22 CHINESE WHISPERS
INTERNATIONAL ARBITRATION 1/3LY
FOR CING THE I SSUE Once an arbitral award has been made against a Chinese company, this will not necessarily be the end of the issue – as it may fail to honour the award. If seeking to enforce the award against assets held in China, the first step will be to take the matter to the local court where the party is located, but Chinese local courts do not have a flawless record in the enforcement process. On a positive note, China has now introduced a special reporting system – which represents a big step forward in international arbitration awards. A local court no longer has the power to refuse to enforce an international arbitration award; if it wishes to do so, it must instead refer the case up to the intermediate court above it, eliminating home court advantage. If the intermediate court also wants to refuse enforcement, the matter is referred up again, to the Supreme Court – the only body with the actual authority to refuse enforcement of an international arbitration award. But while this referral system is a big improvement, it is let down by practical reality. The bureaucratic journey from local enforcement to the Supreme Court is painfully slow, taking around two years – plenty of time for the Chinese party in question to have dissipated the assets. Despite the challenges, as investment deals between China and the rest of the world become more common, China is recognising the need to adapt its approach to international business, and the enforcement of business agreements. As Bell says, “Frommy observations, China is becoming more arbitration friendly and more aware of the need to play by the rules when it comes to international trade. “While it still has a way to go, it is heading in the right direction.”
She says, “Typically, the Chinese party would tend to be the respondent [having a claim brought against it]. Proportionately, they are still represented more as respondents, but they are now using the systemmore as claimants as well – and so are becoming more respectful of the process. They are realising that they may wish to use it themselves.” If the Chinese company in question is a large, government-owned entity, it will often be familiar with arbitration. But for smaller Chinese companies that may be arbitrating for the first time, there are a few things to be aware of. Bell explains that Chinese companies are often reluctant to call senior managers as witnesses, and will send more junior employees to give evidence on their behalf. There can also be problems in obtaining discovery of documents from a Chinese party, as companies often have no policy on retaining documents or saving electronic data. When employees leave, taking their laptops with them, evidence can be lost. Witnesses will also tend to prefer to give evidence in Chinese, so translators will normally be needed - even where English was stipulated as the language of the arbitration - says Bell.
CHINA I S RECOGNI S ING THE NEED TO ADAPT I T S APPROACH TO INTERNAT IONAL BUS INESS , AND THE ENFOR CEMENT OF BUS INESS AGREEMENT S .
RICHARD BELL, PARTNER, SHANGHAI INTERNATIONAL.ARBITRATION@CLYDECO.COM
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