China

With the continuing development of cross-border trade and investment, commercial arbitration, including international commercial arbitration, has witnessed steady growth in China (for the purpose of this article, unless otherwise stated, China means Mainland China not including Hong Kong, Macau, and Taiwan) during the past decade.

Indeed, statistics for 2017 show 360 cases filed in the 253 arbitration commissions in China, with the disputed amount totalling 533.8 billion yuan. ^[1]

In order to accommodate China’s economic transformation and to facilitate the Belt and Road Initiative (BRI) announced by the Chinese government in 2013, China is making great effort to create a more open and arbitration-friendly environment that aligns with internationally acceptable standards. In pursuit of this cause, on its domestic front China has adopted measures that are generally applicable nationwide and have made groundbreaking innovations within its Pilot Free Trade Zones, pioneering and experimental zones of China’s multifaceted reforms. Discussions and explorations are also underway regarding new developments in international arbitration such as investor-state arbitration and third-party funding, both of which have attracted the attention and interest of academics and arbitration practitioners alike.

This article aims to review significant developments on the law and practice of arbitration in China and to provide readers with a general understanding of some important aspects of Chinese arbitration landscape.

Recent significant developments

New rules regarding judicial review of arbitration

In addition to the Arbitration Law ^[2] and the arbitration related-rules of the Civil Procedure Law, ^[3] arbitration in China is mainly subject to regulations and judicial interpretations of the Supreme People’s Court (SPC).

In line with its ongoing stance to support arbitration, in 2017 and 2018, the SPC issued three sets of new rules that are of especial importance in clarifying and reshaping the judicial review mechanism of arbitration.

Judicial review of arbitration in China refers to cases where the competent court is asked to:

• determine the validity of an arbitration agreement;
• set aside an arbitral award; and
• recognise or enforce, or refuse to recognise or enforce an arbitral award.

Ideally, courts are to maintain a minimal level of control or supervision over an arbitral process that is consistent with what is commonly referred to as a non-interventionist approach from the courts. The new rules of the SPC are intended to balance the necessary supervision and the need to guard against excessive court interference and local protectionism.

Provisions on judicial review of arbitration

The Provisions of the Supreme People’s Court on Several Issues Relating to Judicial Review of Arbitration (Provisions on Judicial Review of Arbitration) ^[4] clarifies, among others, the following issues.

The Provisions on Judicial Review of Arbitration allows a party to apply for the recognition of a foreign arbitral award if the arbitration case is related to a domestic proceeding, even though neither the respondent’s domicile nor the respondent’s property is located within China. Jurisdiction over such applications is with the intermediate court or the higher court at the place of the court or arbitral institution handling the domestic proceedings.

Previously, because the Civil Procedure Law does not identify the competent court with jurisdiction to hear a party’s application to recognise a foreign arbitral award where neither the respondent’s domicile nor the respondent’s assets is located within China, parties who applied for recognition of a foreign arbitral award in China in such circumstances (for example because the adjudication of the domestic case is dependent on the recognition of the foreign arbitration) would encounter jurisdictional issues. The Provisions on Judicial Review of Arbitration fills this lacuna in the Civil Procedure Law and offers better protection for parties who need to apply for the recognition of foreign arbitral awards.

According to the Provisions on Judicial Review of Arbitration, as an exception to finality of court decisions in the judicial review process (whether the arbitral award is domestic, foreign-related or foreign), if the application to recognise or enforce or set aside an arbitral award is not accepted or declared inadmissible by the court (before the court examines the merits of the application), the applicant is entitled to appeal.

Previously, there were no explicit provisions allowing the applicant to appeal and it was often the case, for example, that a foreign applicant was left with no remedies when its application to recognise and enforce a foreign arbitral award was knocked off the docket by the court before any substantive examination without justifiable causes. With the Provisions on Judicial Review of Arbitration in place, an arbitrary non-acceptance of the application by the lower courts in its decision-making process will be restrained.

Regarding the validity of an arbitration agreement, the SPC took a firm pro-arbitration stance. According to the Provisions on Judicial Review of Arbitration, absent the parties’ agreement on the applicable law governing the arbitration agreement, if the law of the place where the arbitral institution is located and the law at the seat of the arbitration differ, the applicable law governing the arbitration agreement is the law that results in a valid arbitration agreement.

Before the Provisions on Judicial Review of Arbitration came into effect, article 18 of the Law on Choice of Law for Foreign-Related Civil Relationships ^[5] made it clear that, absent the parties’ agreement on applicable law, the law of the place where the arbitral institution is located or the law at the seat of the arbitration shall apply to the arbitration agreement (if the parties do not agree on the arbitral institution or seat of arbitration, the courts may apply Chinese law), ^[6] but it was silent on which of the two laws should be applied in the case of a conflict. The Provisions on Judicial Review clarifies this ambiguity and adopts a law that supports the validity of arbitration agreement.

Provisions on report for approval

The Provisions of the Supreme People’s Court on Report for Approval of Arbitration Cases under Judicial Review (Provisions on Report for Approval) ^[7] expands the application scope of the reporting mechanism to purely domestic arbitrations.

Previously, if a lower court intended to invalidate an arbitration agreement, or set aside or refuse recognition or enforcement of an arbitral award involving foreign, Hong Kong, Macau or Taiwan elements, it would report to the higher court for review and approval and the SPC alone had the ultimate authority to decide on invalidation, setting aside, or non-recognition or enforcement. Purely domestic cases, however, were subject to no such reporting and review restraints.

With the coming into effect of the Provisions on Report for Approval, purely domestic arbitration cases involving no foreign, Hong Kong, Macau or Taiwan elements shall also be reported to and reviewed by the higher court.

If the intermediate people’s court intends to invalidate an arbitration agreement, or set aside or refuse enforcement of an arbitral award involving no foreign, Hong Kong, Macau or Taiwan elements, it shall report to the higher for review and approval.

If the high people’s court intends to uphold the lower court’s decision to invalidate an arbitration agreement, or set aside or refuse enforcement of an arbitral award involving no foreign, Hong Kong, Macau or Taiwan elements, the high people’s court shall report to the SPC for review and approval when the parties are domiciled in different provinces of China or the high people’s court intends to set aside or refuse enforcement of an arbitral award on the ground of public policy.

The Provisions on Report for Approval aims to extend protection against local protectionism to purely domestic arbitrations and it also shows the SPC’s caution and prudence on its application of public policy.

Provisions on enforcement of arbitral awards

A breakthrough change brought by the Provisions of the Supreme People’s Court on Several Issues concerning Enforcement of Arbitral Awards by People’s Courts (Provisions on Enforcement of Arbitral Awards) ^[8] is the introduction of the mechanism for third parties to apply for non-enforcement of arbitral awards rendered by Chinese arbitration commissions if the arbitration is instituted with malicious or fraudulent intent, which fills the legislative gap in relation to legal remedies available for third parties prejudiced by fictitious arbitrations in China.

Another salient feature of the Provisions on Enforcement of Arbitral Awards is the confirmation of the rule on estoppel in its article 14(3), under which a party who was aware or should have been aware of the inconformity of the arbitration procedures with the applicable law or arbitration rules is precluded from relying on the procedural inconformity to apply for non-enforcement of the arbitration award if the party has participated in or continued to participate in the arbitration without raising any objection. Under article 27 of the Interpretations on the Application of the Arbitration Law, ^[9] a party is deemed to have waived its objection to the validity of the arbitration agreement if it did not raise such objection during the arbitration proceeding, but previously there was no similar rule in relation to irregularities of arbitration procedures. The Provisions of the Enforcement of Arbitral Awards confirms the general applicability of the rule of waiver and estoppel for the first time.

Arbitration-related innovations within Pilot Free Trade Zones

A major innovation within Pilot Free Trade Zones relates to ad hoc arbitration. The Arbitration Law only provides for institutional arbitration. Ad hoc arbitration in China has long been regarded as invalid under Chinese law, although an ad hoc arbitral award rendered in a country other than China or is enforceable in China under the New York Convention, ^[10] and ad hoc arbitral awards made in Hong Kong, Macau or Taiwan, are also enforceable in China under the applicable arrangements.

At the end of 2016, the SPC issued its Opinions on Providing Judicial Safeguard for the Development of Pilot Free Trade Zones (Opinions for Pilot Free Trade Zones), ^[11] under which courts may recognise the validity of arbitration agreement with specific seat of arbitration, specific arbitration rules and specific arbitrators if the arbitration agreement is between companies registered in the Pilot Free Trade Zones. Any decision to invalidate such arbitration agreement shall be reported to the higher court and up to the SPC for approval. Accordingly, arbitration in the Pilot Free Trade Zones is no longer confined to institutional arbitration and ad hoc arbitration satisfying the above-mentioned conditions is also a viable choice.

Another important innovation within the Pilot Free Trade Zones is the expansion of the scope of disputes submitted to foreign arbitration. Chinese courts had long taken the view that an agreement to submit a purely domestic dispute with no ‘foreign element’ to foreign arbitration was invalid and unenforceable, based on a narrow interpretation of ‘foreign element’ (for example foreign invested entities incorporated under Chinese law were considered domestic entities and foreign investment did not constitute a foreign element).

Change came with the case of Siemens International Trade (Shanghai) Co, Ltd v Shanghai Golden Landmark Co, Ltd ^[12] where the First Intermediate People’s Court of Shanghai interpreted ‘foreign element’ in a more liberal manner and different from the conventional approach. According to the First Intermediate People’s Court of Shanghai, although the parties were domestic-registered companies, the place of delivery was in China and the disputed goods were also located within China, the dispute could still be considered as involving foreign elements because the parties were wholly foreign-owned enterprises in the Free Trade Zone and the circulation of the disputed goods in and out of the Free Trade Zone displayed similar features of an international sales of goods transaction. Following and upholding the opinion of the First Intermediate People’s Court of Shanghai, the SPC’s Opinions for Pilot Free Trade Zones further expands the scope of conventionally domestic disputes, which are eligible for foreign arbitration in two ways:

• disputes between or among wholly foreign-owned enterprises registered within a Pilot Free Trade Zone may be submitted to arbitration outside China, regardless of whether a ‘foreign element’ exists in the case or not; and
• where one of the parties is a foreign invested enterprise registered in a Pilot Free Trade Zone, either party is prohibited from objecting to the validity of the arbitration agreement providing for foreign arbitration if the parties have agreed to submit the dispute to foreign arbitration or if the party failed to raise objection during the arbitration.

Establishment of the International Commercial Tribunal

On 1 July 2018, the Provisions of the Supreme People’s Court on Establishment of the International Commercial Tribunal (Provisions on Establishment of the ICT) ^[13] took effect, setting the tone in support of international commercial dispute resolution. According to the Provisions on Establishment of the ICT, the SPC established the International Commercial Tribunal (ICT) and is empowered to designate qualified international arbitral institutions as part of its efforts to build a ‘one-stop’ international commercial dispute resolution platform and mechanism. Important impacts on arbitration brought by the Provisions on Establishment of the ICT include the following.

• If the parties agree to submit the disputes to a designated international arbitral institution, they are entitled to apply to the ICT for interim measures, including measures of evidence preservation, property preservation and injunctions, before and after the arbitration commences. Under the Arbitration Law, an application for interim measures has to be made through arbitral institution. The Provisions on Establishment of the ICT brings about the possibility for the parties to directly apply to the ICT for interim measures in arbitrations administered by the designated international arbitral institutions and will likely improve the efficacy of interim measures in such cases.
• If the parties agree to submit the disputes to a designated international arbitral institution, they are entitled to apply to the ICT to set aside or enforce the arbitral award rendered by the designated international arbitral institutions. Under the Arbitration Law and related rules, an application to set aside or enforce an arbitral award should be made to intermediate courts and level-by-level report and review up to the SPC has to be performed if arbitral awards involving foreign, Hong Kong, Macau or Taiwan elements are to be set aside or refused recognition or enforcement. Under the Provisions on Establishment of the ICT, an application to set aside or enforce an arbitral award will be made to the ICT with less concerns for local protectionism and without the process of going through the level-by-level reporting.

Evolution of arbitration rules and growth of arbitral institutions

In line with the position of the Opinions for Pilot Free Trade Zones on ad hoc arbitration, arbitration institutions in China have taken steps to keep up with the development. For example, the Zhuhai Arbitration Commission released its Ad Hoc Arbitration Rules of the Hengqin Pilot Free Trade Zone in March 2017, ^[14] the Shijiazhuang Arbitration Commission updated its arbitration rules in June 2017 to include service for arbitration between parties within Free Trade Zones conducted in accordance with specific arbitration rules by specific arbitrators, ^[15] the China International Economic and Trade Arbitration Commission (CIETAC) Hong Kong Arbitration Centre published its Rules as Appointing Authority in Ad Hoc Arbitrations in July 2017, ^[16] and in October 2017 the Guangzhou Arbitration Commission adopted the Rules for Bridging Ad Hoc Arbitration and Institutional Arbitration formulated by the China Internet Arbitration Alliance. ^[17]

Further eye-catching progress made by Chinese arbitration institutions in recent years can be seen in the release of the investor-state arbitration rules by CIETAC in 2017. Under this set of rules, CIETAC will exercise jurisdiction over international investment disputes between governments and investors if an arbitration agreement has been reached in a contract, treaty, statute of law or other instruments. ^[18] Shenzhen International Court of Arbitration also amended its arbitration rules in 2016 and included investment disputes between governments and foreign investors to be within the scope of its jurisdiction. ^[19] With the implementation of the BRI, Chinese arbitration institutions are expected to play a greater role in international investment arbitrations.

In September 2018, different arbitration institutions in Guangdong-Hong Kong-Macau Greater Bay Area (comprised of the two Special Administrative Regions of Hong Kong and Macau, and nine municipalities of Guangdong Province, referred to as Greater Bay Area) established the Guangdong-Hong Kong-Macau Greater Bay Area Arbitration Alliance (Arbitration Alliance), with the purpose of strengthening cooperation among arbitration institutions and to integrate arbitration resources in the Greater Bay Area. ^[20] The Arbitration Alliance is purported to be an international commercial arbitration platform where parties enjoy a wide range of options and freedom in choosing arbitration rules and appointing arbitrators. A cooperation memorandum was just signed in February 2019 by the arbitration institutions forming the Arbitration Alliance ^[21] and it is still to be seen whether and to what extent the alliance could facilitate international arbitration in the Greater Bay Area.

Arbitration agreement

If rules on the conflict of laws (in particular article 14 of the Law on Choice of Law for Foreign-Related Civil Relationships) lead to application of Chinese law to determine validity of arbitration agreement, according to article 16 and article 17 of the Arbitration Law, a valid arbitration agreement must:

• express the parties’ intention to arbitrate;
• set out the matters to be arbitrated;
• select an arbitration commission;
• be in writing and validly executed; and
• be entered into by individuals with full civil capacity or legal persons.

Meanwhile, the matters agreed to be arbitrated must be arbitrable for the arbitration agreement to be valid. According to article 2 of the Arbitration Law, the following subject matters may not be referred to arbitration:

• disputes concerning marriage, adoption, custody, fostering and succession; and
• administrative disputes that shall, in accordance with the law, be dealt with by administrative authorities.

Under article 11 of the Administrative Litigation Law ^[22] and article 11 of the Interpretation on the Administrative Litigation Law, ^[23] non-arbitrable administrative disputes include disputes arising out of agreements between private parties and the government pertaining to administrative law rights and obligations. The SPC generally avoids an across-the-board approach to agreements involving administrative law elements and distinguishes between consensual aspects of the agreement where the private party and the government are of equal footing and administrative aspects of the agreement where the government is exercising public function and governmental authority, the disputes in relation to the former being arbitrable. In multiple cases, disputes arising out of government concession agreements or private-public-partnership (PPP) agreements were held to be of civil nature but not disputes of administrative agreements. ^[24]

There has been controversy whether civil antitrust disputes are arbitrable. Some courts hold the view that civil antitrust cases are not just disputes the parties are privy to, but also concern public interest, particularly the interests of average consumers, and thus are not arbitrable. ^[25]

Chinese law recognises the concept of competence-
competence in a limited way. If one party intends to challenge the validity of arbitration agreement and the arbitral tribunal’s jurisdiction, it may either request the arbitration commission or arbitral tribunal or apply to the competent court for a ruling according to article 20 of the Arbitration Law, subject to the following conditions and limits.

• Challenge to the validity of arbitration agreement and the arbitral tribunal’s jurisdiction must be made before the first arbitration hearing is held.
• If one party requests the ruling to be made by the arbitration commission or arbitral tribunal while the other party requests the ruling from the court, the ruling shall be made by the court unless the arbitration commission or arbitral tribunal has already ruled on the issue of jurisdiction. In practice, the parties may apply to the court to rule on the invalidity of the arbitration agreement before the arbitration commences.
• Some courts view a party’s right to request the arbitration commission to rule on the issue of jurisdiction and the right to request the competent court to make the ruling to be mutually exclusive – once a party requests the arbitration commission or arbitral tribunal to rule on the arbitral jurisdiction, the same party is not entitled to make the same request to the competent court, and vice versa. ^[26]
• The courts’ jurisdiction to examine the validity of arbitration agreements under article 20 of the Arbitration Law is interpreted in a restrictive manner. Existence or effectiveness, as opposed to validity, of arbitration agreements are deemed as a substantive or factual issue that should be examined by an arbitral tribunal and thus is beyond the courts’ jurisdiction under article 20 of the Arbitration Law. ^[27] Such view may be criticised as a mechanical interpretation of article 20 of the Arbitration Law, but from the pro-arbitration perspective, a restrictive interpretation of article 20 of the Arbitration Law is intended to prevent the court’s excessive interference with arbitral tribunal’s competence to decide its own jurisdiction. In any event, although parties are not entitled to request courts to rule on non-existence or ineffectiveness of arbitration agreement at the arbitration stage, they can still rely on the non-existence or ineffective argument to apply for setting aside or resist enforcement of arbitral award afterwards.

If one party commences court proceedings in breach of an arbitration agreement, the other party has the right to challenge the court’s jurisdiction by invoking the arbitration agreement.

If the defendant appears at the first court hearing without raising objection to the court’s jurisdiction, the arbitration agreement will be deemed to have been waived by the parties and the court will proceed.

Evidence and disclosure

Although parties are required to exchange evidence before hearing, Chinese law and arbitration rules of Chinese arbitration commissions provide for no mechanism equivalent to US style of discovery or common law type of disclosure and neither arbitral tribunals nor courts are authorised by law to compel production of documents from parties or third- or non-parties to an arbitration.

The mindset and customary practice of Chinese parties, arbitrators and courts are more inclined to follow the principle that he or she who makes the claim bears the burden of proof. What this means is that a party should produce evidence in support of its own case and claims, and adjudicators are not easily swayed by arguments that discovery or disclosure, which they may believe to be abusive, is vital or indispensable to the proper adjudication of the case.

Although it is possible to request the opposing party to produce specific documents on which the outcome of the dispute might depend and non-production of which might lead to adverse inference, normally a party’s request for broad or voluminous categories of documents in the possession or custody of the other party will not be granted.

Congruent with its position on disclosure or discovery, the arbitration regime of China is generally silent on the existence and treatment of issues of privilege, which is a common ground to object disclosure and discovery requests. One exception is article 19.1 of the CIETAC Guidelines on Evidence, which provides that:

the tribunal may, pursuant to rules on the privilege it considers appropriate, decide not to admit certain evidence, particularly confidential communications between a lawyer and his/her client and evidence related to settlement negotiations between the parties.

In theory, the parties to an international arbitration may agree on the rules of privilege to be applied or the arbitral tribunal may determine the law applicable to the issue of privilege according to relevant conflict of law rules, but as discovery and disclosure are generally not part of the arbitration procedure in China, the issue of privilege rarely arises.

The Arbitration Law ^[28] and most arbitration rules of Chinese arbitration commissions provide for very general rules as regards burden of proof, evidence submission, collection and examination, leaving wide discretion to the arbitral tribunal over admissibility, relevance and weight of evidence. The parties may agree on more detailed evidence rules to be applied, for example the CIETAC Guidelines on Evidence or the International Bar Association Rules on the Taking of Evidence in International Commercial Arbitration, or agree to adopt these evidence rules as guidance. In absence of agreement between the parties, arbitral tribunals usually refer to the evidence rules applicable to civil procedure as guidance, but as arbitration procedure is featured by party autonomy, applicability of relatively rigid civil procedure rules is often limited.

Three general categories of evidence in Chinese arbitration are documentary evidence, fact witness evidence and expert evidence.

Documentary evidence

Documentary evidence is often considered to be of higher probative value because it is contemporaneous, not created for the purpose of supporting a party’s contention in an arbitration and thus usually represents one of the most accurate records of the events that took place. Accordingly, compared to witness evidence, documentary evidence is more widely used and heavily relied on in Chinese arbitration cases.

Fact witness evidence

Where witness statements are produced, the parties are entitled to conduct cross-examination. Neither arbitral tribunals nor courts are empowered by law to compel the attendance of witnesses in hearings, but if a witness refuses to appear before the tribunal to testify when requested by the arbitral tribunal to do so, the party who provides the witness statement or intends to introduce the witness for testimony may be deemed to have failed to satisfy its burden of proof.

Expert evidence

Expert evidence may be given by party-appointed experts or tribunal-appointed experts. In the past, some arbitrators viewed the testimony of party-appointed experts as inherently biased and have tended to treat party-appointed experts with unwarranted suspicion. Nowadays, however, party-appointed experts are quite common and even more common than tribunal-appointed experts. Usually each party will appoint its own expert and the tribunal will consider and weigh expert evidence from both sides, usually with conflicting or competing opinions.

Arbitral awards

Different awards and applicable laws

According to article 58 and other relevant provisions of the Arbitration Law, the Arbitration Law applies to arbitrations conducted by Chinese arbitration commissions, and parties may apply to the intermediate people’s court at the place where the arbitration commission is located to set aside arbitral awards made by the arbitration commission.

As regards recognition or non-recognition and enforcement or non-enforcement of arbitral awards, different procedures or standards of recognition and enforcement apply to different types of arbitral awards. Broadly speaking, there are currently four different recognition and enforcement regimes.

• The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which is applicable to arbitral awards made in the territory of a contracting state to the New York Convention other than China and arbitral awards not considered domestic awards in China.
• The Arrangement of the Supreme People’s Court concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region, ^[29] the Arrangement of the Supreme People’s Court concerning Mutual Recognition and Enforcement of Arbitral Awards Between the Mainland and Macau Special Administrative Region, ^[30] and the Provisions of the Supreme People’s Court on Recognition and Enforcement of Arbitral Awards of Taiwan Region, ^[31] which are applicable to arbitral awards made in Hong Kong, Macau and Taiwan respectively.
• Article 237 and other related rules of the Civil Procedure Law, which are applicable to awards rendered by Chinese arbitration commissions, generally regarded as purely domestic arbitral awards.
• Article 274 and other related rules of the Civil Procedure Law, which are applicable to arbitral awards rendered by Chinese arbitration commissions involving foreign, Hong Kong, Macau or Taiwan elements.

Several complex or unsettled issues arise from the above regimes.

First, according to article I of the New York Convention, arbitral awards made in the territory of a contracting state other than China, regardless of whether the awards are made by Chinese arbitration commissions or not, fall within the scope of the convention and should be governed by the provisions of the convention. On the other hand, a literal interpretation of article 237 and related rules of the Civil Procedure Law seem to suggest that, if an arbitral award is made by a Chinese arbitration commission, irrespective of whether or not the award is made in the territory of a contracting state to the New York Convention other than China, the award is subject to relevant rules of the Civil Procedure Law. The question then arises is whether the New York Convention or rules of the Civil Procedure Law should be applied to awards made by Chinese arbitration commissions in the territory of a contracting state to the New York Convention other than China.

As, in theory, treaty obligations prevail over domestic rules, one possible way to get around the question is to apply the New York Convention to such awards but also allow interested parties to avail themselves of any right under the Civil Procedure Law. This is envisaged by article VII of the New York Convention, under which the provisions of the convention shall ‘not deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent by the law . . . of the country where such award is relied on’.

Accordingly, although recognition and enforcement of such awards is generally governed by the New York Convention, any right of an interested party under the Civil Procedure Law (for example, the right to apply for setting aside the arbitral award) is also applicable. That being said, there has been no published court case in relation to an award made by a Chinese arbitration commission in the territory of a foreign country and it is still uncertain how Chinese courts will apply the New York Convention and the Civil Procedure Law on such occasions.

Second, the concept of ‘arbitral awards not considered domestic awards’ or otherwise known as non-domestic awards under article I of the New York Convention is one of the most complicated issues posed by the convention. Article I of the convention adopts the ‘territorial’ criterion as a general criterion to decide the scope of application of the convention. It also recognises that contracting states may want to consider factors other than the seat of the arbitration when determining whether an award falls within its scope and thus includes the ‘non-domestic’ criterion as well. Because the New York Convention does not offer a definition of non-domestic awards, it could be argued that contracting states have a discretionary power to decide what they ‘consider’ as non-domestic awards. However, some suggest that non-domestic awards only refer to awards made in the state where recognition and enforcement is sought under the procedural law of another state because this criterion finds support in the travaux préparatoires of the New York Convention. ^[32]

Pursuant to a textual and holistic interpretation of arbitration-related rules of the Civil Procedure Law and the Arbitration Law, in determining whether an arbitral award is domestic or not, Chinese law seems to adopt an ‘institution’ standard, ^[33] which is different from either ‘territorial’ test or ‘governing law’ test.

Under the institution standard, instead of looking into whether the arbitral award is made in a foreign territory or under foreign procedural law, Chinese courts will consider whether the arbitral award is made by a Chinese or foreign arbitral institution to decide whether the arbitral award is domestic or not. If an arbitral award is made by a foreign institution, it is not a domestic arbitral award even if it is made in the territory of China. Following this logic, the Intermediate People’s Court of Ningbo (Ningbo Court) held that the arbitral award made by a foreign institution in China was non-domestic arbitral award within the meaning of the New York Convention and thus New York Convention should be applied. ^[34]

Whether the interpretation by the Ningbo Court of non-domestic awards accords with the New York Convention, and whether application of the New York Convention is compatible with China’s reservation under the convention, is subject to conjecture. Some criticise the institution standard as an inappropriate standard to decide the nationality of arbitral awards and argue that the territorial test should be applied according to which arbitral awards made by Chinese arbitration commissions in the territory of China are actually domestic awards. ^[35] Some argue that China’s reservation in accordance with article I(3) of the New York Convention that ‘it will apply the convention to the recognition and enforcement of awards made only in the territory of another contracting state’ excludes the application of convention to non-domestic awards, ^[36] and thus even if an award is categorised as non-domestic award, the New York Convention is not applicable in any event. Notwithstanding these contrasting views, it is fair to say that the decision of the Ningbo Court is undoubtedly a pro-arbitration stance adopted by the Chinese courts insofar as the recognition and enforcement of international arbitral awards in China are concerned, although it remains to be seen how Chinese courts will treat such awards in the future.

A third issue arising from the different enforcement and recognition regimes regards the fact that, as a contracting state to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), China is obligated to enforce an arbitral award made under the ICSID Convention (ICSID award) as if it were an effective judgment of a Chinese court by virtue of article 54(1) of the ICSID Convention.

ICISD awards are not subject to review by domestic courts during the enforcement process and no refusal grounds such as those provided in article V of the New York Convention can be invoked to prevent enforcement, although the ICSID Convention does not prevent domestic courts from refusing enforcement on the ground of state immunity. ^[37]

On the face of it, ICSID awards should be enforced in contracting states without much hindrance. However, because China does not promulgate specific rules or set up special mechanism to implement the ICSID Convention, there can be practical difficulties in an attempt to enforce an ICSID award in China. For example, it may be difficult to identify the competent court with jurisdiction over the case, since no rule of the Civil Procedure Law envisages enforcement against the Chinese Central Government.

As to whether the New York Convention may be relied on as an alternative enforcement venue of ICISD awards or investor-state arbitral awards more generally, the SPC made it clear in its Notice on Implementing the New York Convention ^[38] that disputes between foreign investors and host governments are not considered to be disputes arising out of ‘commercial legal relationship’, and China has made a reservation under the New York Convention to only recognise and enforce arbitral awards over disputes arising out of commercial legal relationship. Therefore, an investor-state award cannot be recognised and enforced under the New York Convention.

In sum, for investor-state awards to be recognised and effectively enforced in China, further legislative measures or judicial clarifications will be needed.

Grounds to challenge awards

Arbitral awards may be set aside or refused recognition or enforcement only on limited grounds. For awards under the New York Convention, awards made in Hong Kong, Macau or Taiwan and for awards made by Chinese arbitration commissions involving foreign, Hong Kong, Macau or Taiwan elements, namely awards that are not purely domestic in one way or another, the grounds to challenge them are similar and mostly procedural, mainly including: ^[39]

• there is no valid arbitration agreement between the parties;
• the composition of the arbitral tribunal or the arbitration procedure was not in accordance with the agreement of the parties, or violates the requirements of the law governing the arbitration procedure;
• the subject matter of the dispute is not contemplated by the terms of the arbitration agreement or is not arbitrable; and
• the arbitral award is in conflict with public policy.

For arbitral awards made by Chinese arbitration commissions involving no foreign, Hong Kong, Macau or Taiwan elements, namely awards that are purely domestic, two more challenging grounds touching on the merits of the arbitration are added, ^[40] which are:

• the evidence on which the arbitral award is based is forged; and
• the other party has concealed evidence that is sufficient to affect the fair decision of the arbitral tribunal.

In recent years, Chinese courts are showing increasing willingness to support recognition and enforcement of arbitral awards. The vast majority of foreign arbitral awards have been successfully recognised or enforced. Among the limited number of cases where courts refuse recognition and enforcement, the overwhelming majority was based on procedural grounds (especially on the ground that the constitution of the arbitral tribunal or the arbitral procedures are in violation of the parties’ agreement or statutory requirements, or that the respondent does not receive proper notice of arbitration) and courts generally avoid engaging with issues of merits.

Among the rare instances where foreign arbitral awards were refused recognition and enforcement, the following two cases are worth particular attention:

First, in the recognition and enforcement case of the arbitral award between Noble Resources International Pte, Ltd and Shanghai SinceTech International Trade Co, Ltd, the SPC opined that the arbitral tribunal composed of a sole arbitrator in contradiction to the parties’ agreement on a three-member arbitral tribunal in the arbitration clause satisfied article V(1)(d) of the New York Convention and should be refused recognition and enforcement.

In this case, the arbitration clause provided for arbitration under the Arbitration Rules of the Singapore International Arbitration Centre (SIAC Rules) and expressly stated that the arbitral tribunal should be composed of three arbitrators. The dispute fell within the scope of the expedited procedure under the SIAC Rules and the president of the SIAC decided that the arbitral tribunal be composed of a sole arbitrator in accordance with article 5(2)(b) of the SIAC Rules regarding expedited procedure, which provides that ‘the case shall be referred to a sole arbitrator, unless the President determines otherwise’.

The SPC, stressing party autonomy in arbitration, held the view that, as the arbitration clause did not exclude applicability of a three-member tribunal in expedited procedure, adoption of expedited procedure should not affect the parties’ fundamental procedural right to have a three-member tribunal; that the president of the SIAC, when exercising their power under article 5(2)(b) of the SIAC Rules, should respect and defer to, but not decide against the parties’ agreement on the tribunal composition. The SIAC’s decision in contravention to the arbitration clause was therefore a serious procedural irregularity that justified non-recognition and enforcement.-11

The case is important in clarifying the relationship between the arbitration agreement and the applicable arbitration rules in the case of a conflict between them. According to the SPC, the parties’ consensus embodied in the arbitration agreement is the cornerstone of arbitration and prevails over the applicable arbitration rules or at least the arbitration rules should be interpreted and applied in a way compatible with the arbitration agreement.

A second instance of a foreign arbitral award being refused recognition regards public policy. Although public policy appears to be a vague concept and a catch-all ground to challenge arbitral awards, in practice, the SPC has interpreted and applied public policy in a very narrow way and reliance on public policy to refuse recognition and enforcement is extremely rare.

According to the SPC, violation of public policy is confined to violation of China’s fundamental public interest, including violation of basic principles of law, infringement of China’s state sovereign, prejudice to national and public security, and conflicts with public morality.-12

In the landmark case of Hemofarm DD, MAG International Trade Holding DD, Suram Media Ltd v Jinan Yongning Pharmaceutical Co Ltd, the SPC confirmed that the award at issue should not be recognised or enforced because the arbitral tribunal had interfered with the jurisdiction of Chinese court and China’s judicial sovereignty when it determined issues that had already been decided by Chinese court. ^[-1]3 The case is of practical importance in that it alerts arbitral tribunals to the potential risks when they deal with issues that have already been decided by a Chinese court and reminds arbitral tribunals to be prudent to take on matters that are considered by Chinese courts as within their jurisdiction.

Notes

^{[1] Annual Report on International Commercial Arbitration in China (2017) released by the CIETAC, available at: http://www.cietac.org.cn/index.php?m=Article&a=show&id=15643.}

^{[2] Arbitration Law of the People’s Republic of China (2017).}

^{[3] Civil Procedure Law of the People’s Republic of China (2017).}

^{[4] Provisions of the Supreme People s Court on Several Issues Relating to Judicial Review of Arbitration, Fa Shi [2017] No. 22, effective as from 1 January 2018.}

^{[5] Law of the People’s Republic of China on Choice of Law for Foreign-Related Civil Relationships (2011).}

^{[6] Article 14 of the Interpretation of the Supreme People’s Court on Several Issues Concerning Application of the Law of People’s Republic of China on Choice of Law for Foreign-Related Civil Relationships (I), Fa Shi [2012] No. 24, effective as from 7 January 2013.}

^{[7] The Provisions of the Supreme People’s Court on Report for Approval of Arbitration Cases under Judicial Review, Fa Shi [2017] No. 21, effective from 1 January 2018.}

^{[8] Provisions of the Supreme People’s Court on Several Issues concerning Enforcement of Arbitral Awards by People’s Courts, Fa Shi [2018] No. 5, effective as from 1 March 2018.}

^{[9] Interpretation of the Supreme People’s Court Concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China, Fa Shi [2006] No. 7, effective as from 8 September 2006.}

^{[10] Guangzhou Ocean Shipping Co, Ltd v Marships of Connecticut Company, Guangzhou Maritime Court, China, 17 October 1990, Selection of Cases of People’s Courts (Volume 1, 1992), the People’s Court Press, October 1992 edition, pp 163–167.}

^{[11] Opinions of the Supreme People’s Court on Providing Judicial Safeguard for the Construction of Pilot Free Trade Zones, Fa Fa [2016] No. 34, released on 30 December 2016.}

^{[12] Siemens International Trade (Shanghai) Co, Ltd v Shanghai Golden Landmark Co, Ltd, the First Intermediate People’s Court of Shanghai, 27 November 2015, (2013) Hu Yi Zhong Min Ren (Wai Zhong) No. 2.}

^{[13] Provisions of the Supreme People’s Court on Establishment of the International Commercial Tribunal, Fa Shi [2018] No. 11, effective as from 1 July 2018.}

^{[14] Ad Hoc Arbitration Rules of the Hengqin Pilot Free Trade Zone, adopted by the Second Meeting of the Fifth Session of the Zhuhai Arbitration Commission on 18 March 2017, effective as from 15 April 2015.}

^{[15] Shijiazhuang Arbitration Commission Rules 2017, effective as from 1 July 2017.}

^{[16] China International Economic and Trade Arbitration Commission Hong Kong Arbitration Centre Rules as Appointing Authority in Ad Hoc Arbitrations, effective as from 1 July 2017.}

^{[17] China Internet Arbitration Alliance Rules for Bridging Ad Hoc Arbitration and Institutional Arbitration, effective as from 19 September 2017.}

^{[18] China International Economic and Trade Arbitration Commission International Investment Arbitration Rules (For Trial Implementation), adopted by the China Council for the Promotion of International Trade (China Chamber of International Commerce) on 12 September 2017, and effective as from 1 October 2017.}

^{[19] Shenzhen Court of International Arbitration Rules, effective as from 1 December 2016.}

^{[20] See http://zwgk.gd.gov.cn/006940167/201902/t20190201_798077.html.}

^{[21] See http://gd.people.com.cn/n2/2019/0223/c123932-32674666.html}

^{[22] Administrative Litigation Law of the People’s Republic of China (2014).}

^{[23] Interpretation of the Supreme People’s Court on Application of the Administrative Litigation Law of the People’s Republic of China, Fa Shi [2015] No. 9, effective as from 1 May 2015.}

^{[24] Beijing Northern ITU Electric Engineering Power Engineering Co, Ltd v Urumqi Bureau of Transportation, the Supreme People’s Court, 25 July 2014, (2014) Min Er Zhong No. 40; Henan Xinling Highway Construction Investment Co, Ltd v Government of Huixian City, the Supreme People’s Court, 28 October 2015, (2015) Min Yi Zhong No. 244; China Energy Conservative Asset Management Co, Ltd v Jingmen Jinghuan Environmental Protection Technology Co, Ltd, the Supreme People’s Court, 27 February 2017, (2016) Zui Gao Fa Min Zai No. 234; Urumqi Bureau of Transportation v Urumqi Nanshan Circle Line Passenger Transportation Co, Ltd, the Supreme People’s Court, 30 June 2017, (2017) Zui Gao Fa Min Shen No. 416.}

^{[25] Nanjing Songxu Technology Co, Ltd v Samsung (China) Investment Co, Ltd, the High People’s Court of Jiangsu, 29 August 2016, (2015) Su Zhi Min Xia Zhong Zi No. 00072.}

^{[26] Da Tang International (Hong Kong) Limited v Sinosteel Group Shanxi Co Ltd, the Fourth Intermediate People’s Court of Beijing, 24 October 2017, (2017) Jing 04 Min Te No. 21.}

^{[27] Chongqing Palm Springs Real Estate Development Co, Ltd v Sichuan First Construction Engineering Company, the High People’s Court of Chongqing, 14 November 2018, (2018) Yu Min Zhong No 474; Shenyang Shuangxing Construction Group Co, Ltd v Fushun Lehuo Real Estate Development Co, Ltd, the High People’s Court of Liaoning, 5 April 2017, (2016) Liao Min Zhong No. 804; Guangzhou Zhike Electronic Commerce Co, Ltd v Qi Feng, Qu Lina, the Intermediate People’s Court of Guangzhou, 17 June 2015, (2015) Hui Zhong Fa Zhong Yi Zi No. 80.}

^{[28] Articles 43, 44, 45 and 46 of the Arbitration Law.}

^{[29] Arrangement of the Supreme People’s Court Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region, Fa Shi [2000] No. 3, effective as from 1 February 2000.}

^{[30] Arrangement of the Supreme People’s Court concerning Mutual Recognition and Enforcement of Arbitral Awards Between the Mainland and Macau Special Administrative Region, Fa Shi [2007] No. 17, effective as from 1 January 2008.}

^{[31] Provisions of the Supreme People’s Court on Recognition and Enforcement of Arbitral Awards of Taiwan Region, Fa Shi [2015] No. 13, effective as from 1 July 2015.}

^{[32] Albert Jan van den Berg, ‘When Is an Arbitral Award Nondomestic Under the New York Convention of 1958?’, 6 Pace Law Review 25 (1985).}

^{[33] Zhao Xiuwen, ‘Recognition and Enforcement of ICC Awards in China Based on Analysis of Relevant Cases’, 3 Journal of Law 66 (2010); Yang Honglei, Study of the New York Convention from the Perspective of Judicial Practice in Mainland China, Doctoral Dissertation of China University of Political Science and Law (2006), p 28.}

^{[34] DUFERCO SA v Ningbo Arts and Crafts Int l Trade Co, Ltd, the Intermediate People’s Court of Ningbo, 22 April 2009, [2008] Yong Zhong Jian Zi No. 4.}

^{[35] Gao Xiaoli, Nationality of Arbitral Awards Should be Determined by the Seat of Arbitration but not by the Arbitration Institution, 20 People’s Judicature 68 (2017).}

^{[36] Zhang Yibing, A Study of China’s Reciprocal Reservation to the 1958 New York Convention, Master Dissertation of China University of Political Science and Law (2008), pp 17–18.}

^{[37] Article 5 of the ICISD Convention.}

^{[38] Notice of the Supreme People’s Court on Implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Acceded to by China, Fa [Jing] Fa [1987] No. 5, effective as from 10 April 1987.}

^{[39] Article V of the New York Convention; article 7 of the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region; article 7 of the Arrangement Concerning Mutual Recognition and Enforcement of Arbitral Awards Between the Mainland and Macau Special Administrative Region; article 15 of the Provisions of the Supreme People’s Court on Recognition and Enforcement of Arbitral Awards of Taiwan Region; article 274 of the Civil Procedure Law.}

^{[40] Article 237 of the Civil Procedure Law and article 58 of the Arbitration Law.}

^{[41] Reply of the Supreme People’s Court Regarding the Case of Recognition and Enforcement of the Arbitral Award between Noble Resources International Pte, Ltd and Shanghai SinceTech International Trade Co, Ltd, (2017) Zui Gao Min Fa No. 50.}

^{[42] Reply of the Supreme People’s Court to the Request for Instructions on Non-Recognition of No. 07-11 (Tokyo) Arbitral Award of the Japan Commercial Arbitration Association, (2010) Min Si Ta Zi No.32; Reply of the Supreme People’s Court to the Request for Instructions on Application by Castel Electronics Pty Ltd for Recognition and Enforcement of the Foreign Arbitration Award, (2013) Min Si Ta Zi No. 46.}

^{[43] Reply of the Supreme People’s Court to the Request for Instructions on the Non-Recognition and Non-Enforcement of an Arbitration Award of the ICC International Court of Arbitration, (2018) Min Si Ta Zi No. 11.}