A light at the end of the tunnel when arbitral award enforcement is denied

By Chloe Lin, Martin Hu & Partners
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An arbitral award is but a worthless scrap of paper if a party cannot realize their rights and interests and demand performance on the strength of the award. To ensure judicial impartiality and avoid harm to the rights and interests of parties, a party may apply to the competent court for enforcement when the other party refuses to do so. The people’s court is required to enforce the award and initiate the enforcement process.

林陈瑶 Chloe Lin 胡光律师事务所 律师 Attorney Martin Hu & Partners
林陈瑶
Chloe Lin
胡光律师事务所
律师
Attorney
Martin Hu & Partners

Dire straits

When a court denies the enforcement of an arbitral award, it rules to halt the enforcement of an arbitral award upon application by a party or ex officio, provided that it satisfies the statutory requirements. This is essentially a form of judicial supervision of arbitration to ensure impartiality.

However, this supervision is unidirectional. The courts supervise arbitration, but the parties cannot supervise the court’s ruling on enforcement. As such, how can the party to arbitration seek a remedy when enforcement is denied due to a court exhibiting such behaviour as practicing favouritism, committing irregularities or perverting the law in rendering its judgment or ruling?

Pursuant to article 154 of the Civil Procedure Law, a party may not launch an appeal against an arbitral award that is set aside or denied enforcement.

Pursuant to two documents from the Supreme People’s Court, the Reply on Issues Concerning Whether to Hear a Case When a Party Requests a Retrial When a People’s Court Rules to Set Aside an Arbitral Award and the Reply on Issues Concerning How the People’s Court Should Handle Appeals Made by the People’s Procurator against the Setting Aside of Arbitral Awards by Civil Courts, a party does not have the right to request a retrial when a court sets aside an arbitral award, and a court will not accept an appeal of award rulings lodged by a procuratorate. It can be understood from these replies that courts will not accept an application for retrial, nor will they accept an appeal lodged by a procuratorate.

Further, pursuant to article 9 of the Arbitration Law, if a court renders a ruling in accordance with the law to set aside or deny award enforcement, the parties are required to reach a new arbitral agreement and apply anew for arbitration on that basis. Otherwise, the parties must forego arbitration and bring the dispute to trial by instituting a legal action in court.

In other words, the energy and effort expended by a party in winning a favourable arbitral award will be for naught. Instead, it will need to start the long hard slog to protect its rights all over again.

A lifeline

The most recent revision to the Civil Procedure Law was performed in 2012. At the time, a provision allowing that enforcement of an arbitral award be objected or reconsidered was added. This gave no course of remedy to parties who had been denied enforcement of an arbitral award, leaving them with little hope for realizing their rights.

However, given the ambiguity of the provision, there has been a great deal of debate among academics and practitioners as to whether a party can file an objection to a ruling denying enforcement of its arbitral award, or otherwise apply for reconsideration of that ruling. Many courts still lean toward requiring that parties reapply for arbitration per a new arbitral agreement, or advise them to take action in court.

There is hope that the Supreme People’s Court’s Interpretation of the Application of the Civil Procedure Law, issued earlier this year, will resolve this debate to some extent. Article 478 of the interpretation specifies that the court will not accept a written objection or request for reconsideration by a party after a people’s court has rendered a ruling denying the enforcement of an arbitral award on two grounds. These are if the matters addressed in the arbitral award fall outside the scope of the arbitral agreement or that the arbitral institution did not have the authority to arbitrate, or if the composition of the tribunal or the arbitral procedure violated statutory procedure. The parties then would have the option of reaching a new arbitral agreement and reapplying for arbitration, or otherwise filing a legal action in court.

One can deduce that parties have the right to file an objection when arbitral award enforcement is denied, save in cases where enforcement is denied on the two previously stipulated grounds. When an objection is submitted, the court is required to review it within 15 days of receipt.

The court can rule to set aside or amend the ruling if the grounds are tenable, or otherwise rule to dismiss the review. If the ruling is dismissed or revised, a party may apply for reconsideration to the people’s court at the next higher level within 10 days from the date of the ruling’s transmission.

Cases with foreign-related elements

This remediation channel via objection or reconsideration is quite significant for parties to foreign-related arbitral awards or foreign arbitral awards. Pursuant to the Supreme People’s Court’s Notice on Issues Related to the Handling by People’s Courts of Foreign-related Arbitration and Foreign Arbitration Matters issued in 1995, a court must refer for review a ruling which denies enforcement of a foreign-related arbitral award or a foreign arbitral award to the court at the next highest level in its jurisdiction before it can render its ruling.

A higher court similarly is required to submit its review opinion to the Supreme People’s Court if it agrees to deny enforcement or refuses to recognize and enforce the award. The court can render its ruling to deny enforcement or refuse recognition and enforcement only upon receiving the Supreme People’s Court’s response.

Notwithstanding the above provision, in practice, if the intermediate court denies an enforcement ruling without reporting to the higher court, the arbitral party has no legal measures at its disposal to demand that the higher court rectify the matter. This is because a case referral from a lower court to a higher court is an internal procedure. In this circumstance, a party can procure the referral to the higher court by the intermediate court via an enforcement objection, causing the higher court to review the intermediate court’s ruling, thereby indirectly achieving a remedy.

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胡光 Martin Hu

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林陈瑶 Chloe Lin

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