Domestic appeal for effective arbitration

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Based on many years of experience acting as counsel for foreign parties in foreign-related arbitration, the author has noticed that many foreign parties have often been unable to enforce arbitration awards rendered in their favour, with the result being that favourable awards won through great effort become a mere piece of paper, because they are unenforceable. The reasons for the difficulties in enforcing awards may be summarised as follows:

  1. the judgment debtor diverts or conceals property that could have been available for enforcement, making it seem that the judgment debtor has no property available for enforcement of the award; or
  2. various human-related factors result in obstruction of the foreign-related arbitration award at the court enforcement stage.

arbitpppicDifficulty in enforcing arbitration awards is a topic with a long history. Depending on the different circumstances of different judgment debtors, the difficulties faced in enforcement also differ. Accordingly, choosing the arbitration institution that can best protect the rights holder has become a question that is well worth studying. For this purpose, this column will look at the criteria for the selection of an arbitration institution in foreign-related arbitration provisions from the perspective of the enforcement of arbitration awards.

Enforcement of awards

As is well known, domestic and foreign parties, when discussing arbitration provisions, will typically hope to have arbitration conducted by an arbitration institution in their home country. When the bargaining power of each party is insufficient to convince the other party to accept resolution in its jurisdiction of any disputes that could arise, what one will see is a provision that requires the applicant to have arbitration conducted in the place where the respondent is located. As such provisions will pose certain problems in terms of validity, at such a point, selecting a third country arbitration institution for arbitration is the better solution. With respect to the selection of a third country arbitration institution, the Hong Kong International Arbitration Centre (HKIAC) has become the third country arbitration institution most favoured by domestic and foreign parties, due to its favourable geographical location, Hong Kong’s independence from mainland China and its legal system based on UK common law. Although the Hong Kong Special Administrative Region is a part of China, pursuant to the Arrangement of the Supreme People’s Court for the Mutual Enforcement of Arbitration Awards Between the Mainland and the Hong Kong Special Administrative Region, arbitration awards rendered by the HKIAC are treated in much the same way as awards rendered by foreign arbitration institutions.

However, the choice of a foreign arbitration institution will not always be the first choice of foreign parties. In practice, the party that has lost in arbitration will seldom voluntarily comply with the arbitration award, the majority requiring the winning party to apply to a competent court for enforcement. At such a point, enforcement of the arbitration award becomes an unavoidable key stage.

 Wang Yadong
Wang Yadong

If the credit standing of the judgment debtor is weak, it is likely that it will divert or conceal property during the arbitration procedure, or after it receives the unfavourable arbitration result. If preservation of property is accorded at the outset of arbitration, the foregoing can be avoided to a large extent. However, article 256 of the current Civil Procedure Law specifies that a domestic court will only accept an applicant’s preservation application that has been forwarded by a domestic foreign-related arbitration institution, and it is not to accept a property preservation application directly from the applicant, let alone one submitted by a foreign arbitration institution. This means that, if a foreign arbitration institution is selected, the foreign party cannot petition a domestic court to preserve the property of a domestic party, thus giving the domestic party the opportunity to divert or conceal property. Once a domestic party has diverted its assets in China, and if it does not have any assets abroad, the favourable award obtained by the foreign party becomes a mere piece of paper.

However, if the arbitration institution selected for foreign-related arbitration is a domestic arbitration institution, the foreign party may, when instituting the arbitration, pursuant to article 256 of the Civil Procedure Law, promptly apply for property preservation to the intermediate people’s court of the place where the domestic party is domiciled, or of the place where its property is located by way of the domestic arbitration institution. In this way, it can avoid the diversion or concealment of property by the domestic party to a great extent and lay down a good foundation for enforcement of the award in future.

Selecting a domestic institution

As mentioned above, the selection by the foreign party of a reputable domestic foreign-related arbitration institution to conduct arbitration may in the end prove to be the better choice. Of course, when selecting a domestic arbitration institution, it is necessary to note whether it has international arbitration experience, professional support personnel and arbitrators familiar with China and foreign laws.

Additionally, given that domestic parties have tendril-like connections with the courts or other authorities of the places where they are domiciled, it is imperative to select a reputable arbitration institution located somewhere other than in the place where the domestic party is domiciled, so as to avoid any influence it could bring to bear on the arbitration institution and the relevant court during or after the arbitration. For example, if the domestic party is domiciled in a place other than Beijing, the China International Economic and Trade Arbitration Commission and Beijing Arbitration Commission are both relatively good options. If the domestic party is domiciled in Beijing, then the Shanghai Arbitration Commission and Guangzhou Arbitration Commission are not bad options.

In summary, the selection of an arbitration institution in a foreign-related arbitration provision requires the comprehensive consideration of various factors, and selection of a foreign arbitration institution will not necessarily be of benefit to a foreign party. It should also not be thought that the selection of a PRC domestic arbitration institution will necessarily be adverse to the interests of a foreign party.

Wang Yadong is executive partner at Run Ming Law Office. He can be contacted at +86 10 6569 3496 or by email at [email protected]m