmore positive trends, WunschARB remark on the significant number of cases inwhich Chinese courts did not entertain overly formalistic arguments to the signature of the arbitration agreement, or similar approaches to the service of notices, as grounds for non- enforcement. By contrast, where the courts determined that there was no valid arbitration agreement (whether due to lack of capacity or otherwise), this was deemed a ground for non- enforcement under Article V(1)(a) of the New York Convention. Furthermore, Articles V(1)(b) and (d) of the New York Conventionwere cited as grounds to refuse enforcement where a tribunal member was prevented fromparticipating in deliberations with other members, andwhere the tribunal failed to complywith time limits and notice requirements in the relevant arbitration rules, as well as the requirements of due process. Where parties were not signatories to the arbitration agreement, the courts ordered partial enforcement of the award – rather than refusing enforcement altogether – by simply excluding any enforcement against non-parties. INVOKING PUBLIC POLICY It is possible to discern a pattern of reluctance to invoke public policy. Lower courts have been more inclined to find that a conflict between an award and Chinese laws and administrative regulations constitutes a breach of public policy, thus warranting non-enforcement of a foreign- related award. However, the SPC has repeatedly confirmed that such a conflict is, in itself, not sufficient to trigger a breach of public policy, evenwhere the award appeared to be unfair.
Surprisingly, in the 2003 case ED&FMan v. National Sugar –which concerned an award in favour of a Chinese company engaging in overseas futures trading (prohibited under Chinese lawat that time) – the Beijing IPCwas inclined to refuse to recognise and enforce the award on the basis that it awarded benefits froman illegal contract; thereby breachingmandatory legal provisions of China, and public policy. The HPC agreed but the SPC held that whilst the contract should have been considered invalid – and the tribunal violated Chinesemandatory lawby not finding so – a violation of mandatory Chinese lawdid not amount to a violation of PRC public policy, warranting non-enforcement under Article V(2) of the New York Convention; and therefore the award should be recognised and enforced. This case is a positive example where the reporting systemhas permitted the SPC to overrule a lower court’s decision not to enforce. Judge Lu’s 2004 paper indicated that he was not aware of any case of non-enforcement on the grounds of public policy. However, the Kluwer digest includes at least one case of non-enforcement on this ground, albeit a case dating back to the 1990s. This case [see USA Productions et al. v. Women Travel (1997)] concerned a contract between two US companies and a Chinese company in relation to performances of various US bands in several cities in China. The performers contracted to observe PRC laws and policies (including the prohibition on heavymetal rock songs) but later deviated from their contractual obligations by including heavymetal in their performances, leading to cancellation of the tour by theMinistry of Culture. The US companies sued their Chinese counterparty for non-payment and damages, and the Chinese party counterclaimed for compensation due to cancellation of performances. An arbitral awardwas rendered substantially in favour of the US performers, which the Beijing IPC refused to enforce on the basis that the bands had performed heavymetal rock songs inconsistent with social conventions in China and contrary to PRC public policy. In a heavily criticised decision, the SPC agreed and enforcement was refused. In light of the enforcement regime nowprevalent in mainland China, it is unlikely that the courts wouldmake a similar finding today. THE IMPACT OF TODAY ’S ENFOR CEMENT REGIME The present enforcement landscape in China appears to be decidedly positive: in themajority of published cases, the Chinese courts ordered recognition and enforcement of foreign-related arbitralawards,notwithstandingobjectionsraisedbypartiesagainstwhomenforcementwassought. Even so, there have been challenges. Some older cases have revealedwhat practitioners view as ‘local protectionism’ by lower courts, seeking to invoke public policy as grounds for refusing to enforce foreign-related awards (although the reporting systemstrives to address this issue). Courts have confused the criteria for enforcement of domestic and foreign-related arbitral awards, or refused to register an enforcement case - a phenomenonwhich, according to some practitioners, is still not uncommon andmay lead to the expiration of the time limit for filing an enforcement application, thereby depriving the parties of an efficient remedy against the court’s behaviour since no court is officially in charge of the case. Lower courts have also refused to report cases to higher courts, leaving parties remediless, and local protectionismby the courts is evident in relation to execution against assets. In our view, the trend of positive enforcement of ‘foreign-related’ arbitral awards in PRC is likely to continue, as China has demonstrated its commitment to complying with the New York Convention, no doubt to encourage cross-border trade with foreign companies. The next challenge will be for the process of execution of ‘foreign-related’ awards in China to be improved, so that successful enforcement of a foreign award in China is not a hollow victory. A version of this article was first published in Kluwer Arbitration Blog, December 2013. The full version, referencing case citations, can be viewed at: http://kluwerarbitrationblog.com/ blog/2013/12/06/enforcement-in-china-what-the-cases-show/
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