China

Case updates

PRC Court clarifies enforcement of Mainland Award made by foreign institution

There has been a long standing question as to whether foreign arbitration institutions can administer arbitrations seated in Mainland China under the current PRC Arbitration Law regime. The traditional view is that they cannot because, strictly speaking, “arbitration commission” in the PRC Arbitration Law means Chinese arbitration institutions only. However, with the increase in commercial dealings between Chinese and foreign parties, the strict interpretation of the PRC Arbitration Law no longer sits well with the demands of commercial parties. Courts in China have recently, in several cases and judicial interpretations, confirmed the validity of arbitration clauses providing for arbitrations administered by foreign institutions seated in Mainland China.

On 29 June 2020, the First Intermediate People’s Court in Shanghai upheld an arbitration agreement providing for SIAC arbitration in Shanghai in Daesung Industrial Gases Co., Ltd v Praxair (China) Investment Co., Ltd.

On 6 August 2020, in Brentwood Industries (US) v Guangzhou Zhengqi Trading Co Ltd., the Intermediate People’s Court in Guangzhou ruled that an ICC arbitration award made in Guangzhou should be considered as a Chinese arbitral award with a foreign element and enforced under the more direct route under the PRC Civil Procedural Law instead of the New York Convention.

These important judicial decisions demonstrate and confirm the positive trend of the PRC courts towards upholding China seated arbitrations administered by foreign arbitration institutions.

Other key developments

Beijing open to foreign arbitral institutions

In addition to the judicial decisions, in further positive developments for foreign arbitration institutions, on 7 September 2020, the State Council of China published a policy paper on opening up the services sector in Beijing, i.e. the Work Plan for Deepening Comprehensive Pilot and New Round of Opening Up of Services Sectors in Beijing and Building Comprehensive Demonstrative Area of Opening up of State Services Sectors (Work Plan). The Work Plan announced that foreign arbitral institutions will be allowed to set up “business organisations in designated area(s) in Beijing” to “provide arbitration services in relation to civil and commercial disputes arising in the areas of international commerce and investments”.

Following an earlier policy to open up the arbitration in Lingang Free Trade Zone to foreign arbitration institutions last year, this Work Plan further expands the areas where foreign arbitration institutions are allowed to provide services. This signals a very positive sign that the arbitration market in China will continue to be liberalised and opened up to foreign arbitration institutions.

On 31 December 2020, the “Administrative Measures for Registration of Business Offices Established by Overseas Arbitration Institutions in China (Beijing) Pilot Free Trade Zone” (the Administrative Measures) was published. The Administrative Measures, which will take effect from 1 January 2021, specify the business scope of overseas arbitration institutions, the conditions and procedures for establishing business office, the purpose of encouraging arbitration-related exchanges and cooperation, and other regulating requirements.

Hong Kong and Mainland China enter into a supplemental arrangement concerning mutual enforcement of Arbitral Awards

On 27 November 2020, the Supreme People’s Court in Mainland China and the Department of Justice in Hong Kong signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region (Supplemental Arrangement). The Supplemental Arrangement modifies and supplements the existing Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong which was signed on 21 June 1999 and came into effect on 1 February 2000 (1999 Arrangement).

The key provisions of the Supplemental Arrangement are as follows:

• Article 1 clarifies that the enforcement of arbitral awards specified under the 1999 Arrangement shall be interpreted to cover both procedures for the “recognition” and “enforcement” of the arbitration awards. This change brought clarity to the longstanding debate in the Mainland courts regarding whether recognition is a prerequisite step before enforcing arbitral awards made in Hong Kong;
• Article 2 clarifies the scope of arbitral awards covered under the 1999 Arrangement. It specifies that all arbitral awards made pursuant to the Arbitration Ordinance of Hong Kong can be enforced in the Mainland pursuant to the Supplemental Arrangement, whether institutional or ad hoc;
• Article 3 allows parties to apply for enforcement of arbitral awards in the Mainland and Hong Kong simultaneously. This changes the position under the 1999 Arrangement where parties are not allowed to apply for enforcement of an award in Hong Kong and the Mainland at the same time. This revisions opened up possibility for award holders to enforce the award against parties who have assets in both jurisdictions; and
• Article 4 confirms that before or after enforcement of an award, the courts in both Mainland and Hong Kong may order interim measures in accordance with the applicable law. This will enhance the prospects of successful enforcement of a Hong Kong award in Mainland China.

In Mainland China, the Supplemental Arrangement is implemented by way of a judicial interpretation issued on the same day.

In Hong Kong, Articles 1 and 4 of the Supplemental Arrangement came into force on 27 November 2020, while Articles 2 and 3 will take effect after the necessary amendments to the Arbitration Ordinance are enacted. The Hong Kong Department of Justice has indicated that it will proceed with relevant legislative work as soon as possible to bring benefits to the sector in a timely manner.

SPC’s annual report (2019) on judicial review of commercial arbitrations

On 23 December 2020, the Supreme People’s Court of China for the first time published an Annual Report (2019) on Judicial Review of Commercial Arbitrations. Among other things, it is confirmed that among all 32 applications for recognition and enforcement of foreign arbitral awards considered by the Chinese courts in 2019, only one award was not fully recognised and enforced because that award contains decisions on matters beyond the scope of the arbitration. This reaffirms China’s new pro-arbitration attitude.