Enforcement of foreign arbitral awards and foreign judgments in China.
Nevertheless, given the differences in languages, legal background, and practices, resolving commercial disputes in China has not been an easy task.
In China, arbitration has been the preferred method for resolving commercial disputes by international investors when they encounter problems with their Chinese counterparts. Litigation in Chinese courts, which used to be regarded as the last resort, however, is increasingly attaining the attention of international investors who are operating in China because Chinese courts have gained enormous traffic over the past two decades. Nevertheless, despite the improvements made in many aspects of the Chinese judicial system, enforcement continues to be of utmost concern. This article provides a brief update on the enforcement of foreign arbitral awards and foreign court judgments.
Arbitration in China
Today, China has over 200 arbitration institutions handling international and domestic commercial disputes, although the majority of cases handled by these arbitration institutions involve domestic commercial disputes. The Chinese International Economic and Trade Arbitration Commission and the Hong Kong International Arbitration Center are two well-known arbitration institutions in mainland China and Hong Kong that handle foreign related disputes.
In recent years, the International Chamber of Commerce ("ICC") has also been active in China while the Arbitration Institution of the Stockholm Chamber of Commerce remains attractive to many companies for China-related dispute resolution, as well.
Arbitration used to be the preferred method for resolving disputes in China; however, in recent years, Chinese courts have gained popularity. Chinese courts are becoming viable alternatives, particularly for intellectual property related matters, debt recovery, product liability and labor disputes. These types of cases now involve more and more foreign litigants in Chinese courts. In 2006, approximately 23,000 court cases involved foreign parties. (This statistic does not include court cases involving subsidiaries incorporated in China but invested by foreign companies as such subsidiaries are regarded as Chinese legal entities). (1)
China's court system primarily consists of the Supreme People's Court, the Provincial High Courts, Intermediate People's courts, and local district courts. The highest court in the Chinese judicial system is the Supreme People's Court located in Beijing, which is directly responsible to the National People's Congress and its Standing Committee. It supervises the administration of justice by the people's courts at various levels.
Nevertheless, under China's Rules of Civil Procedure, foreign-related disputes are usually handled by the Intermediate People's courts. (2) Around the country, China has approximately eighty Intermediate People's Courts which have gained experiences in handling foreign-related disputes.
Cases are decided within two instances of trial in the people's courts. (3) This means that, for a judgment or order of first instance of a local people's court, a party may bring an appeal only once to the people's court at the next level, and the people's procurator may challenge a court decision to the people's court at the next level. (4) Additionally, judgments or orders of first instance of the local people's courts at various levels become legally effective if, within the prescribed period for appeal, no party makes an appeal. Any judgments and orders rendered by the Supreme People's Court as court of first instance shall become effective immediately. (5)
Enforcing Foreign Arbitral Awards
The enforcement of arbitration awards and judgments in China was a concern largely due to local protectionism, problems in tracing assets, and other related problems. This issue has received a great deal of attention from the Chinese authorities, and in recent years, various approaches have been adopted in attempts to improve the situation.
With respect to recognition and enforcement of foreign arbitral awards, China became a member state to the New York Convention in 1987. (6) Therefore, China has the international obligation like any other member states to the Convention of Recognition and Enforcement of Foreign Arbitral Awards of 1958 ("New York Convention") to enforce a foreign arbitral award rendered in a member state.
In accordance with New York Convention and a notice issued by the China's Supreme People's Court regarding the accession to the New York Convention on April 10, 1987, (7) a foreign party in arbitration may apply to a Chinese court to enforce a valid arbitration award rendered by a foreign arbitration institution in a member state. A Chinese court can only refuse to enforce an arbitration award rendered by a foreign arbitration institution on the ground of procedural defect, the doctrine of "un-arbitrable events" or the doctrine of "public interest" pursuant to the New York Convention. (8)
Therefore, with respect to recognition and enforcement of a foreign arbitral award, Chinese courts will only conduct a procedural review since such awards are not subject to review on merit under the New York Convention.
Nevertheless, there are complaints by foreign companies with respect to problems in enforcing foreign arbitral awards in China. Practitioner experience seems to indicate that it is not easy to have a foreign arbitral award recognized and enforced in China.
Why Is It Difficult To Have A Foreign Arbitral Award Enforced In China?
1. Six-Month Time Period
The prevailing party in a foreign arbitration proceeding is required by China's Civil Procedure Law to file for an application of enforcement within six months of the date that the award was received. (9) An application must be filed with the Intermediate People's Court where the party against whom the application for enforcement is made has his or her domicile or where his or her property is located. (10)
However, in practice, foreign parties often are unaware of this legal requirement. If an application is filed with the Chinese court after the six-month time period, the award will not be recognized or enforced in China.
2. Pre-Reporting System
According to a notice issued by the Supreme Court, if an Intermediate People's Court decides not to recognize a foreign arbitral award, it must report to a Provincial High Court for review. If the Provincial High Court agrees with the Intermediate People's Court that the award should not be recognized, it is required to report the case to the Supreme People's Court for final determination. (11) Nevertheless, there is no time limit with respect to the final review by the Supreme People's Court. As a result, it often causes substantial delay in recognition and enforcement of a foreign award.
3. Local Protectionism
Foreign companies are afraid that local courts in China might have the tendency to protect local interests. In the past, these concerns were valid, as China is a vast country. China's "local interest" could become an issue even between two Chinese companies if they are not from the same location as China does not have the same type of state/federal court system that the United States enjoys to deal with issues involving different states within the country.
Nevertheless, since courts in China are allowed to enforce a court judgment or an arbitral award including a foreign arbitral award outside its own jurisdiction, i.e. if one party wins a case in the court of city A, but the assets of the party against whom the judgment or arbitral award is rendered is located in city B, the court in city A can enforce the judgment or award in city B without going through the court in city B. (12) This process effectively helps remedy this problem to a certain extent
4. Unable to Locate Assets
The most common complain with respect to enforcement is that the prevailing party or the local Chinese court are unable to locate the asset of the party against whom the award is rendered to enforce the award. This appears to be a practical problem and could happen in any other jurisdictions, as well, but because delays in getting a foreign arbitral award recognized can evolve into bigger problems, this issue can become an even bigger problem in certain circumstances.
Lack of Statistics
There are no official statistics regarding how many foreign awards are enforced in mainland China.
According to our research, there are eight arbitration awards respectively made by arbitration institutions in Sweden, London, Germany, and Korea that were successfully enforced. Two arbitration awards issued by arbitration institutions in London were rejected by Chinese courts on the grounds of procedural irregularity that China failed to recognize. (13)
Enforcing Foreign Court Judgments
Generally speaking, enforcing a foreign court judgment in China is very difficult because according to media reports (there is no official report in this regard), it appears that there is only one foreign court judgment being recognized and enforced by Chinese court. That was an Italian court judgment on insolvency as some assets of the Italian company were located in China. (14)
In theory, a prevailing foreign party may seek enforcement of a foreign judgment involving commercial disputes in China by applying to an Intermediate People's Court for enforcement if there is no judicial assistance treaty between China and the relevant foreign country; otherwise, Chinese court may consider enforcing a foreign judgment on the basis of reciprocity. (15)
In practice, as mentioned above, it is difficult to have a foreign court judgment enforced in China. As an alternative, and under China's Civil Procedure Law, a foreign party is permitted to re-litigate its case in China if its winning foreign court judgment is not recognized and enforced in China due to a lack of judicial assistance treaty or on the basis of reciprocity. (16) To do so, the foreign party will take the risk that the result of the decision handed down by the Chinese court might be different from its foreign court judgment. Therefore, unless it is a straight-forward matter such as debt recovery, having a case re-litigated in Chinese court is not a desired option.
On July 14, 2006, the central government of Mainland China and the Hong Kong government signed the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of Mainland China and Hong Kong Special Administration Region Pursuant to Choice of Court Agreement between Parties Concerned (the "Arrangement").
The Arrangement is an example of mutual judicial assistance between the Mainland and Hong Kong subsequent to the Arrangement for Mutual Service of Judicial Documents in Civil and Commercial Proceedings between the Mainland and Hong Kong Courts and the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong.
The Arrangement aims to provide a simple and effective mechanism in both jurisdictions for enforcing court judgments. It primarily covers money judgments rendered by those designated courts in the Mainland China and court of Hong Kong if parties have contractual agreements to subject themselves to the jurisdiction of the court of Hong Kong or court of the Mainland China.
On March 21, 2006, the Mainland China central government and the Macao government also signed a similar Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of Mainland China and Macao Special Administration Region. The signing of the above two Arrangements is a milestone for the reciprocal recognition and enforcement of judgments in civil and commercial matters between the Mainland and Hong Kong and Macao.
Because Hong Kong has been regarded as Asia's important business financial center and a good gateway for foreign companies to engage in business with the Mainland China, and because China has not entered into many judicial assistance treaties to agree to enforce foreign court judgments, the Arrangement provides assistance to foreign companies doing business with Mainland China via Hong Kong.
While enforcement of foreign arbitration awards and judgments in China seems to be unpredictable with all of the impending risks mentioned above, we are confident that China is constantly making strides to improve its legal system and adapt international standards and procedures in cross-border enforcement. For instance, Chinese authorities are now considering amending the Civil Procedure Law. Many people hope that some of the hurdles mentioned above might be overcome by amending the current legislation. We strongly believe that the efforts made to constantly improve China's legal system will make China an even more popular member of the integrated world.
(1) Supreme Court Report 2006.
(2) See Article 19 of Civil Procedure Law of the People's Republic of China ('Civil Procedure Law') and Article 1 of Opinion on Several Issues regarding the Application of the PRC Civil Procedure Law (issued by the Supreme Court).
(3) See Articles 10, 147 and 158 of Civil Procedure Law.
(4) See Articles 14, 185 and 186 of Civil Procedure Law.
(5) See Articles 141 and 147 of Civil Procedure Law.
(6) See Notice of the Supreme Court on Implementation of Convention on the Recognition and Enforcement of Foreign Arbitral Awards Adopted by the PRC (issued April 10, 1987).
(8) See Article 5 of Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Article 267 of Civil Procedure Law.
(9) See Article 219 of Civil Procedure Law, six-month period applies when both parties are legal person or other organization, and one-year period applies when one of the parties or both parties is/are natural person.
(10) See Article 267 of Civil Procedure Law.
(11) See Notice on the Relevant Issues Concerning Setting-Aside by the People's Court of Foreign-Related Arbitral Award (issued by the Supreme Court on April 23, 1998).
(12) See Articles 207 and 210 of Civil Procedure Law.
(13) See. e.g., Case:  HeiGaoShangWaiTaZi No.1, October 14, 2005 (successful enforcement case).
(14) Prevailing party: B&T Ceramic Group s. r. 1., Italy; See Study on the Legal System and Practice of China's Recognition and Enforcement of Foreign Court Judgment, Wu Han, January 1, 2003 (www.Chinalawinfo.com).
(15) See Articles 267 and 268 of Civil Procedure Law. Also see Case on the Application of Gomi Akira (A Japanese Citizen) to Chinese Court for Recognition and Enforcement of Japanese Judicial Decision (published by the Supreme Court on March 26, 2003).
(16) See Article 318 of Opinion on Several Issues regarding the Application of the PRC Civil Procedure Law (issued by the Supreme Court); See also Civil Mediation Ruling ((2003) ErZhongMinChuZi (transliteration) No. 2).
Ms. Ye specializes in international arbitration, litigation, international bankruptcy, and alternative dispute resolution. She is the head of King & Wood's arbitration practice. Ms. Ye has twenty years experience in resolving disputes arising from international business transactions. She has extensive experiences in handling arbitration cases for and on behalf of international clients before CIETAC, Hong Kong International Arbitration Center, ICC and other international arbitration institutions. She has represented international clients to litigate in various domestic courts and presented in many domestic and foreign arbitration institutions. Her clients include domestic large enterprises, international financial institutions, foreign-invested enterprises, and multinational corporations. She also assists foreign financial institutions in conducting NPL disposition and financial transactions in China.
Ms. Ye joined King & Wood in 2004. She was elected in 2006 as one of two executive partners of the firm to work along with the managing partner of the firm. Before joining King & Wood, Ms. Ye worked at Clifford Chance LLP in Hong Kong, Global Law Office, and Beijing C & M Law Firm. Ms. Ye received her LLB and LLM respectively from School of Law of Peking University and School of Law of the China Academy of Social Sciences and her second LLM from Harvard Law School. She is admitted to practice in PRC (1988) and New York (1999). Ms. Ye is proficient in Chinese and English. She is a recognized expert for PRC related dispute resolution in Asia Pacific region.
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|Publication:||Defense Counsel Journal|
|Date:||Jul 1, 2007|
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