【中国法学·桑远棵】外国仲裁裁决在中国的承认与执行研究

RESEARCH ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN CHINA

Sang Yuanke

TABLE OF CONTENTS

I. INTRODUCTION
II. DATA ANALYSIS OF CHINESE COURT DECISIONS ON
 
THE RECOGNITION AND ENFORCEMENT OF
 
FOREIGN ARBITRAL AWARDS
A. Overall Situation of Recognition and Enforcement
B. Annual Number of Cases
C. Case Number Handled by Different Provinces
D. Distribution of Foreign Arbitration Institutions and Ad Hoc Arbitral Tribunals
E. Concrete Defenses Against Recognition and Enforcement
III. CHINESE COURTS’ MAIN JURISPRUDENCE ON THE RECOGNITION
 
AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS 
A. Incapacity of the Parties and Invalidity of the Arbitration Agreement
B. Violation of the Due Process Principle
C. The Award Beyond the Scope of the Arbitration Agreement
D. Improper Composition of the Tribunal and Arbitral Procedure
E. The Arbitral Award Being Vacated or Suspended
F. Non-Arbitrability of Dispute
G. Violation of Public Policy
H. The Limitation Period of the Recognition and Enforcement Application
IV. ANALYSIS AND REFINEMENTS OF
 
THE JURISPRUDENCE FOR REVIEWING FOREIGN ARBITRAL AWARDS IN CHINA 
A. Proper Application of Article 5.1.1 of the New York Convention
B. Strict Interpretation of Article 5.1.2 of the New York Convention
C. Liberal Interpretation of Article 5.1.3 of the New York Convention
D. Restrictive Interpretation of Article 5.2.2 of the New York Convention
E. Refinement of the Domestic Rule on Procedure Outside the New York Convention
V. CONCLUDING REMARKS 

Arbitration is the most preferred procedural method for resolving cross-border commercial disputes in the present context, primarily because the 1958 New York Convention fundamentally ensures the universal enforceability of arbitral awards. From 1987 to 2024, the New York Convention had been in force in China for 37 years and had been well implemented, as a majority of foreign arbitral awards were recognized and enforced by the Chinese courts. Regardless, the phenomenon of inappropriate application and misunderstanding of the New York Convention still exists in judicial practice. This article begins with the specific data analysis of Chinese court decisions, next followed by the outline of the main jurisprudence summarized from those decisions. The last part is intended to propose specific refinements so as to render it consistent with the text and spirit of the New York Convention.

I. INTRODUCTION
When it comes to arbitration or international arbitration, what comes to mind is most probably the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter referred to as the New York Convention or the Convention), which was adopted on June 10, 1958, and came into force on June 7, 1959. The Convention enshrines a manifest pro-arbitration bias, such as favoring the validity of arbitration agreements and maximizing the prospects of recognition or enforcement of foreign arbitral awards, which have been universally applied by the Contracting States. Indeed, the New York Convention has substantially promoted the free circulation of foreign arbitral awards and facilitated the enduring prosperity of international commerce and trade. To date, there have been 172 Contracting States, covering nearly all of the countries in the world. For these reasons, the Convention has been highly praised as the most successful modern treaty.

On December 2, 1986, the 18th session of the Standing Committee of the 6th National People’s Congress of the People’s Republic of China decided to join the New York Convention, which entered into force on April 22, 1987. From 1987 to 2024, the New York Convention had been in force in China for 37 years. That prompts the question of what the overall scene of the implementation of the New York Convention in China is or whether Chinese courts had shown a pro-arbitration bias toward foreign arbitral awards. When faced with these questions, anyone who desires to get a straight and precise answer must seek recourse to the empirical survey of the cases that involve foreign arbitral awards in China. The author had made great efforts to search for the cases to the extent possible. The total number of cases surveyed reached 291. This article is intended to shed some light on the overall situation of the recognition and enforcement of foreign arbitral awards in China, and attempts to propose some refinements to the Chinese laws so as to render them consistent with the text and spirit of the New York Convention.

II. DATA ANALYSIS OF CHINESE COURT DECISIONS ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

A. Overall Situation of Recognition and Enforcement

After a full-scale analysis of 291 cases, they can be divided into four categories: (1) cases where their specific information is not open to the public; (2) cases where their recognition and enforcement applications have been withdrawn; (3) cases where Chinese courts permit recognition and enforcement; (4) cases where Chinese courts deny recognition and enforcement. As can be seen clearly from Figure 1, more than 70 percent of the foreign arbitral awards have been recognized and enforced by now, which has demonstrated a favorable judicial attitude taken by the Chinese courts.

In sharp contrast, only around 17.5 percent of the applications fail for divergent reasons. At the same time, it should be noted that Chinese courts in several cases only refused enforcement of partial awards that had exceeded the claims submitted to or the scope of the arbitration agreement, provided that the rest of the award had separability. Furthermore, it may be surprising to find that the second category of cases is at a relatively high level, accounting for approximately 11 percent of the total cases surveyed. The main reason is that the parties subsequently reached settlement agreements or the respondent fulfilled the obligations under the awards. Only two cases had been dealt with by reference to the withdrawal due to the applicant’s failure to pay an acceptance fee within the prescribed period.

Figure 1: Concrete Situation of the Recognition and Enforcement of Foreign Arbitral Awards in China


B. Annual Number of Cases

Observing from Figure 2, the number of cases involving applications for the recognition and enforcement of foreign arbitral awards in China over the last 37 years is vitally clear. They could roughly be divided into three periods: the first period from 1987 to 2000, during which the number of cases was at a very low level, less than 10 in total. In particular, during the first few years, no case was registered by the Chinese courts. However, the circumstances changed gradually during the second period from 2001 to 2010, during which the number of cases constantly increased as time went on. More importantly, the number even reached 9 in both 2008 and 2009. In some sense, that was really a breakthrough when compared to the first period. It should be noted that the number of cases exceeded 50 during the second period.

The most recent third period has witnessed a totally different scenario, and the number of cases filed by the parties has increased by leaps and bounds. In 2013, the number was approaching 20, which served as a new starting point. Then, between 2014 and 2018, the number of cases always exceeded 30 annually, and particularly in 2016, there were close to 40 cases. Thus, it could be reasonably expected that such an increasing tendency will be an ordinary phenomenon in the foreseeable future.

Figure 2: Annual Number of the Recognition and Enforcement Cases Handled by Chinese Courts


C. Case Number Handled by Different Provinces

As shown in Figure 3, the number of cases seeking recognition and enforcement of foreign arbitral awards in China’s different provinces displays a degree of variability. It has not been hard to discern that more than half of the provinces had less than five cases over the past 37 years, and all of them were within the inland provinces. The main reason may be that the international commercial activities in those areas are quite limited. Quite on the contrary, a few coastal regions, such as Guangdong Province, Zhejiang Province, Shandong Province, Jiangsu Province, and Shanghai Municipality, have totally different scenarios. The number of cases handled by their courts has exceeded 20 in total. Shandong Province ranks first among all the regions, and Guangdong Province and Zhejiang Province follow respectively. The primary reason behind this is likely that these provinces have a vast volume of international economic interactions, and lots of local enterprises have been frequently engaged in the field of global trade. In addition, many inland provinces have not yet had any cases.

Figure 3: Number of the Recognition and Enforcement Cases Handled by Different Provinces


D. Distribution of Foreign Arbitration Institutions and Ad Hoc Arbitral Tribunals

According to Figure 4, foreign arbitral awards seeking recognition and enforcement in China come from 21 countries. The UK’s arbitration institutions and ad hoc arbitral tribunals have made 75 and 40 awards respectively. As for the specific arbitration institutions, the International Cotton Association has rendered 37 awards, followed by the Federations of Oils, Seeds and Fats Association (FOSFA) and the London Maritime Arbitrator Association, each with 10 awards. London Court of International Arbitration, Cocoa Association of London Ltd, London Metal Exchange, and Grain and Feed Trade Association have merely granted a few awards. The following is Singapore, which ranks second with 46 awards. Only one award was made by an ad hoc arbitral tribunal,
 
and the remaining were delivered by the Singapore International Arbitration Center (39 awards), Singapore Chamber of Maritime Arbitration (1 award), Singapore Commodity Exchange Limited (3 awards) and Singapore International Chamber of Commerce International Court of Arbitration (2 awards).

Besides, foreign arbitral awards from the US, France, South Korea, and Russia are at a moderate level, exceeding 10 in total. Special attention should be paid to the fact that there were 9 awards rendered by the International Chamber of Commerce (ICC) International Court of Arbitration with their seat of arbitration outside France, such as Switzerland, China, Singapore, Canada, and Nigeria. In sharp contrast, the awards from Russia and South Korea were solely delivered by arbitration institutions, namely the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation and the Korean Commercial Arbitration Board, with 11 and 13 awards respectively. Comparatively speaking, the number of awards issued by other countries is very low, such as Vietnam, Austria, Mongolia, Canada, Switzerland, Norway, Denmark, Finland, Egypt, Australia, Ukraine, Germany, Belarus, Japan, Sweden, Italy and Uzbekistan.

Figure 4: Number of the Arbitral Awards Issued by Foreign Arbitration Institutions and Ad Hoc Arbitral Tribunals


E. Concrete Defenses Against Recognition and Enforcement

The New York Convention designates seven grounds upon which the recognition and enforcement of foreign arbitral awards could be denied. Thus, the respondents are granted the right to contest the illegitimacy of the award by presenting one or more of those grounds. As illustrated in Figure 5, there are 29 cases where the respondents did not attend the court proceedings. Meanwhile, there are 16 cases where the respondents recognized the legitimacy of the awards without raising any objections.

Manifestly, article 5.1.2 has been the most frequently asserted defense, reaching up to 93 cases. It is followed by article 5.1.1 and article 5.1.4, with 67 and 42 cases respectively. The number of cases where the public policy objection has been raised reaches to 30 and ranges at a medium level. Other than that, the number of other defenses, such as the award being suspended or vacated, non-arbitrability and the award beyond the scope of the arbitration agreement, is at a low level. Additionally, it can be found that the respondent frequently raised some defenses beyond the scope of the New York Convention, including substantive matters and improper application materials, all of which have eventually been dismissed.

Figure 5: Number of the Concrete Defenses Against Recognition and Enforcement Raised by the Opposing Party


III. CHINESE COURTS’ MAIN JURISPRUDENCE ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

This section is intended to outline the main jurisprudence of the Chinese courts in recognizing and enforcing foreign arbitral awards by choosing the most typical and representative cases.

A. Incapacity of the Parties and Invalidity of the Arbitration Agreement

Textually speaking, article 5.1.1 of the New York Convention sets forth the defense against recognition and enforcement of foreign arbitral awards related to the arbitration agreement. The first limb is that the party of agreement is under some incapacity pursuant to the law applicable to them, while the second limb is the invalidity of the arbitration agreement pursuant to the law the parties have selected, or failing in choice, the law of the place of arbitration. In fact, Chinese courts have taken divergent approaches toward this issue.

Firstly, if the parties to an arbitration agreement are somehow incapacitated under personal law, the award may be unable to be recognized and enforced. By far, only a few cases have been directly related to the issue of incapacity. The most illustrative case is British Glencore Co., Ltd v Chongqing Mechanic Equipment Import and Export Co., Ltd. The Supreme People’s Court of China (hereinafter referred to as the SPC) stressed the point that whether the parties to the arbitration agreement had legal capacity shall be determined based on the principle of lex personalis. Under Chinese law, Sun Jian, who was employed by the respondent, at the time of entering into the contract, had not been authorized by the respondent and the contract had not included their signature, so it could be concluded that the formality requirement of the agent relation failed to be established in a legal dimension. Furthermore, Sun Jian’s act had neither been confirmed by the respondent thereafter nor been in conformity with the parties’ regular practices, and thereby it could not be considered an ostensible agent. For these reasons, the arbitration agreement signed by Sun Jian was declared non-binding by the respondent, and finally, the recognition and enforcement of the award was denied.

Secondly, commercial parties cannot refer to foreign arbitration if there is a lack of a foreign-related element. The most illustrative example is Beijing Chaolaixinsheng Sports Entertainment Co., Ltd v Beijing Suowangzhixing Investment Consultation Co., Ltd. The fact was that two parties were registered in Beijing under Chinese law, the contract was about the share transfer and cooperation of the gulf course located in Beijing, and the location of the subject matter of the contract as well as the place of entering into the contract and performance of the contract were all in Beijing. It seemed that the nature of the contract was a purely domestic one without any foreign-related element. It is concluded that commercial parties are disallowed from submitting claims to foreign arbitration because the contractual dispute lacked any foreign-related element. As a result, the arbitration agreement was declared invalid.

Thirdly, the validity of the arbitration agreement in the bill of lading has been interpreted in a quite restrictive way. For instance, in the case of Future E.N.E v Guangdong Shenzhen Grain Group Co., Ltd, the respondent accepted the bill of lading issued by the applicant, and the back of the bill of lading contained an annexation clause of the charter contract that included an arbitration agreement. The Guangzhou Maritime Court found the arbitration agreement invalid based on two reasons. On one hand, the applicant was not a party to the charter contract, resulting in that such a charter contract could not be incorporated into the bill of lading. On the other hand, although the arbitration agreement in the charter contract had been incorporated into the bill of lading, it could not be inferred that the behavior of the transferee of the bill of lading had implicitly accepted the arbitration agreement thereof.

Fourthly, if commercial parties modify the preceding contract including an arbitration agreement, and the subsequent contract does not expressly incorporate that arbitration agreement or set out that the subsequent one shall be the component of the preceding one, the arbitration agreement may be deemed non-binding on the parties to the subsequent contract. Such a stance could be exemplified in Proton Automobiles (China) Co., Ltd v Jinxing Heavy Industry Manufacture Co., Ltd. The SPC made it clear that although the joint venture contract contained an arbitration agreement, the respondent submitted a new memorandum that had already substituted arbitration with court litigation to settle disputes arising in that contract. Thus, the Singapore International Arbitration Centre (SIAC) could not exercise jurisdiction over the dispute arising out of the joint venture contract.

Fifthly, an arbitration agreement without designating a specific arbitration institution may be held invalid under Chinese law, mainly because a designated arbitration institution constitutes a compulsory requirement for a valid arbitration agreement under Chinese arbitration law. In Germany Züblin International GmbH v Wuxi Woke General Engineering Rubber Co., Ltd, the arbitration agreement specified that ‘Arbitration: ICC Rules, Shanghai Shall Apply’. The Wuxi Intermediate People’s Court denied the enforcement and reasoned that in the absence of the applicable law of the arbitration agreement selected by the parties, the applicable law should be the law of the arbitral situs, that is, Chinese law. The arbitration agreement did not include a specific arbitration institution, thus making it invalid. However, an arbitration agreement without the designation of a specific arbitration institution may be considered valid, provided that the contract parties agree that foreign law governs the arbitration agreement, or the place of arbitration is outside China. For example, in Olam International Co., Ltd v Jingshan Weijia Textile Enterprise Co., Ltd, the arbitration agreement provided that the dispute shall be settled by arbitration under the rules and statutes of the International Cotton Association. Although a specific arbitration institution was missing in the arbitration agreement, the Jingmen Intermediate People’s Court declared the arbitration agreement valid according to the UK law, as the law of arbitral situs. Fundamentally speaking, it was mainly because the UK law did not compulsorily require a specific arbitration institution to be named in the arbitration agreement.

Sixthly, if the party, in particular the respondent, fails to challenge the jurisdiction of the arbitral tribunal in the course of the arbitral proceeding, most Chinese courts regard such an act as an indirect waiver, which means that the same jurisdictional objection raised in the enforcement stage would not be reconsidered further. For one instance, in Hyundai Glovis Co., Ltd v Zhejiang Qiying Energy & Chemical Co., Ltd, largely because the respondent never raised any objections against the validity of the arbitration agreement during the arbitral proceeding, the Ningbo Intermediate People’s Court deemed the agreement valid in accordance with the Singapore International
 
Arbitration Act.

B. Violation of the Due Process Principle


Article 5.1.2 of the New York Convention sets forth the due process principle. If the party, especially the respondent, is not given proper notice on the appointment of the arbitrator or the arbitral proceedings, or is otherwise unable to present his case, it could constitute a violation of the due process principle. Chinese judicial practices have shown that article 5.1.2 has been the most frequently asserted ground by the opposing party, alleging that the awards have been tainted by a serious procedural irregularity. Chinese courts have interpreted article 5.1.2 in the following circumstances.

Firstly, the 1965 Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters (hereinafter referred to as the Hague Service Convention) and bilateral judicial assistance treaties concluded by China and foreign countries are not applicable to service procedure in the arbitral proceeding; instead, the arbitration rules or the lex arbitri should serve as the applicable law. Anfo Chemical Joint Venture Limited Liability Company v Henan Haofeng Chemical Co., Ltd is a typical example to illustrate. Although the Zhengzhou Intermediate People’s Court and the Henan High People’s Court commonly maintained that service by email on the territory of China was prohibited by the Hague Service Convention, and the China-Belarus Civil and Criminal Judicial Assistance Treaty also disallowed such manner of service, such opinions were never supported by the SPC. On the contrary, the SPC stated that whether there had been proper notification should be decided by the parties’ agreement or the arbitration rules. 

Secondly, the applicant should bear the burden to prove that the respondent has been given proper notice; otherwise, it may give rise to a violation of the due process principle. In Cosmos Marine Management S. A. v Tianjin Kaiqiang Trading Co., Ltd, the SPC did not give a negative assessment of the lawfulness of the service by email to the respondent pursuant to the Arbitration Act of UK, mostly due to the applicant’s inability to produce sufficient evidence to substantiate that the respondent had received the email. Finally, the SPC considered it an invalid service and deprived of the enforceability of the award.

Thirdly, the address of service should comply with the parties’ agreement, or it may result in invalid service and deprive the parties of the opportunity to present their opinions. In Lie Viet Chinh v Beihai New China Land Trading Co., Ltd, due to the very fact that the registered address of the respondent was identical to the address specified in the contract, the SPC arrived at the conclusion that the Vietnam International Arbitration Centre should have opportunity to transmit the arbitral material to the right address. Instead, initially, the arbitral tribunal sent the notice about the arbitration procedure by email. However, no evidence was found that these arbitral materials had been sent to the right address, and the subsequent three attempts at service were also unsuccessful in reaching the correct address. It must be mentioned that the content of the second and third service materials was related to the hearings and composition of the arbitral tribunal, and the fourth service was to require both parties to provide material on disputes. In essence, these arbitral materials would certainly have substantial influences on the fundamental procedural rights of the parties, and failure to provide them would deprive the parties of the right to defend themselves.

Fourthly, if the arbitral tribunal has granted the parties the right to present arguments, but the party chooses not to exercise the right for its own reasons, it should be considered as a waiver. For instance, in South Pacific Venture Sfze v Panjin Liaohe Oilfield Kaite Petroleum Equipment Co., Ltd, even though the arbitral tribunal had already given the respondent proper notice of the designation of the arbitrators or the arbitral procedures, the respondent refused to engage in the arbitral procedure. Based on these findings, the Dalian Intermediate People’s Court considered that it did not amount to a violation of the due process principle, as such a procedural right was waived by the respondent.

Fifthly, provided the service methods conform to the arbitration rules, the legitimacy of the service will usually be upheld regardless of whether the respondent has actually received relevant arbitration documents or not. In Ouelippo Health Care Limited v Lin Gaokun, the Shanghai First Intermediate People’s Court took the position that whether the respondent had received arbitral documents or not was the main criterion in determining the legitimacy of the service procedure, provided that the service procedure was in line with the arbitration rule.

Sixthly, the arbitral tribunal must give proper notice to the parties on essential arbitral matters; however, the specific circumstance may vary from case to case. In Japan Shinetsu Chemical Co., Ltd v Jiangsu Zhongtian Technology Co., Ltd, in the course of the arbitral proceeding, the arbitral tribunal failed to give the parties proper notice regarding the delay of the delivery of the award. The failure was deemed a breach of article 12.2 of the arbitration rule of the Japan Commercial Arbitration Association, which states that the arbitral tribunal could extend the time period for the award if necessary. The SPC held that the arbitral tribunal should notify the parties about it in a timely manner, and the failure thereof constituted a failure of proper notice.

C. The Award Beyond the Scope of the Arbitration Agreement

The ground in article 5.1.3 of the New York Convention consists of the principle that an arbitral tribunal has only the jurisdiction to decide the disputes that commercial parties have agreed on. In practice, a small handful of Chinese courts have refused to enforce the whole or partial award.

Firstly, article 5.1.3 has been invoked in a situation where the non-party to an arbitration agreement has been improperly added into the arbitration procedure. It can be manifestly seen in Jesssmith & Sons Cotton LLC v Wuxi Natural Textile Industry Co., Ltd and Wuxi Natural Green Fiber Technology Co., Ltd, where the Wuxi Intermediate People’s Court found that there existed no arbitration agreement between the applicant and Wuxi Natural Green Fiber Technology Co., Ltd, primarily because two respondents were independent legal persons, and Wuxi Natural Green Fiber Technology Co., Ltd had never signed the contract and its signature had not been sent back. Furthermore, the applicant failed to produce any evidence to prove the existence of commercial customs among the parties.

Secondly, the arbitration agreement in a joint venture contract applies exclusively to the disputes arising out of such contract itself, not extending to the disputes between the joint venture and other subjects. The most telling example is Hemofarm DD and Others v Jinan Yongning Pharmaceutical Co., Ltd. The basic fact was that all the parties concerned established a joint venture in China, and the joint venture contract included an arbitration clause stating that ‘all disputes arising from or in connection with the joint venture contract should be settled amicably by negotiation, failing to do so could be submitted to the ICC Court of Arbitration in accordance with its arbitration rules.’ Thereafter, a dispute occurred between the respondent and the joint venture, and the applicant applied for the ICC arbitration by invoking that arbitration agreement and subsequently requested recognition and enforcement of the ICC award in China. The SPC rejected it and explained that the arbitration agreement that was a part of the joint venture contract only covered the disputes directly related to the joint venture contract, and did not apply to the lease disputes which occurred between the respondent and the joint venture. Hence, the ICC had decided a claim beyond the scope of the arbitration agreement.

Thirdly, the arbitral award has exceeded the scope of the parties’ submission to arbitration. That situation has been reflected in Bright Morning Limited v Yixing Leqi Textile Group Co., Ltd. The SIAC award consisted of four sections. The second and fourth sections were interrelated, as the former decided the termination of the joint venture contract, while the latter prohibited the applicant from claiming shareholder’s rights. The Wuxi Intermediate People’s Court made it clear that both parties had never raised the issue of shareholder’s rights in both the arbitral claims and counterclaims, while the core dispute was the damages caused by breach of contract. Consequently, these two sections of the award constituted an excess of authority.

D. Improper Composition of the Tribunal and Arbitral Procedure

Article 5.1.4 of the New York Convention provides for that, if the composition of the arbitral tribunal or arbitral procedure violates the parties’ agreement, or in the absence of agreement, the law of the place of arbitration, it could make the award unenforceable. Apparently, the Convention gives priority to the agreement between the parties, and the law of the place of arbitration only plays a subsidiary role.

Firstly, the arbitrator appointment method does not abide by the arbitration rules or the law of arbitral situs. The most representative case is Bangji Farmer Product Pte. Ltd. v Guangdong Fengyuan Grain and Oil Group Co., Ltd, where the former arbitrator appointed by the respondent resigned at their own initiative. The arbitral tribunal failed to notify the respondent to reappoint an arbitrator but instead directly appointed another one, which was considered in violation of paragraph f of article 1 of the FOSFA Rules of Arbitration and Appeal. Quite similarly, in Western Bulk Pte. Ltd. v Beijing Sinosteel Tiantie Steel Trading Co., Ltd, both parties designated two arbitrators, and later the arbitrator designated by the respondent resigned, so a vacancy occurred. However, the approach to filling the vacancy was ill-defined in the arbitration rules. The SPC opined that