Recognition And Enforcement Of Foreign Arbitral Awards In China Under The New York Convention

The General Assembly adopted on 6 December 2007 resolution 62/65 in which it recognized the value of arbitration as a method of settling disputes in international commercial relations in a manner that contributes to harmonious commercial relations, stimulates international trade and development and promotes the rule of law at both international and national levels. Especially, in cross-border transactions, arbitration is frequently used as a neutral mechanism to defeat the potential local protectionism from the national courts. However, a favorable award in hand is not the end of the story; a successful recognition and enforcement amounts to the ultimate and vital interests of the party, which depends on the judicial practice and attitude of the contracting country where the recognition and enforcement of the award is sought under the New York Convention.With the astounding boost of Chinese economy, Chinese enterprises are participating more actively than ever in the global trade. Their counterparts, the foreign enterprises are now paying more attention to China’s interpretation towards the New York Convention. Given the special legal regime in China, this thesis is aiming to explore the recognition and enforcement of foreign arbitral awards in China in the context of the New York Convention through comparative study and empirical study. Apart from the conclusion part, this paper is divided into 4 Chapters:Chapter I provides an overview of the recognition and enforcement of the foreign arbitral award, in which the scope of the application of the New York Convention is illustrated, along with the introduction of the commercial reservation and reciprocity reservation. Besides, the procedural requirement in the Convention is discussed, and with certain definitions which need to be distinguished, such as recognition and enforcement.Chapter II sets forth the Chinese practice of the recognition and enforcement of foreign arbitral awards under the New York Convention, in which some brief background information, the procedural requirements and the Report Mechanism will be stressed. The four procedural requirements found in the process of seeking recognition and enforcement of arbitral awards are competent court, qualified filing documents, time limit and grounds for refusal; the Report System is an interim report mechanism within the court system that China adopted as early as the accession of the New York Convention, aiming to restrain local protectionism and offer a more uniformed implementation among local courts, so as to better implement the New York Convention.Furthermore, this part illustrates a very unique interpretation of the “non-domestic” award in China. Due to a strict definition of “arbitration institution” in China’s legislation, the nature of an arbitral award given by a foreign arbitration institution in the territory of China differs in China and that under the New York Convention. The incompatibility hence breeds the so-called “non-domestic” award. To better illustrate this issue, the author uses the International Chamber of Commerce(“ICC”) as a representative of foreign arbitration and analyzes the legitimacy, category and judicial practice of such awards.First of all, the analysis on legitimacy focuses on the collision of standard clauses in major foreign arbitration institutions, where a vast majority of the standard clauses only require a selection of arbitral rules instead of institution. The Züblin Case caused ICC to modify its standard clause, suggesting the arbitration parties explicitly writing down arbitration institution in arbitration clauses. Still, such expressed arbitration institution may fall out of the scope of Arbitration Committee under the Chinese legislation, which will subsequently lead to a questionable validity of such arbitration clauses.Secondly, the author analyzes which category an arbitration made by ICC in China will fall into. Take the Duferco Case as an example: the reasoning of non-domestic awards followed an exclusive pattern, excluding such awards from domestic award under the Chinese legislation and territorial-criteria arbitral award under the New York Convention; however, such reasoning cannot be considered as a meticulous and optimal option, and it is awarded only by a district court, which is not equal to official interpretation in China.Moreover, the author discusses the current situation and the development of “non-domestic” award in China. In the 2013 Longlide Case, the court regarded a selection of foreign arbitration institution the same as the selection of Arbitration Commission under Chinese legislation. For the first time, the court recognizes the legitimacy of arbitral awards made by a foreign arbitration institution in China. However, the Supreme Court has not explicitly defined the category that such award falls into. Hence a further clarification is expected in the implementation phase.Chapter III discusses the case study on the grounds for refusal to the recognition and enforcement of foreign arbitral award in China. Following the guidance of Article V of the New York Convention, the grounds for refusal in this Chapter will be divided into the grounds raised by parties and grounds raised by the court, and will be analyzed by means of Chinese judicial practice, aiming to clarify the judicial interpretation of China.For refusal on grounds of unsuitable party/parties or invalid arbitration agreement, we can see from judicial practice that the national courts take the same criteria as that under the New York Convention, the lex personalis, to identify the capacity of the parties. The Longlide Case made it possible for court to recognized arbitral awards made by foreign arbitration institution in Chinese territory. Besides, guided by the pro-arbitration principle, China is trying to validate more pathological arbitration agreements through interpretation for arbitration law and judicial practice, and tends not to regard pathological arbitration agreements as invalid.For refusal on grounds of not giving proper notice of the appointment of arbitrators or arbitral proceedings, we can see from judicial practice that the national courts will only deem it contrary to Article V(1) of the New York Convention when the arbitral award related seriously violates the requirement of “due process”.For refusal on grounds of ultra vires, we can see from judicial practice that an award is deemed to go beyond its scope of submission only when there is a substantive overstep, and the national courts separate the enforceability of valid parts of an award from parts that exceed the arbitrator’s power, which is in accordance with the requirements of the New York Convention.For refusal on grounds where the composition of arbitral tribunal is not in accordance with the arbitration agreement or the law of the country where the arbitration takes place, the court considers the failing of noticing the appointed arbitrator based on the arbitration rules agreed upon between the parties and truncated tribunal as violations of such ground.For refusal on grounds of non-binding and annulled arbitration awards, the author is unable to conclude China’s interpretation on such issues due to a lack of judicial practice. However, most countries in the world refuse to recognize or enforce an annulled arbitration award due to international rules or international comities.For refusal on grounds of arbitrability, we can see from judicial practice that nations around the world define a varied scope for matters that are arbitrable. Some subject matters that are arbitrable in nature may fall out the scope of arbitration in another country. In China, only disputes on property issues can be submitted to the arbitration tribunal, while disputes concerning personal rights are not arbitrable subject matters.For refusal on grounds of violating public policy, China has not given a clear definition on public policy; the scope is defined based on an exclusive method, excluding violations of mandatory provisions and departmental rules, unfair arbitral awards, dumping from foreign enterprises, and the tribunal’s denial and misinterpretation of Chinese legislation. The Hemofarm DD Case is the very first case that was refused on the grounds of violating public policy since the adoption of the Report System. The tribunal’s awarding on a case that has been decided by the Chinese court infringes the judicial sovereignty of China.Chapter IV provides some specific and reasonable suggestions on the problems that have been revealed in the above-mentioned Chapters, aiming to make contributions to the Chinese arbitration system.The Report System: China should take the advantage of the modification of Arbitration Law and solidify the Report System in legislation. Furthermore, the Report System should grant the parties the necessary rights to participate in the case, including the rights to answer or provide necessary supplementary evidence in front of the High Court or the Supreme Court. Also, the Report System shall make clear the time limit of each phase, and enhance the parties’ predictability and certainty of law.Arbitration conducted by foreign arbitration institutions within the Chinese territory: the author suggests the legislator taking up the “territorial criteria” to determine the validity of arbitration agreements, and replacing the “arbitration institution” in the current Arbitration Law with “seat of arbitration”. To minimize the cost of modification, a preferable way is to clearly define the standard of “non-domestic awards” through judicial interpretation, judicial reply or instructive cases.Public policy: it is vital to define the scope of public policy to avoid chaos caused by different judicial practice. Apart from that, it is also beneficial to explicitly express that a collision of jurisdiction such as that in the Hemofarm DD Case should not be defined as violation of public policy. Furthermore, the court should adopt a prudent approach towards applying public policy, meaning where there’s other alternatives to refuse an arbitral award, the ground of violating public policy should not be used, so as to limit the scope of public policy.