Focus on jurisdiction mechanism for cancelling awards in bankruptcies

By Xu Bangwei and Liu Wenpeng, Jingtian & Gongcheng
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In bankruptcy practice, in case of a legal error in the arbitral award, the creditor and the administrator representing the debtor may apply to the court for cancelling the arbitral award. To apply, it is first necessary to determine the court of jurisdiction. In practice, there is divergence between courts over the specific application of the jurisdiction mechanism for cancellation of arbitral awards under Arbitration Law and the Bankruptcy Law.

Xu Bangwei 徐邦炜
Xu Bangwei
Partner
Jingtian & Gongcheng

Practice of jurisdiction by the court where the arbitration commission is located

Pursuant to article 58 of the Arbitration Law, if there are legal reasons, the parties may apply to the intermediate people’s court where the arbitration commission is located for cancelling the arbitral award, i.e., the case of cancellation of arbitral awards is under the exclusive jurisdiction of a specific court.

There are opinions that although the principle of centralised jurisdiction is adopted in bankruptcy cases, necessary co-ordination should be taken between it and the exclusive jurisdiction of arbitration. For example, article 59 of the Rules of Beijing High People’s Court for the Trial of Enterprise Bankruptcy Cases provides that, “cases confirming the validity of arbitration clauses and applying for cancelling arbitral awards” are not under the jurisdiction of the court accepting bankruptcy applications.

In Yue Min Xia Zhong Case No. 324 (2019), Guangdong High People’s Court, the court of final appeal, held that the application for cancelling the arbitral award entering bankruptcy proceedings should be under the jurisdiction of the intermediate people’s court where the arbitration commission is located. The court also pointed out that although it was a principle to exercise centralised jurisdiction over civil litigation involving debtors applying for bankruptcy, it did not rule out the application of special jurisdiction, and other special provisions of the civil litigation.

Practice of jurisdiction by the court accepting bankruptcy application

Article 21 of the Bankruptcy Law is deemed a specific provision defining the jurisdiction of bankruptcy derivative litigation, that is, after the people’s court accepts the bankruptcy application, the civil litigation concerning the debtor can only be brought to that people’s court.

There are opinions that the application for cancelling an arbitral award, as a civil litigation subject to special procedures, is a “civil litigation concerning debtors” at the literal level, and should be under the centralised jurisdiction of the court accepting the bankruptcy application.

Liu Wenpeng 刘文鹏
Liu Wenpeng
Paralegal
Jingtian & Gongcheng

Article 7.2 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Enterprise Bankruptcy Law of the People’s Republic of China (III) (Interpretation III) provides that if the administrator believes that claims determined by the effective legal documents for declaring claims are wrong, or that the creditor and the debtor maliciously fabricate claims and debts through arbitration, it shall apply to the court for revoking the effective legal documents through the trial supervision procedure, or apply to the court accepting the bankruptcy application for cancelling the arbitral award.

In Qian Min Xia Zhong Case No.15 (2020), Guizhou High People’s Court, the court of final appeal, held that the court accepting bankruptcy applications should have jurisdiction over the case of cancelling arbitral awards. The court also pointed out that the provisions on exclusive jurisdiction of bankruptcy derivative litigation in the Bankruptcy Law were special provisions compared with the relevant provisions of the Arbitration Law, and should be applied preferentially in bankruptcy proceedings.

Co-ordination of the jurisdiction mechanism of cancellation of arbitral awards between the Arbitration Law and Interpretation III

It is not difficult to see that the practices of different courts are not consistent in practice. The authors believe that the jurisdiction mechanism of cancellation of arbitral awards under the current Arbitration Law and Interpretation III may be co-ordinated as follows to provide clearer guidance.

On the one hand, article 7 of Interpretation III solves the jurisdiction problem of the administrator applying for cancellation of the arbitral award in the process of confirming the claims, which is a special arrangement dedicated to matters relating to cancellation of arbitral awards in bankruptcy proceedings. Therefore, in the process of confirming bankruptcy claims, if the administrator believes “claims determined by the effective legal documents for declaring claims are wrong”, or that, “the creditor and the debtor maliciously fabricate the claims and debts through arbitration”, it is advisable for the administrator to apply for cancelling the arbitral award with the court accepting bankruptcy application.

Meanwhile, considering the professionalism of judicial supervision over arbitration, as pointed out by the second civil division of the Supreme People’s Court in the Understanding and Application of Interpretation of Bankruptcy Law (III), if it is really inconvenient for the basic people’s court accepting the bankruptcy application to exercise jurisdiction, the case can be submitted to the intermediate people’s court for trial.

On the other hand, if parties have entered the bankruptcy proceeding, but the application for cancellation of the arbitral award is not filed by the administrator out of the need to confirm the declaration of claims, it is advisable for the court where the arbitration commission is located to exercise jurisdiction over the issue under the Arbitration Law, as this court is more familiar with the awards cancellation of that commission.

In this way, efficient trial and unified standards can be achieved to maintain the independence and professionalism of the arbitration system. Therefore, to achieve cancellation, the authors believe it is more appropriate for a party to apply on the following grounds specified in article 58 of the Arbitration Law: “no arbitration agreement”; “the matters of the award are beyond the extent of the arbitration agreement, or not within the jurisdiction of the arbitration commission”; “the composition of the arbitration tribunal or the arbitration procedure is illegal”; “the evidence on which the award is based is falsified”; “the other party has concealed evidence sufficient to affect the impartiality of the award”; “the arbitrator has demanded or accepted bribes, committed graft or perverted the law in making the arbitral award”; and “the award is against the social and public interest”.

Summary

In judicial practice, there are ambiguities over the determination of the court of jurisdiction for the administrator applying for cancellation of arbitral awards in bankruptcy proceedings. The authors suggest that the parties pay attention to the different provisions of the Arbitration Law and Interpretation III on the jurisdiction and related mechanisms of cancellation of arbitral awards, and apply to the appropriate courts after identifying different situations.

Xu Bangwei is a partner and Liu Wenpeng is a paralegal at Jingtian & Gongcheng

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