Seat of arbitration debate and the New York Convention

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With increasing internationalization and a rising number of cross-border disputes, at present, in practice, some parties have been opting to apply to such international arbitration institutions as the Hong Kong International Arbitration Centre (HKIAC), International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC) etc., for arbitration, while also selecting mainland China as the seat of arbitration. However, there is an ongoing debate in industry circles as to how to determine the seat of arbitration and the “nationality” of an award.

seat-of-arbitration-debate-and-the-new-york-convention-1Article 1 of the New York Convention sets out the “territory criterion” and “non-domestic criterion”. The New York Convention applies to: (1) arbitral awards made outside the territory of a state; and (2) arbitral awards not considered as domestic awards in the state where their recognition and enforcement are sought.

In domestic practice, generally, only arbitral awards rendered by domestic arbitration institutions are deemed domestic awards, and an attitude of denial is held in respect of the issue of the validity of an award rendered in China by a foreign arbitration institution. Additionally, article 283 of the Civil Procedure Law (CPL) specifies: “Where an award made by a foreign arbitration institution requires recognition and enforcement by a People’s Court of the People’s Republic of China, the party concerned shall directly apply for recognition and enforcement to the Intermediate People’s Court of the place where the domicile or property of the judgment debtor is located. The People’s Court shall handle the matter pursuant to the provisions of the international treaties concluded or acceded to by the People’s Republic of China, or in accordance with the principle of reciprocity.” From this we can conclude that Chinese law still judges the nature of an arbitration institution based on the place where it is located.

The recognition and enforcement of an award is subject to certain conditions, regardless of whether it is rendered in extraterritorial or domestic arbitration. Through a comparison of law provisions, and of international treaties and domestic laws, we have discovered that the conditions for the denial of enforcement of a foreign-related domestic arbitral award, set out in article 274 of the CPL and in the provisions of the New York Convention, are essentially identical, but that the conditions for the denial of enforcement of a non-foreign-related domestic arbitral award, set out in article 237 of the CPL, are more onerous. The specific comparison is shown in the table on the left page.

Based on the table’s analysis we can see that if parties elect to apply to an international arbitration institution such as the HKIAC, ICC or SIAC for arbitration, and select mainland China as the seat of arbitration, the arbitral award will not be deemed to be a domestic arbitral award, but an application can be made to a mainland court for recognition and enforcement pursuant to article 283 of the CPL, and the mainland court will handle the matter in accordance with international treaties (mainly the New York Convention) concluded or acceded to by China or the principle of reciprocity.

seat-of-arbitration-debate-and-the-new-york-convention

The conditions for the recognition and enforcement of an extraterritorial arbitral award will also not be more onerous than those for a domestic arbitral award. Accordingly, the author would argue that, in principle, discussing the issue of treating the place where the arbitration institution is located, or the place where the arbitral award is rendered as the seat of arbitration, is not as significant in judicial practice in China as imagined.

However, although substantively the conditions for the recognition and enforcement of extraterritorial arbitral awards are not more onerous, procedurally an extraterritorial arbitral award may require an additional preceding procedure, and until a conclusion has been reached in such a procedure, the concerned party will be in the impossible position of applying to a court for property preservation measures. This point would appear inconvenient as compared to domestic arbitration.

Pursuant to article III of the New York Convention acceded to by China: “Each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There must not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.”

From the above-mentioned article it can be seen that the spirit of the New York Convention is “national treatment” of foreign arbitration. The author is hopeful that treatment of extraterritorial arbitration equal to that of domestic arbitration in terms of procedure will be realized in future, not only including recognition and enforcement, but also in terms of property preservation, evidence preservation, etc.

In short, against a background where domestic and international arbitration are gradually dovetailing and converging, if China sets aside exploration of the theory of seat of arbitration and provides convenience in terms of preservation and enforcement for foreign arbitration in the spirit of the New York Convention, international arbitration institutions can look forward to treatment equal to that afforded to domestic arbitration institutions. This may be a more realistic solution.

Yang Peiming is a partner in the Shanghai office of Llinks Law Offices