#Chinese Legal Service #Chinese Lawyer #PRC lawyer #PRC Legal Service
Introduction
As China’s economy has rapidly globalized over the last few decades, international commercial disputes have become increasingly common. One mechanism that parties frequently turn to for resolving these disputes is arbitration, particularly in cases where one or both parties are based outside of China. Foreign arbitration allows companies to resolve disputes more efficiently, in a neutral location, and through a private mechanism. However, enforcing foreign arbitral awards in mainland China can be a complex legal endeavor.
This article examines the legal framework for enforcing foreign arbitral awards in mainland China and highlights the key challenges that foreign parties may encounter.
Legal Framework
China is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which serves as the cornerstone for the enforcement of foreign arbitral awards. Under the New York Convention, China has committed to recognize and enforce foreign arbitral awards made in other contracting states, subject to limited exceptions.
The primary domestic legal instrument governing the enforcement of foreign arbitral awards in China is the Civil Procedure Law of the People’s Republic of China (CPL). Together with the Arbitration Law of the People’s Republic of China and various judicial interpretations issued by the Supreme People’s Court (SPC), these laws provide the foundation for handling foreign-related arbitration cases.
Foreign arbitral awards can be enforced in China under the following conditions:
- Jurisdiction: The award must be rendered by an arbitration institution in a New York Convention member state. China, having made a reciprocity reservation under the Convention, will only enforce awards from other signatory states.
- Application: The party seeking enforcement must file a formal application with an intermediate people’s court in mainland China where the opposing party is domiciled or where their assets are located.
- Review Process: Chinese courts are tasked with reviewing the foreign arbitral award based on a number of criteria under both the CPL and the New York Convention. These criteria include verifying that the award is final, properly authenticated, and does not conflict with public policy.
- Time Limit: The CPL imposes a two-year time limit for applying for enforcement from the time the award becomes enforceable, which adds a strict timeline for foreign parties seeking recognition in China.
Grounds for Refusal
While China is obligated to enforce foreign arbitral awards under the New York Convention, there are several grounds on which a Chinese court may refuse enforcement. These include:
- Public Policy Concerns: If a foreign arbitral award violates China’s public policy, enforcement may be refused. The public policy exception is applied narrowly, but courts have discretion in interpreting what constitutes a breach of public policy, particularly in sensitive industries like finance, national security, and energy.
- Arbitration Agreement Issues: Enforcement may be denied if the arbitration agreement itself was invalid under the law governing the agreement or under Chinese law.
- Procedural Irregularities: If the arbitral process is found to have been unfair—for example, if the respondent was not properly notified of the arbitration proceedings or was denied the opportunity to present its case—Chinese courts may refuse to enforce the award.
- Excess of Authority: If the arbitrators exceeded their powers, such as by making an award on matters not contemplated by the parties’ arbitration agreement, the award may be subject to refusal.
Challenges and Recent Developments
Foreign parties seeking to enforce an arbitral award in China often encounter various practical and legal challenges:
- Judicial Discretion: Despite the legal framework supporting arbitration, Chinese courts often retain significant discretion in how they apply the New York Convention and domestic laws. In some cases, local courts may be reluctant to enforce foreign arbitral awards, particularly when they involve state-owned enterprises or politically sensitive issues.
- Local Protectionism: In some provinces, local courts may favor local interests, making enforcement against Chinese companies more difficult. Although the SPC has introduced mechanisms, such as the “reporting system,” to centralize and oversee decisions on foreign-related arbitration cases, enforcement consistency remains an issue.
- Vague Definitions: The concept of “public policy” in China remains somewhat vague, and Chinese courts have wide latitude in deciding what constitutes a violation of public policy. In practice, this can sometimes serve as a tool for courts to block enforcement.
- Pro-Arbitration Trend: In recent years, China has made significant strides to improve the transparency and predictability of enforcing foreign arbitral awards. Judicial interpretations and SPC rulings are increasingly showing a more pro-arbitration stance, reinforcing the reliability of arbitration as a dispute resolution mechanism for foreign parties. Notably, the SPC has issued guidance to courts on respecting the principles of the New York Convention and has introduced measures to improve judicial efficiency.
- Recognition of Hong Kong Arbitral Awards: Since Hong Kong is treated as a separate jurisdiction for arbitration purposes, awards issued in Hong Kong are subject to a special enforcement arrangement with mainland China. This arrangement, based on a mutual recognition mechanism, is generally considered more streamlined than enforcing awards from other foreign jurisdictions.
Conclusion
Enforcing foreign arbitral awards in mainland China is feasible but not without its hurdles. China’s commitment to international arbitration standards through its accession to the New York Convention provides a strong legal framework for enforcement. However, practical challenges such as judicial discretion, public policy concerns, and local protectionism remain obstacles that foreign parties must carefully navigate. Given recent developments towards a more pro-arbitration environment, enforcement of foreign arbitral awards in China is expected to become increasingly reliable, though foreign businesses should remain vigilant and seek expert legal advice to manage the complexities of the process effectively.
Arbitration Law of China – (mofcom.gov.cn)
Challenging and Enforcing Arbitration Awards: China – Global Arbitration Review