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Annual Observation Report (2020): Legal Practice in Recognition and Enforcement of Overseas Arbitral Awards in Mainland China

By Carrie J. Sun, Katelyn Xiao


I. Annual Overview (2020)


China’s “Go Global” strategy and the “Belt & Road” initiative have accelerated the expansion of Chinese enterprises’ overseas business, resulting in increased cross-border issues and, thus, their corresponding legal disputes.


To mediate the interests of the parties involved in foreign transactions, enhance the credibility of the Chinese judicial system and establish a stable, transparent, and fair business environment under the rule of law, there are several matters that need to be paid more attentions, including but not limited to the regulations and procedures of recognition and enforcement of overseas judgments and arbitral awards required for the Chinese judicial system, the success rates of recognizing and enforcing overseas judgments and arbitral awards, the legal rationale behind, especially for those non-recognition cases, and the current general Chinese judiciary’s attitude towards this field.


The development of recognition and enforcement of overseas judgments and arbitral awards in Mainland China is not only of interest to the Chinese, but also to foreign commercial parties and overseas legal institutions. With clear distinctions between the judicial systems, it is necessary to guide overseas judiciaries and legal institutions, and parties involved in cross-border transactions and disputes to understand the decisions, reasoning, and perspectives behind Chinese judicial authorities.


We have researched and found 18 cases related to recognition and enforcement of overseas arbitral awards in China in 2020 via public resource channels such as China Judgments Online, Wolters Kluwer, etc., excluding cases that have been recognized in 2019 or before but separately entered into the enforcement procedure in 2020, and cases of withdrawal of application for recognition and enforcement. Among these 18 cases, 15 cases involving overseas arbitral awards have been successfully recognized and enforced in China (accounting for 83.33%). [Note: In the context of this report, the scope of the research object is limited to the recognition and enforcement procedures initiated in Mainland China (hereinafter referred to as “Mainland China”, “Mainland” or “China”). And the wording “Overseas” aims to distinguish geographically, the jurisdictions of the arbitral awards rendered outside the territory of Mainland China. In other words, overseas arbitral awards include not only foreign arbitral awards, but also the awards seated in Hong Kong, Macau, and Taiwan.] 


II. Groundbreaking Case in 2020 - Brentwood Case


In this area, the most groundbreaking case in 2020 is “Brentwood’s application for recognition and enforcement of No. 18929/CYK Arbitral Award dated on March 17, 2014, made by the Hong Kong branch of the International Chamber of Commerce (ICC) and conducted in Guangzhou” [Case reference: (2015) 穗中法民四初字第62号民事裁定书]. The Intermediate People’s Court of Dongguan City of Guangdong Province (“Dongguan Intermediate People's Court”) confirmed the validity of the arbitration agreement, which stated that “ICC will conduct the arbitration where the Project is located according to the international practice”. The Dongguan Intermediate People’s Court further decided that the Arbitral Award rendered by ICC in Guangzhou (where the Project is located) shall be regarded as a Chinese foreign-related arbitral award (i.e., the seat of the arbitral award is in China) rather than a foreign arbitral award and its enforcement shall be subject to Chinese laws, i.e., the award creditor could apply to the court for enforcement directly in accordance with Article 273 of Civil Procedure Law of the People’s Republic of China (“Civil Procedure Law”) rather than going through the recognition procedure first and then the application for enforcement afterwards in accordance with the New York Convention.


III. New Development - Seek common ground while reserving differences


Throughout 2020, 83.33% of overseas arbitral awards have been successfully recognized and enforced in China, indicating an overall good practice in this area. Overseas arbitral awards despite the legal system differences, are recognized and enforced by Chinese courts. It reflects Chinese judiciaries’ openness, realistic and pragmatic attitude, and the respect for differences among different legal systems.


In the case of “EmphorFZCO’s application for recognition and enforcement of the Arbitral Award rendered by Singapore Chamber of Maritime Arbitration (SCMA)” [Case reference: (2020) 粤72协外认1号民事裁定书], the respondent argued that the applicant only requested the respondent to pay the related inspection fee in its arbitral claims, but the arbitral tribunal not only awarded that the respondent shall bear the inspection fee, but also an annual 6% payment of the interest of the inspection fee, which was beyond the scope of the arbitral claims and shall not be recognized and enforced in accordance with Article 5.1. (c) of the New York Convention. The Guangzhou Maritime Court reviewed the reasoning of the Arbitral Award and decided that it is at the arbitral tribunal’s discretion to award the interest calculated on the principal amount adjudicated in the arbitral award if it deemed appropriate, pursuant to the arbitration rules of the SCMA applied in the case, which stated that “the Tribunal may award simple or compound interest on any sum awarded at such rate or rates and in respect of such period or periods both before and after the date of the Award as the Tribunal considers just.” Therefore, the Guangzhou Maritime Court decided that the interests awarded shall not be treated as 'matters beyond the scope of arbitration' and the Arbitral Award shall be recognized in its entirety.


In contrast, the arbitration practice in China is strictly based on the principle of “no trial without complaint”. In the case of “Mr. Zhang and Ms. Zou’s application for setting aside of the Arbitral Award rendered by Harbin Arbitration Commission” [Case reference: (2017) 黑01民特81号], the Intermediate People's Court of Harbin City of Heilongjiang Province held that if the arbitral tribunal had not explained the interest issue to the claimant and directly awarded the part of the interest not claimed, the arbitral award shall be regarded as extending beyond the pleadings or requests for relief and accordingly shall be set aside.


In another case of “Octaform Systems Inc’s application for recognition and enforcement the Arbitral Award rendered by the British Columbia International Commercial Arbitration Centre (BCIAC) dated on April 16, 2019” [Case reference: (2019)浙05协外认1号民事裁定书], the respondent argued that the claimant’s claimed amount was not specified during the entire arbitration procedure, which was not in accordance with the arbitration agreement and the rules agreed upon by the parties and the arbitral award shall not be recognized in accordance with Article 5.1.d of the New York Convention. However, the Intermediate People's Court of Huzhou City of Zhejiang Province rejected the argument by ascertaining Article 17.3 of the BCIAC Arbitration Rules, which states that “the general nature of the claim and an estimate of the value of the dispute, if any”, emphasizing that the wording “if any” meant the arbitration rules themselves did not require the Claimant to provide the exact amount of the arbitration claim. Whereas Chinese main arbitration institutions such as China International Economic and Trade Arbitration Commission (CIETAC) and Beijing Arbitration Center (BAC) in China adopt different practices, both of them do require the exact value of the dispute upon the application for arbitration.


IV. Highlighted Problems


The main reasons behind 3 unrecognized overseas arbitral awards in China in 2020 are: 1) no valid arbitration agreement was achieved; 2) the respondent was not lawfully summoned and served; 3) the respondent was not legally eligible to be a party to the lawsuit, in that case, the applicant did not submit sufficient evidence to prove that the applicant was one of the parties in the Arbitral Award and the disputed contract.