Recently, the judicial review of foreign-related arbitration in China has made a breakthrough in both domestic and overseas dimensions, creating a more diversified and predictable arbitration environment for domestic and foreign enterprises to conduct arbitration in mainland China.
International commercial courts
In 2018, the Supreme People’s Court (SPC) established the First and Second International Commercial Courts, which can directly accept specific types of cases for judicial review of foreign-related arbitration, breaking through the current system of jurisdiction by level on judicial review of arbitration.
Specifically, the parties concerned can directly apply to the SPC’s China International Commercial Court for the revocation and enforcement of foreign-related arbitral awards with dispute amounts of more than RMB300 million (US$45.56 million), or of other significant influences if the arbitral awards are made by the five arbitration institutions that have been incorporated into the “one-stop” Diversified Settlement Mechanism for International Commercial Disputes.
In addition, if the SPC considers that other types of cases of judicial review of foreign-related arbitration tried by lower courts are of typical significance, it may instruct the China International Commercial Court to hear those cases.
According to the current system of jurisdiction by level on judicial review of arbitration, when applying for confirmation of the validity of foreign-related arbitration agreements, and revocation or enforcement of foreign-related arbitral awards, the parties concerned shall apply to the Intermediate People’s Court, and at the same time the “three-level reporting system” shall be implemented.
While maintaining the stability of the judicial review system of foreign-related arbitration, the China International Commercial Court has paved a special remedial approach for the parties, which is expected to solve the problems of low trial level and lack of participation of the parties in internal reporting procedures.
Partner, Head of the dispute resolution team
East & Concord Partners
Breakthrough for foreign institutions
International arbitration institutions from overseas have experienced an ice-breaking journey in managing arbitration cases in mainland China. Article 16 of the Arbitration Law takes the “selected arbitration commission” as one of the essential elements of a valid arbitration agreement, while an arbitration institution established overseas is not an “arbitration commission” in the legislative context of the law, which leads to the risk of invalidation of the arbitration clause that stipulates for arbitration by an overseas arbitration institution in mainland China.
In the case of Anhui Longlide Packaging and Printing v BP Agnati SRL, the arbitration agreement stipulated that the dispute shall be submitted to ICC’s Court of Arbitration for arbitration in Shanghai. The SPC issued a reply in 2013, arguing that the arbitration agreement had selected a specific arbitration institution, which met the requirements of article 16 of the Arbitration Law on valid arbitration agreements, and should be determined valid.
However, in the earlier case of Shenhua Coal Trading v Marinic Shipping Company, the SPC held in its reply that the “arbitration commissions” in article 20 of the Arbitration Law only refer to arbitration institutions established in China, according to the law, excluding overseas arbitration institutions. The two replies in the same period seem to have made diametrically opposite determinations, making it easy to cause misunderstanding.
In fact, many detours are due to the fact that Chinese legal practice pays too much attention to “arbitration institution” instead of “seat of arbitration”, and takes “location of arbitration institution” as the standard for judging the nationality of an award. The breakthrough of this problem is reflected in two recent milestone cases.
In Daesung Industrial Gases v Praxair (China) Investment, the arbitration clause stipulated that the dispute shall be submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai. In June this year, regarding the dispute over the validity of the arbitration agreement, Shanghai First Intermediate People’s Court made a decision: “The arbitration agreement concerned has the intention of requesting arbitration, stipulates arbitration matters, and selects a specific arbitration institution – the SIAC, and therefore should be recognised as valid.” Shanghai First Intermediate People’s Court further confirmed the opinions of the SPC in the reply of the Longlide case, reflecting the stable judicial policy.
In the case of Brentwood Industries v Guangdong Fa-anlong Mechanical Equipment Manufacture et al, the arbitration agreement stipulated that the dispute shall be submitted to the ICC Arbitration Commission for arbitration at the project location (in Guangzhou) according to international practice. After making the arbitral award, Brantwood applied to Guangzhou Intermediate People’s Court for recognition and enforcement of the arbitral award.
In August this year, Guangzhou Intermediate People’s Court made a civil ruling: “The arbitral award concerned is an arbitral award made by an overseas arbitration institution in mainland China and can be deemed as a foreign-related arbitral award in China. If the respondent concerned fails to perform the arbitral award, Brantwood may apply to the Intermediate People’s Court of the place where the respondent is domiciled, or where its property is located, for enforcement with reference to article 273 of the Civil Procedure Law.”
This is the first time that Chinese courts have made clear the nature of awards made by overseas arbitration institutions in mainland China, which is of far-reaching significance. In this case, Guangzhou Intermediate People’s Court did not evade the problem of the nationality of the arbitral award, did not follow the old “standard of location of arbitration institution”, but, following the international rules, determined the nationality of the arbitral award according to the standard of the seat of arbitration, and pointed out the enforcement basis under Chinese law.
At present, the arrangement for domestic and foreign parties to submit disputes to overseas arbitration institutions for arbitration in mainland China is increasingly confirmed and guaranteed by Chinese law. However, whether overseas arbitration institutions can, and how to apply to Chinese courts for preservation when conducting arbitration activities in mainland China, and how the parties concerned apply for preservation of assets, and the revocation of arbitral awards, and other problems remain to be answered by legislation or trial practice.
The source of the problems is still the standard for determining the nationality of arbitral awards. The author expects that when the Arbitration Law and the Civil Procedure Law are revised in the future, the seat of arbitration will be clearly taken as the standard for determining the nationality of arbitral awards, thus facilitating the arbitration activities managed by overseas arbitration institutions in mainland China to be fully compatible with China’s arbitration procedure laws.
Ji Chaoyi is a partner and head of the dispute resolution team at East & Concord Partners. He can be contacted on +86 10 6510 7096 or by email at jichaoyi@east-concord.com
