Publications

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China’s Supreme People's Court (the "SPC") has published the "Notice Concerning Questions Related to the Enforcement of Hong Kong Arbitral Awards in the Mainland"¹(the "Notice"), which clarifies that ad hoc and institutional arbitration awards made in Hong Kong are enforceable in mainland China, subject to certain specific grounds for refusal.

The long-awaited clarification, issued on 31 December 2009, arises out of a formal arrangement entered into between Hong Kong and the People's Republic of China in 2000, through which Hong Kong and China agreed to the reciprocal enforcement of arbitration awards. Despite this arrangement, until the issue of the Notice there was some doubt regarding the enforcement of arbitration awards obtained under the rules of international institutions.

The Notice is likely to mean that parties can now select Hong Kong as a seat for international arbitrations with confidence that an eventual award can be enforced against counterparties in mainland China.

The legal basis for enforcing arbitration awards between Hong Kong and China

The legal basis for the enforcement of Hong Kong arbitration awards in China is the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region (the "Arrangement"), which became effective from 1 February 2000. This reciprocal agreement provided that each of Hong Kong and China would enforce arbitration awards made in the other.

Development of the enforcement of Hong Kong arbitral awards in China

Generally, arbitrations conducted in China are administered by a Chinese arbitral institution. Unlike in most jurisdictions, arbitration agreements that are governed by Chinese law and provide for ad hoc arbitration are generally regarded as invalid. Consequently, there has been some doubt as to whether awards from ad-hoc arbitrations (meaning arbitrations not administered by an arbitral institution, in which the parties are required to agree on all aspects of the arbitration such as the number of arbitrators and procedure for conducting the arbitration) were enforceable in China.

In 2007, the Secretary of Justice of Hong Kong sought clarification from the SPC in relation to the enforcement in China of awards made in ad hoc arbitrations in Hong Kong. On 25 October 2007, China confirmed that ad hoc arbitral awards made in Hong Kong are enforceable in China under the terms of the Arrangement.

However, it remained unclear whether international institutional arbitral awards made in Hong Kong (i.e. awards made under the rules of non-Chinese institutions) were enforceable in China under the Arrangement. The recent Notice therefore provides helpful clarification on this point.

The Notice and its importance

The Notice states that "ad hoc arbitral awards made in Hong Kong and arbitral awards made in Hong Kong by the ICC and other foreign arbitration institutions are enforceable in the PRC in accordance with the Arrangement concerning Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong signed in 1999, except where grounds of refusal of enforcement under Article 7 of the Arrangement exist."

The grounds of refusal of enforcement which are set out in Article 7 of the Arrangement include:

• incapacity of the parties to the arbitration agreement
• invalidity of the arbitration agreement under the law to which the parties are subject
• failure to give proper notice of the appointment of the arbitral tribunal to the party against whom the application for enforcement is filed
• the award deals with matters which are beyond the scope of the submission to arbitration
• the composition of the arbitral authority or procedure was not in accordance with agreement of the parties or the law of the place of arbitration
• the award has not yet become binding on the parties, or has been set aside or suspended by the court
• the dispute is incapable of being settled by arbitration, or
• enforcement of the arbitral award will be contrary to the public policy of China or Hong Kong.

Prior to the Notice, ICC arbitral awards made in Hong Kong could be enforceable in the PRC on the basis that the Court of Arbitration of the ICC is established in France. Since both China and France are signatory members of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), when there were questions in China regarding the recognition and enforcement of ICC arbitral awards rendered in Hong Kong, the Chinese courts seemed to prefer applying the New York Convention rather than the provisions of the Arrangement.

This approach, which did not entirely resolve doubts about enforcement and has been criticised internationally, reflects the importance of the place of establishment of the institution conducting the arbitration in determining the nationality of arbitral awards. This is contrasted with the private international law position, which treats the location of the arbitration as the crucial factor. It appears that the SPC is gradually changing its approach to reflect international principles that recognise the place of arbitration and its governing law as the crucial factors in determining the validity and enforceability of an arbitration agreement.

Conclusion

The Notice has ended the lingering doubt about the applicability of the Arrangement to ad hoc arbitration awards and international institutional awards made in Hong Kong. Further, parties attempting to enforce Hong Kong-made ICC arbitration awards in China will now be able to use the Arrangement, which is procedurally easier than using the New York Convention.

This is only likely to increase Hong Kong's desirability as a seat for international arbitrations, and the Notice has been described by the Hong Kong International Arbitration Centre as "conducive to Hong Kong's development as an international dispute resolution centre". For ease of enforcement of an arbitration award in China, foreign parties may now wish to consider Hong Kong as a seat of arbitration.