Applicant D (the claimant in this arbitration case) is a Chinese enterprise, while the respondent V (the first respondent in the case) is an enterprise registered in Ontario, Canada. D and V signed a series of auto parts production, export and purchase agreements, agreeing that D would produce according to the orders issued by V and entrust the second respondent in the arbitration case – a Chinese enterprise, S – to handle customs clearance and other export procedures, which would eventually be used to supply to Chrysler in the US.

In addition, D and V signed several contracts on the development and production of moulds. The agreements and contracts all contained arbitration clauses that referred to Shanghai International Arbitration Centre for arbitration (SHIAC).

Later, as V failed to pay for the goods and the mould manufacturing fee under the relevant agreements, D filed an arbitration application with the SHIAC, requesting V to pay the amount and compensate for the loss, and requesting S to pay the withheld payment for the goods.

V contended that the ultimate purpose for D’s continual increases in the prices of its goods was to force V to withdraw from the co-operation with Chrysler so that D could take its place as the first supplier to Chrysler. To this end, V maintained that D could obtain full compensation from Chrysler, deciding instead to pursue its claim against V in arbitration; otherwise, it would constitute a double recovery.

S, on the other hand, contended that, as an intermediary for customs clearance, its obligations under the agreements had been fulfilled and no payment had been withheld, so it should not bear any responsibility.

After the hearing, the arbitral tribunal issued an award that supported part of D’s arbitration requests, awarding V to pay D the outstanding payment for goods and mould manufacturing costs totalling more than RMB56 million (USD8.7 million) as well as the arbitration costs, and overruling its request against S.

After the award became effective, and due to V’s failure to enforce the award, D applied to the Ontario Superior Court of Justice for recognition and enforcement of the award, pursuant to the UNCITRAL Model Law. According to Ontario’s International Arbitration Act 1990, the Model Law – which contains articles regarding recognition and enforcement of foreign arbitral awards – applies in Ontario, and Ontario courts will apply the Model Law directly, rather than the New York Convention, when reviewing applications for recognition and enforcement of foreign arbitral awards.

V, however, defended the application, arguing that the court should refuse to recognise and enforce the award on the grounds, inter alia, that: (1) V was unable to present its defence with respect to double recovery (Model Law, article 36 (1)(a)(ii)); (2) the recognition or enforcement of the award would be contrary to the public policy of Ontario (Model Law, article 36 (1)(b)(ii)); and (3) insofar as the award concerns the dispute with respect to moulds, it was argued that this part of the award should not be recognised in Ontario as there was no agreement to submit the dispute concerning moulds to arbitration.

CANADIAN COURT’S OPINION

The Ontario Superior Court, after confirming that D had filed an application for recognition and enforcement of the arbitral award pursuant to article 35(2) of the Model Law, made the following findings with respect to V’s defences:

On V’s defence of deprivation of rights to present its case

The court held that V had a complete right and opportunity to defend against the existence of double recovery by D in the arbitration proceedings, and there was no evidence that V was denied this right and opportunity in the arbitration proceedings. Therefore, V’s alleged failure to present its case could not be sustained.

On V’s defence of public policy

The court held that the public policy doctrine may be applied only where enforcement of the award would have substantial consequences that would jeopardise the fundamental interests of the enforcing state, and only with respect to matters such as the legal procedures of the state in question, minimum ethical standards, or to principles of fundamental fairness.

The procedure in the underlying arbitration case followed by the arbitral tribunal did not offend Canadian principles of justice and fairness in a fundamental way. The reason why the arbitral tribunal dismissed the defence without detailed analysis may be that the arbitral tribunal found the argument irrelevant or without merit, or maybe it thought a broad comment “demanding continuance of performance” was enough.

Whatever the reason, from the point of view of the court it is the arbitral tribunal’s discretion. The court, therefore, saw no reason to reopen the merits of the double recovery defence by relying on the public policy concerns in these circumstances.

On V’s defence of mould claim

The court held that the arbitral tribunal had analysed the scope of its jurisdiction in the award, confirming that the dispute involving the production of moulds and costs was under one of the agreements signed by the parties concerned and containing an arbitration clause.

Since V had not objected to the jurisdiction of the arbitral tribunal during the arbitration proceedings, and had failed to fulfil its onus to raise – pursuant to article 36(1)(a)(ii) of the Model Law, in this case – any evidence that the arbitration agreement in question was invalid under the law of the seat of arbitration (Chinese law), the dispute with respect to the payment of moulds was properly within the jurisdiction of the arbitral tribunal, and ought to be enforced.

To sum up, the court held that under the Model Law and the Ontario International Arbitration Law of 1990, the SHIAC arbitration award should be recognised and enforced.

BRIEF ANALYSIS

This is an exemplary case in which an award in a case administered by a Chinese arbitration institution was recognised and enforced in an overseas court. Compared with the recognition and enforcement of overseas arbitration awards in China, there are few theoretical and practical studies on the recognition and enforcement of Chinese arbitration awards abroad.

In fact, in the context of economic globalisation, more and more overseas companies have become respondents in arbitration cases administered by Chinese arbitration institutions, and many of the arbitral awards made involve foreign parties as debtors.

When those debtors who are obligated to perform as determined by the effective awards have no more property available for enforcement in China or have relatively more property abroad, the creditors can only choose to apply to overseas courts for enforcement. At that point, the arbitral awards will then face the challenge of judicial review by the foreign court.

Therefore, whether an award made in China can be recognised and enforced by foreign courts is not only related to the immediate interests of the parties, but also to the standard and international reputation of Chinese arbitration institutions. In this sense, this case has a certain reference value.

On the one hand, for Chinese arbitration institutions, the understanding and application of the provisions of the Model Law and the New York Convention by foreign courts can be used to enrich the experience of them and their arbitrators in the management of international cases under an improving degree of professionalism and internationalisation.

On the other hand, Chinese enterprises should also be fully aware of the risks that may arise when an arbitral award is enforced abroad, taking risk management measures in advance as part of the whole process of the arbitration legal proceedings, and appointing professional lawyers who are familiar with the proceedings and legal culture of the courts in the place of enforcement, to represent them in the stage of enforcement of the award.


Xu Zhihe is the deputy head of the Department of Research and Information at SHIAC