One aspect of Chinese arbitration law that is of enduring interest to the international arbitration community is the question of whether Chinese law permits non-Chinese arbitration institutions, such as the ICC, to administer arbitrations in China. In practice, a number of arbitrations have taken place and are currently taking place in China under the rules of the ICC and other non-Chinese institutions. Often the question of whether this is in compliance with Chinese law does not arise, for example where no damages are awarded or where the award is enforced against assets outside of China. But will the Chinese courts enforce awards resulting from Chinese arbitrations administered by foreign institutions? A recent Chinese decision has caused some speculation that this may in fact be possible, despite the traditionally-prevailing view to the contrary, but unfortunately the position remains somewhat opaque.

The starting point is Article 16 of the PRC Arbitration Law, which provides that one of the requirements for a valid arbitration clause is a designated arbitration commission. It is accepted that this provision prohibits ad hoc arbitration in China. But the Arbitration Law does not expressly state whether the designated commission must be Chinese. One pointer towards such a restrictive interpretation is the fact that another part of the Arbitration Law deals with the requirements for establishing an arbitration commission, which must be set up by the relevant department of the People’s Government at municipal level and registered at the applicable administrative department for justice. As a result, it is often accepted that the arbitration commission required under Article 16 must be Chinese.

It should be noted that Article 16 only applies to arbitrations taking place in China, and so Chinese courts will of course enforce ad hoc awards and awards rendered under the auspices of non-Chinese institutions where the place of arbitration is elsewhere.

However, in a court order dated 22 April 2009, the Ningbo Intermediate People’s Court of Zhejiang Province ordered recognition and enforcement of an ICC award issued following an arbitration sited in Beijing. The award was in favour of Duferco S.A., a Swiss company, and against a Chinese company domiciled in Ningbo.

Unfortunately, the Court’s reasoning did not involve an analysis of Article 16. The question of the validity of the arbitration agreement was raised in the enforcement proceedings, but this argument was dismissed on the procedural ground that no objection to the arbitration agreement had been raised prior to the first hearing before the arbitral tribunal (as is required by Chinese law).

The Court found that the award was a “non-domestic award” under Article I.1 of the New York Convention, and that the New York Convention was therefore applicable to the recognition and enforcement of the award, notwithstanding that it was rendered in China. Since the Court found no grounds for refusal under the Convention, it held that the award should be recognized and enforced.

The Supreme Court of China considered similar issues in its review of the earlier decision of the Wuxi Intermediate Court of Jiangsu Province dated 19 July 2006 (Züblin International GmbH vs. Wuxi Woke General Engineering Rubber Co., Ltd). The Züblin case concerned the enforcement of an ICC award under an arbitration clause which provided for arbitration under “ICC Rules, Shanghai,. The Supreme Court in Züblin similarly held that the ICC Shanghai award was a “non-domestic” award under the New York Convention, but in that case it went on to hold that recognition and enforcement should be refused on the basis that the ICC Shanghai clause was an invalid arbitration agreement under the law of the seat, i.e. the Arbitration Law of China, which requires a designated arbitration institution as a mandatory element of an arbitration agreement.

The characterisation of the Züblin and Duferco awards as “non-domestic” has been the source of some debate in China and elsewhere. The Court’s reasoning was that the award was “non-domestic” because it was made under the auspices of the ICC, a foreign arbitral institution. A problem with this finding is that “non-domestic” arbitrations are not regulated by the Arbitration Law, and so the Chinese courts would not have authority to decide on important matters such as the validity of the arbitration clause or applications for setting aside, despite China being the seat, while other national courts would consider such arbitrations to be Chinese for enforcement purposes under the New York Convention, and no other court will have the right to consider applications to set aside the award.

It should be noted that the recent Duferco case is a lower court decision and the Supreme Court was not consulted on the matter since the Supreme Court’s approval is only required for non-enforcement of foreign awards, and not where awards are to be enforced. In Duferco the non-validity point was essentially dismissed on procedural grounds, and so the previous decision in Züblin to the effect that a clause providing for ICC Shanghai was invalid is probably the more reliable statement of Chinese law. In practice, however, the situation will remain somewhat uncertain unless or until the legislature amends the Arbitration Law of China or the Supreme Court clarifies the position. In the meantime, the sensible approach remains for parties to provide either for arbitration in China under the auspices of a Chinese institution or arbitration outside China administered by a foreign institution.


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4 comments

  1. Ⅰ. The case you mentioned is the first case about “non-domestic award”, but I do not think the non-domestic criterion has been set up in China.

    Section 1 of Article I of the New York Convention sets two criteria to identify a “foreign arbitral award”, arbitral award “made in the territory” of another State and arbitral award “not considered” as domestic award. However, only the first criterion has been used for many years as a result of the “Notice of the Supreme People’s Court on Implementing the Convention on Recognition and Enforcement of Foreign Arbitral Awards to Which China Has Acceded” on 10 April 1987. According to this Notice, the Convention is only applied to the recognition and enforcement of foreign arbitral awards rendered in the territory of other contracting states, and with regard to the awards rendered in the territory of non-contracting states, the relevant provision in civil procedure law[1] is applied (explanation about the reciprocity reservation that China has made). This Notice didn’t mention the second criterion because it’s too ambiguous and difficult for the local courts to apply.
    The case you mentioned is the first case that the People’s Court use the “non-domestic award” criterion, but this court is a local Intermediate People’s Court, and doesn’t have enough influence to establish a new criterion or rule to determine which award is a Convention award.
    Actually, sometimes the judges including judges of the Supreme People’s Court were considering using the second criterion, but they didn’t file a ruling based on it. Maybe in the future, the Chinese courts will use both of the criteria; it depends on the opinion of the Supreme People’s Court.

    Ⅱ. The rule of the applicable law to the arbitration agreement can be learned from related Interpretation.

    In different cases, the results may be different. The mystery is the applicable law to the arbitration agreement.
    Article 16 of the “Interpretation of the Supreme People’s Court on Certain Issues Relating to Application of the Arbitration Law of the People’s Republic of China” stipulates the rule of the applicable law to the arbitration agreement:
    In the examination of the validity of foreign-related arbitration agreements, the law agreed by the parties shall apply; where the parties have not agreed on the applicable law but agreed on the place of arbitration, the law of the place of arbitration shall apply; where neither the applicable law nor the place of arbitration is agreed, or the agreement on the place of arbitration is not clear, the law of the place where the court is located shall apply.
    If the parties want to use foreign institutional arbitration in China, the best way is to choose a foreign law to govern their arbitration agreement. Then the Article 16 of Arbitration Law[3] will not be applied.

    [1]The notice mentioned Article 204 of the Civil Procedure Law of the PRC (for Trial Implementation) (the “Trial Civil Procedure Law”), which was adopted by the Standing Committee of the National People’s Congress in March 1982, and substituted by the 1991 Civil Procedure Law. According to Article 204 of the Trial Civil Procedure Law, the provisions of international treaties and the principle of reciprocity were two bases to enforce foreign awards. These two bases were followed by the 1991 Civil Procedure Law.

    [2] “Interpretation of the Supreme People’s Court on Certain Issues Relating to Application of the Arbitration Law of the People’s Republic of China”, Fa Shi [2006] No. 7, passed by the 1375th session of the Judicial Committee of the Supreme People’s Court on 26 December 2005, promulgated on 23 August 2006.

    [3] Article 16 of Arbitration Law:
    An arbitration agreement includes an arbitration clause included in a contract, and an agreement on submission to arbitration in other written forms concluded before or after the dispute arising.
    An arbitration agreement shall contain the following particulars: (1) an express of the intention to arbitration; (2) matters for arbitration; and (3) a designated Arbitration Commission.

  2. China should adopt the concept of “the Seat of the Arbtration” in the relevant laws, but the amendment of the laws needs particular process. At present, this concept has almost been accepted by the Supreme People’s Court and plays an important role in the judicial practice.

  3. As the owner of a webite that facilitates the proviosn of legal advice to thos who can least afford high street prices we are always keen to grasp the interpretation and implementation of the law in other countries. The above article on aspects of arbitration in Chines law was most interesting and I will most definitely be checking in to see further posts.

  4. China has made reservation to the second sentence of Paragraph 1, Article I of the Convention when ratifying the convention. What the Ningbo court made is a very ridiculous mistake. The case should be disregarded.

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