Key elements for enforcing HK arbitral awards in mainland China

By Efar Zhou, MHP Law Firm
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In contrast to foreign arbitration awards, an application may be made directly to a competent mainland court for the enforcement of an arbitration award rendered in Hong Kong, without first going through the “application for recognition” procedure. The legal basis for this is the Arrangement for the Mutual Enforcement of Arbitration Awards Between Mainland China and the HKSAR, which has made the mutual enforcement of arbitration awards by both places more convenient and rapid under “one country, two systems”. This column proposes to describe some of the points that require attention when making the application.

周成成 EFAR ZHOU 君悦律师事务所 MHP Law Firm
周成成
EFAR ZHOU
君悦律师事务所律师
Associate
MHP Law Firm

Can an application be made in mainland China for the enforcement of an ad hoc arbitration award? The mainland’s Arbitration Law specifies that an arbitration award can only be rendered by an arbitration institution. This question has drawn considerable attention.

China acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1958. Pursuant to paragraph 2 of Article 1 of the Convention, “The term ‘arbitral awards’ shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted.” This provision affirms that both ad hoc arbitration awards and awards rendered by arbitration institutions are arbitration awards.

Furthermore, the Notice of the Supreme People’s Court (SPC) on Issues Relevant to the Enforcement of Hong Kong Arbitration Awards in Mainland China issued on 30 December 2009 confirms that if none of the circumstances set forth in Article 7 of the Arrangement applies to an ad hoc arbitration award rendered in Hong Kong, such award may be enforced on the mainland. Accordingly, it confirms that an ad hoc arbitration award rendered in Hong Kong is enforceable on the mainland.

Statutory circumstances under which enforcement of a Hong Kong arbitration award can be refused. Article 7 of the Arrangement sets forth the specific circumstances under which enforcement of an arbitration award can be refused, which can be summarized as follows: (1) there is no arbitration agreement between the parties; (2) the composition of the tribunal or the arbitration procedure violates the law or runs counter to the agreement between the parties; (3) the law specifies that the matter under dispute is not arbitrable (e.g., the mainland’s Arbitration Law specifies that family and succession disputes and administrative disputes may not be resolved through arbitration); (4) the arbitration award is not yet binding on the respondent, or the award has been vacated or enforcement thereof has been halted by the court in the seat of arbitration; or (5) the arbitration award runs counter to public order.

The foregoing grounds for refusal essentially reproduce Article 5 of the Convention. If any of the circumstances under which enforcement may be refused specified in Article 7 of the Arrangement apply to a Hong Kong arbitration award, an application for the enforcement thereof may not be accepted in mainland China. Pursuant to the Notice of the SPC on Issues Relevant to the Handling of Foreign-Related Arbitration and Foreign Arbitration Matters by People’s Courts, before a mainland enforcement court rules to deny enforcement of a Hong Kong arbitration award, it is required to report its opinion to the Higher People’s Court. If the Higher People’s Court agrees with the refusal to enforce, it is required to submit its review opinion to the SPC. A ruling to deny enforcement may only be rendered after the response from the SPC.

Competent enforcement courts in mainland China. If the domicile of the respondent or the place where his property is located is in mainland China, the applicant may apply to the Intermediate People’s Court of the place where the respondent’s domicile or property is located for enforcement. If two or more courts have jurisdiction, an application for enforcement may be filed with only one of the courts.

The mainland’s Civil Procedure Law specifies that the period for enforcement is two years, counting from the expiration of the performance term specified in the effective legal document. However, the point at which the enforcement period for a foreign-related arbitration award commences is not so straightforward. Pursuant to guiding case no. 37 published by the SPC, if neither the respondent nor his property is in China, a mainland court does not have jurisdiction for enforcement. The period for enforcement commences to count from the date on which the applicant discovers property of the respondent in China.

No simultaneous application for enforcement. Pursuant to the Arrangement, if both a mainland court and a Hong Kong court have jurisdiction over the enforcement of an arbitration award rendered either on the mainland or in Hong Kong, the applicant may not simultaneously apply for enforcement in Hong Kong and on the mainland. Only in the event that the enforcement by one of the courts is insufficient for repayment of the debt can application be made to the court of the other place for enforcement for the outstanding portion. The amount after the successive enforcement in both places may not exceed the total amount of the award.

The initiation and completion of the enforcement procedure takes a relatively long period of time regardless of whether the same is done in Hong Kong or on the mainland. For example, on the mainland, although the Civil Procedure Law specifies that enforcement should be completed within six months, the exceeding of such period is not uncommon, even on occasion taking several years. In such a situation, it is possible for the respondent to take advantage of the time gap that arises from only being able to effect enforcement in both places one after the other to move property against which enforcement has yet to be taken, thereby evading enforcement. Accordingly, an applicant has to consider carefully and then decide in which place to first apply for enforcement and thereby endeavour to secure partial or full repayment.

Furthermore, it is important to note that the period for enforcement (similar to limitation of actions) differs in Hong Kong and on the mainland, being two years on the mainland, but six years in Hong Kong. If a court in Hong Kong and a court on the mainland both have jurisdiction over the enforcement of an arbitration award and if the time for enforcement by the court in the place where enforcement is first applied for is overly long, we would recommend that the applicant promptly seeks advice from a professional lawyer to ensure that the prescription period corresponding to the period for enforcement in the place where an application for enforcement has yet to be made has not expired.

Efar Zhou is an associate at MHP Law Firm

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