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Enforcing Foreign and Foreign-related Arbitral Awards in China

Issue date:07 Feb 2020 Author:Lian Jie

General Rules

 

Enforcement of arbitral awards that involve foreign elements in China is governed by various laws, regulations, and judicial interpretations. Under Chinese law, there are two categories of arbitral awards involving foreign elements: foreign arbitral awards (外国仲裁裁决) and foreign-related arbitral awards(涉外仲裁裁决). A foreign arbitral award is an award rendered by a “foreign arbitration institution”, while a foreign-related arbitral award is rendered by a Chinese domestic arbitration institution qualified under Chinese law to hear cases involving foreign elements. These two categories of awards are enforced following different procedural rules.

 

To enforce a foreign arbitral award, a creditor has to first petition the proper Chinese court for recognition of that award. PRC Code of Civil Procedure (“PCCP”; 《民事诉讼法》), Section 283; and The Supreme People’s Court’s Judicial Interpretation on the PRC Code of Civil Procedure (the “JIPCCP”; 《最高人民法院 关于适用<中华人民共和国民事诉讼法>的解释》), Section 546. An application for recognition and enforcement of a foreign award shall be filed with the Intermediate People’s Court (appellate level) where the judgment debtor resides or where the subject assets are located. PCCP § 283.

 

As China is a member of the “New York” Convention, Chinese courts with proper jurisdiction have the obligation to recognize and enforce foreign arbitral awards rendered in other member states, subject to limited exceptions set forth in the Convention. However, based on the reservation made by China, the Convention only applies to cases that are categorized under Chinese law as contractual and non-contractual commercial cases. See Decision of the Standing Committee of the National People’s Congress on the Ratification of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Ratification Decision”;《全国人民代表大会常务委员会关于我国加入<承认及执行外国仲裁裁决公约>的决定》). In case a foreign arbitral award falls outside the scope of the New York Convention as applied to China, the creditor may alternatively seek to petition a Chinese court for recognition and enforcement based on other applicable treaties, if any, or the principle of reciprocity. PCCP § 283. Once a foreign award has been recognized, the specific enforcement procedures are governed by Chinese domestic rules. PCCP §§ 259, 260, and 283; JIPCCP § 546; and New York Convention, Art. III.

 

Unlike a foreign award, a foreign-related award rendered by a Chinese arbitration institution does not need to be recognized; the creditor can file an application for enforcement directly to the Court without a petition for recognition. An application to enforce a foreign-related award shall be filed with the Intermediate People’s Court where the judgment debtor resides or where the subject assets are located, with certain exceptions where said applications are filed with lower (trial level) courts. PCCP § 273; and Provisions of the Supreme People's Court on Several Issues Concerning the Handling of Cases of Enforcement of Arbitration Awards by People's Courts (“PEAA”;《最高人民法院关于人民法院办理仲裁裁决执行案件若干问题的规定》), Sections 1 and 2.

 

The statute of limitation for an enforcement action in China is two years. PCCP § 239; and JIPCCP § 547. A Chinese court is generally required to conclude an enforcement proceeding within 6 months after the commencement (立案) of the enforcement case. Provisions of the Supreme People’s Court on Certain Time Limits on Enforcement Cases (“PTLE”; 《最高人民法院关于人民法院办理执行案件若干期限的规定》), Section 1. The Court shall assign an “enforcing officer” to handle the case no later than 7 days after the filing of the case. PTLE § 3. The enforcing officer may commence the enforcement proceeding immediately if the Court determines that the case is urgent. PTLE § 3.

 

Enforcement

 

Among other methods, the Court may seize and sell the judgement debtor’s assets and satisfy the arbitral award with the proceeds. The Court may also, after an assessment of the value of the seized assets, directly transfer the ownership/title of the assets to the judgment creditor, provided that: (1) the assets cannot be sold (“财产无法拍卖或者变卖的”; (2) the judgment creditor consents to a direct transfer; and (3) said direct transfer does not jeopardize the public or any third-party. JIPCCP § 492.

 

The court may also take the following actions to impose additional penalties on a judgment debtor who fails to satisfy a judgment/award: (1) restricting the debtor’s ability to depart the Chinese territory; (2) making negative remarks in the debtor’s credit record; and/or (3) releasing to the public information about the debtor’s failure to satisfy a judgment/award. PCCP § 255; and PRC Exit and Entry Administration Law (《中华人民共和国出境入境管理法》), Section 28.

 

Defenses against Enforcement

 

Under Chinese law, various levels of judicial review of arbitral awards are permitted for different types of awards. For domestic awards (awards rendered by Chinese arbitration institutions involving no foreign elements) and foreign-related rewards, the Court may conduct certain level of substantive review in addition to procedural grounds, while review of most foreign arbitral awards is limited to the grounds set forth in the New York Convention.

 

For example, the Court, in addition to certain procedural grounds, may vacate a domestic arbitral award on the ground that the award itself is unclear, that the evidence upon which the award is rendered is falsified, or that a party’s concealment of material evidence has rendered the award unjust to the other side. PCCP § 237; and PEAA § 3.



For foreign-related awards, a Chinese court may refuse enforcement on the following grounds: (1) lack of valid arbitration agreement; (2) the debtor was not afforded a fair opportunity to present its case due to lack of notice or other reasons which are not caused by the debtor; (3) the composition of the arbitral tribunal or the procedure of the arbitration is in violation of applicable arbitration rules; (4) the subject matter is outside the scope of applicable arbitration clause or the arbitration institution lacks jurisdiction over said subject matter; (5) enforcement of the award violates public policy; (6) the award is unclear; or (7) a non-party has provided evidence showing that the arbitration is frivolous or has been conducted by the parties in bad faith for the purpose of harming said non-party, and enforcement against said non-party’s assets has not been concluded. PCCP § 274; PEAA §§ 3, 4, and 9; and Provisions of the Supreme People’s Court on Several Issues Relating to Cases Involving Judicial Review of Arbitration (“PJRA”;《最高人民法院关于审理仲裁司法审查案件若干问题的规定》), Section 17.

 

For foreign awards to which the New York Convention applies, a Chinese court may refuse recognition and enforcement on the grounds set forth in the Convention, including: lack of valid arbitration agreement, lack of a fair chance to present the case, the claim is outside the scope of applicable arbitration agreement, the claim is non-arbitrable under applicable local law, the composition of arbitral authority or the procedure of arbitration is in violation of applicable agreement or local law, or recognition and enforcement of an award violates local public policy. PCCP § 283; and New York Convention, Art. V. The Convention, however, only applies to cases that are categorized under Chinese law as contractual and non-contractual commercial cases. See Ratification Decision; see also Notice of the Supreme People's Court on Implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Acceded to by China (《最高人民法院关于执行我国加入的<承认及执行外国仲裁裁决公约>的通知》).

 

Disclaimer: This article is provided for your information only. It does not constitute legal advice, nor does it form any attorney-client relationship. It is a brief introduction of the subject matter and does not include the complete legal scheme. The laws and regulations may change from time to time. Do not use for commercial purposes without the author’s prior written consent.

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