When are foreign arbitral awards contrary to public policy?

By Blake Yang and Franz Li, Martin Hu & Partners
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Article 5.2(b) of the UN’s Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) specifies that if the recognition or enforcement of an award would be contrary to the public policy of that country, recognition and enforcement of that arbitral award can be refused. However, the New York Convention does not provide a precise explanation of the term “public policy”, and Chinese laws and regulations are also silent on the issue. Determining whether a foreign arbitral award is contrary to public policy has long been an issue of concern to foreign rights holders.

杨奕 Blake Yang 胡光律师事务所 律师 Associate Martin Hu & Partners
杨奕
Blake Yang
胡光律师事务所
律师
Associate
Martin Hu & Partners

The authors have carried out a rough summary of relevant cases in recent years (as shown in the table).

Based on the listed cases, we can see that a foreign arbitral award violating mandatory provisions of Chinese laws, administrative statutes or ministerial rules or regulations does not necessarily constitute a violation of the public policy of China (cases 1 and 2). This perspective has also been implemented in the trial activities of lower level courts, e.g. in the Fujian Across Express Information Technology et al v China Media Express Holdings agreement dispute case (2014).

A foreign arbitral award that is clearly unfair or contains an inappropriate comment on Chinese laws also does not necessarily constitute a violation of public policy (cases 4 and 5). Public policy grounds may be cited to refuse recognition and enforcement of a foreign arbitral award (case 5) only when recognition and enforcement would be contrary to the basic principles of Chinese laws, infringe China’s national sovereignty (e.g. judicial sovereignty, case 3), jeopardize national and public security, run counter to good customs and practices, or jeopardize fundamental public interests of China.

李晢昊 Franz Li 胡光律师事务所 律师 Associate Martin Hu & Partners
李晢昊
Franz Li
胡光律师事务所
律师
Associate
Martin Hu & Partners

However, the attitude of the Supreme People’s Court (SPC) with respect to whether foreign arbitral awards that conflict with effective judgments and rulings of Chinese courts are contrary to public policy is unclear. From the Castel case (case 6) it can be seen that if an arbitral award is rendered earlier than the time at which a Chinese court ruling comes into effect, it is not deemed to infringe Chinese judicial sovereignty, even if the arbitral award conflicts with that ruling. From the Jinan Yongning Pharmaceutical case (case 3) it can be seen that an arbitral award rendered in respect of the same dispute after a judgment by a Chinese court was deemed to infringe Chinese judicial sovereignty. It would appear that the timing of the arbitral awards are a major reason for the different stands taken in the above-mentioned cases.

As the convention and laws fail to clearly define the meaning of “public policy”, the attitude of the SPC toward this issue has been cautious. Additionally, pursuant to SPC regulations, cases involving a refusal to recognize and enforce a foreign arbitral award need to be reported step by step up the hierarchy to the SPC for review. So Chinese courts will not brashly refuse to recognize and enforce foreign arbitral awards on the grounds of them being “contrary to public policy”.

When are foreign arbitral awards contrary to public policy ENg

However, if a foreign arbitral award conflicts with an effective judgment or ruling of a Chinese court, its recognition and enforcement will depend on the actual circumstances. Parties involved in foreign arbitration procedures need to remain highly sensitive to effective domestic judgments and rulings that relate to the dispute, and at all times keep abreast of whether the opposing party has instituted a new judicial procedure in China.

MHP

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杨奕 Blake Yang

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李晢昊 Franz Li

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