Guiding case a special example on time limits for foreign arbitral award enforcement

By Efar Zhou, Martin Hu & Partners
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On 18 December 2014, the Supreme People’s Court (SPC) released guiding case no. 37, “A case on the reconsideration on the enforcement of an arbitral award: Shanghai Jwell Machinery Co v Retech Aktiengesellschaft.

While the Shanghai Municipal Higher People’s Court did not strictly tabulate the time limit for enforcing the foreign arbitral award in China per stipulations on the time limit for award enforcement in the Civil Procedure Law in the case, the SPC affirmed and encouraged the Shanghai court’s stance.

Case background

The China International Economic and Trade Arbitration Commission (CIETAC) reached an arbitral award in a contract dispute between Shanghai Jwell Machinery Co and Retech Aktiengesellschaft on 18 September 2006.

After the foreign arbitral award went into effect, Jwell applied to the Swiss local court for recognition and enforcement of the award. However, the Swiss court rejected Jwell’s application on account that the documents submitted did not satisfy the relevant statutory requirements.

Efar Zhou Associate Martin Hu & Partners
Efar Zhou
Associate
Martin Hu & Partners

On 30 July 2008, Jwell discovered that Retech had enforceable property in Pudong New Area, Shanghai, and therefore applied to the Shanghai Municipal No. 1 Intermediate People’s Court for recognition and enforcement of the arbitral award. The court enforced the award, seizing Retech’s property the same day the filing was made.

Retech raised an objection against Jwell’s application to enforce on the grounds that the two-year time limit for enforcement had already passed. Retech requested that the intermediate court not accept the case, lift the seizure and halt enforcement of the arbitral award.

After hearing the case, the intermediate court overruled Retech’s opposition to the enforcement. Retech appealed the decision to the Shanghai Municipal Higher People’s Court, but the court overruled the objection.

Unique insight

The Shanghai court voiced a unique insight during the hearing. Retech’s rationale for raising an objection against the execution of the award was that it had already exceeded the two-year time limit for enforcement as stipulated in the Civil Procedure Law. The Shanghai court found that in arbitral cases involving foreign parties, Chinese courts have no jurisdiction where the party subject to enforcement and their property is not within Chinese jurisdiction. The court also found that the time limit for execution should be calculated from the day that the applicant discovers the property of the party subject to enforcement within Chinese borders.

The Civil Procedure Law stipulates that “the two-year time limit shall commence from the last day of the time limit for satisfaction of the judgment specified in the legal documentation”.

The Shanghai court may seem to have contradicted this provision. However, a close reading of Chinese procedural law would show that it is not difficult to see that the crux of the Shanghai court’s ruling is not how the starting date is determined, but how to ascertain when Chinese courts have jurisdiction during the execution of arbitral awards involving foreign parties or the recognition and enforcement of the foreign arbitral award.

Jurisdiction

As set out in the Civil Procedure Law, the claimant needs to apply to the local intermediate people’s court where the respondent or their property is located when seeking enforcement of arbitral awards involving foreign parties, as well as when seeking the recognition and enforcement of foreign arbitral awards. However, if the respondent and their property are not within Chinese borders, the claimant objectively will be unable to apply to any Chinese court for enforcement of an arbitral award.

China is signatory to the New York Convention and is duty-bound to endow the applicant’s right to apply to the people’s court for the execution of an arbitral award involving a foreign party or to apply for recognition and enforcement of a foreign arbitral award.

According to the New York Convention, so long as the arbitral award application fulfils the requirements of the convention, one may apply to any signatory state for recognition or enforcement of the arbitral award.

In considering the court with enforcement jurisdiction for an arbitral award involving foreign parties under the Civil Procedure Law and the spirit of the New York Convention, it is not difficult to comprehend that the Shanghai court’s interpretation of the jurisdiction of a Chinese court along with its interpretation of the tabulation of the starting date of enforcement of an arbitral award time limit are in strict compliance with the provisions and principles of the New York Convention regarding enforcement of arbitral awards.

A need for prudence

In the SPC’s Notice on Issues in the People’s Courts’ Handling of Foreign-related Arbitrations and Foreign Arbitrations issued on 28 August 1995, the SPC set out that the people’s courts would use the principle of prudence and advanced reporting in handling these types of arbitrations.

Per the notice, a people’s court must report to the high people’s court in its jurisdiction for a review before ruling to not grant the execution of a foreign-related arbitral decision or refuse to recognize and execute a foreign arbitral decision. If the higher people’s court approves of the intended ruling, it will report its opinion to the SPC. The people’s court can only issue its ruling after the SPC has responded with approval.

Shanghai Jwell Machinery Co v Retech Aktiengesellschaft became a successful example supporting the execution of foreign-related arbitral decisions in Chinese courts with respect to the court’s jurisdiction and time limit for executing an arbitral award.

The SPC made it a guiding case, again confirming the supreme judiciary’s continued commitment to the principle of prudence. At the same time, it is an indication of its strict compliance with the spirit and principles of the New York Convention.

Efar Zhou is an associate of Martin Hu & Partners

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Martin Hu

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Efar Zhou

E-mail: efar.zhou@mhplawyer.com