Costs and interest
39、Costs
Are parties able to recover fees paid and costs incurred? Does the “loser pays” rule generally apply in your jurisdiction?
According to article 9 of the Arbitration Fee Collection Measures of Arbitration Commissions, fees paid to the arbitration commission shall, in principle, be borne by the losing party. However, if a party only partially wins, the arbitration tribunal shall determine the allocation of fees based on the parties’ liabilities and the percentage of the party’s success. If the case is settled by the parties or through conciliation by the arbitral tribunal, the parties can reach an agreement on the allocation of fees.
Article 52(1) of the 2015 CIETAC Rules provides that the arbitral tribunal has the power to determine in the arbitral award the arbitration fees and other expenses to be paid by the parties to CIETAC. Article 52(2) provides that the arbitral tribunal has the power to decide in the arbitral award that the losing party shall compensate the winning party for the expenses reasonably incurred by it in pursuing the case. In deciding whether or not the winning party’s expenses incurred in pursuing the case are reasonable, the arbitral tribunal shall take into consideration various factors such as the outcome and complexity of the case, the workload of the winning party and/or its representatives, the amount in dispute, etc. In practice, parties may be invited to provide submissions or arguments in this regard.
In practice, the tribunal will also review the engagement letters and relevant payment records. In particular, the tribunal will determine whether the expenses are reasonable or appropriate by referring to relevant guidelines on legal fees issued by corresponding provinces or cities.
40、Interest on the award
Can interest be included on the principal claim and costs? Is there any mandatory or customary rate?
The Arbitration Law does not expressly provide any rule on interest.
Article 253 of the Civil Procedure Law provides that if a person subject to execution fails to perform his obligations to pay within the time limit specified in a judgment, ruling or other legal document, he shall pay twice the amount of interest on the debt (Judgment Debt) for the period during which the performance is deferred.
Interpretation of the Supreme People’s Court on Several Issues concerning the Application of Law in the Calculation of Interest on Debts during the Delay in the Performance of Execution Procedures (Interpretation on Interest) further specifies the calculation of the Judgment Debt.
According to article 1 of the Interpretation on Interest, the formula of calculating the doubled interest on debts shall be as follows:
the doubled interest on debts = the outstanding pecuniary debts determined by the effective legal instruments other than the general interest on debts × 0.175‰/day × the period of delay in the performance.
Therefore, if a party fails to perform in accordance with an arbitral award, the other party may request the court through which the award is being enforced to request that party to pay interest on award in accordance with the above formula.
41、Grounds for appeal
Are there any grounds on which an award may be appealed before the courts of your jurisdiction?
The grounds for appealing an arbitral award are different for domestic awards, foreign-related awards, and foreign awards.
As to domestic awards, article 58 of the Arbitration Law provides that a party may request a competent intermediate people’s court to set aside an award based on any of the following grounds:
● there is no arbitration agreement between the parties;
● the matters of the award are beyond the scope of the arbitration agreement or not under the jurisdiction of the arbitration commission;
● the composition of the arbitral tribunal or the arbitration procedure is in contrary to the legal procedure;
● the evidence on which the award is based is falsified;
● the other party has concealed evidence which is sufficient to affect the impartiality of the award; or
● the arbitrator(s) has (have) demanded or accepted bribes, committed graft or perverted the law in making the arbitral award.
As to foreign-related awards (see question 18 for the definition of foreign-related), article 70 of the Arbitration Law provides that a party may request a competent intermediate people’s court to set aside a foreign-related award if it involves one of the circumstances prescribed in article 274 of the Civil Procedure Law, which are:
● the parties have neither included an arbitration clause in their contract nor subsequently reached a written arbitration agreement;
● the person against whom the application is made was not requested to appoint an arbitrator or take part in the arbitration proceedings or the person was unable to state his opinions due to reasons for which he is not responsible;
● the composition of the arbitration tribunal or the arbitration procedure was not in conformity with the rules of arbitration;
● matters decided in the award exceed the scope of the arbitration agreement or are beyond the arbitral authority of the arbitration institution; or
● the people’s court determines that the execution of the said award would be against public interest.
In addition, article 21 of Hearing Provisions provides that in judicial review cases where parties apply to the court for determination of validity of arbitration agreements related to Hong Kong, Macao or Taiwan, and in judicial review cases where parties apply to the court for enforcement or set-aside of arbitral awards related to Hong Kong, Macao or Taiwan made by domestic arbitration institutions, the court should review the case by referring to provisions applicable to foreign-related judicial review cases.
As to foreign awards (ie, awards rendered by foreign arbitration institutions such as HKIAC), assuming that those awards are made in countries that are signatories to the New York Convention, a party may request a competent intermediate people’s court to set aside an award only if it involves one of the circumstances prescribed in article V of the New York Convention, which are:
● the arbitration agreement is invalid;
● the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
● the award deals with a matter or dispute out of the scope of the arbitration agreement or the submission to the arbitration;
● the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;
● the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made; or
● the competent authority in the country where recognition and enforcement is sought finds that:
● the subject matter of the dispute is not capable of settlement by arbitration under the law of that country; or
● the recognition or enforcement of the award would be contrary to the public policy of that country.
It should be noted that foreign-related and foreign awards receive extra “protection” from the Supreme Court.According to articles 2 and 3 of Reporting Provisions and other judicial interpretations, if a local court (ie, the competent intermediate court) decides to set aside a foreign or foreign-related arbitral award, it needs to seek approval from a competent High Court; if the High Court decides the same, it needs to seek approval from the Supreme Court. However, if the competent intermediate court decides to set aside a domestic arbitral award, it should report to the higher level High Court and the High Court has the final voice, with two exceptions where (i) the domiciles of disputing parties are transprovincial, or (ii) the court decides to set aside or not to enforce the award on the ground that the award contradicts with public interests, the High Court should report to the Supreme People’s Court for the final decision.
Given the above, we suggest a foreign company devise its arbitration as a foreign or foreign-related arbitration in order to seek more protection at the enforcement stage. For example, if possible, it may have the arbitration initiated by a foreign entity instead of its China-registered subsidiary.
Are there any other bases on which an award may be challenged, and if so what?
Other than the ones discussed in question 41, there is no ground to challenge a foreign or foreign-related arbitral award.
43、Modifying an award
Is it open to the parties to exclude by agreement any right of appeal or other recourse that the law of your jurisdiction may provide?
No. Pursuant to article 52(5) of the Contract Law, any agreement inconsistent with the mandatory laws of China shall be null and void. The above rules on the right of appeal are mandatory rules in China’s laws.
44、Enforcement of set-aside awards
Will an award that has been set aside by the courts in the seat of arbitration be enforced in yourjurisdiction?
If the seat is mainland China, an award that has been set aside by the courts will not be enforced.
If the seat is outside mainland China, article V(1)(e) of the New York Convention provides that the recognition and enforcement of an arbitral award may be refused, at the request of the party against whom it was invoked, if that party proves that the award “has been set aside or suspended by a competent authority of the country in which, or under the law of the country in which, that award was made”.
45、Trends
What trends, if any, are suggested by recent enforcement decisions? What is the prevailing approach of the courts in this regard?
In recent years, the China’s courts have been more flexible in considering whether an arbitration is “foreign-related” in the enforcement of arbitration.
In SIEMENS International Trading (Shanghai) Co, Ltd v Shanghai Golden Landmark Co, Ltd (2013) Hu Yi Zhong Min Ren (Wai Zhong) Zi No. 2 (27 November 2015), the Court decided to recognise and enforce an award rendered by a foreign arbitration (the Singapore International Arbitration Centre), even though the arbitration took place in Singapore between two PRC-incorporated companies and the transaction was mainly conducted in mainland China.The Court determined that the arbitration was foreign-related based on the following reasons:
● both parties were WFOEs registered in the Shanghai Free Trade Zone, which suggested that the source of capital, eventual ownership of interests and the business decisions had close connections to foreign investors.
● although the final delivery of the equipment under the contract was within the territory of mainland China, the equipment was shipped from outside the territory of mainland China in order to be delivered inside mainland China.
This decision goes beyond earlier China courts’ decisions, which held that a dispute between two WOFEs concerning a transaction conducted in mainland China was a domestic dispute and should not be arbitrated outside mainland China.
On 9 January 2017, the Supreme People’s Court issued the Opinion on the Provision of Judicial Protection to the Development of the Free Trade Zone, which further provides that:
if two WOFEs registered in a FTZ resolve their dispute through an arbitration conducted outside Mainland China, a court shall not determine that the arbitration agreement is invalid because there is no “foreign element” in the dispute. if one or two parties are WOFEs registered in a FTZ and the two parties resolve their dispute through an arbitration conducted outside Mainland China, but one of the parties contends that the arbitration agreement is not valid after the award has been rendered, a court shall not support such a contention.
In sum, the China’s courts, especially the Supreme Court, have been putting efforts to respect the parties’ autonomy in arbitrating their dispute by adopting a broad interpretation of the existing laws and enacting new rules.We believe this trend will continue and will make mainland China a more arbitration-friendly jurisdiction.
46、State immunity
To what extent might a state or state entity successfully raise a defence of state or sovereign immunity at the enforcement stage?
China has not introduced any legislation or case law dealing with state or sovereign immunity. China’s position on sovereign immunity can therefore only be implied indirectly from a number of judgments published in places outside China.
In FG Hemisphere Associates LLC v Democratic Republic of Congo & Ors [2010] 2 HKC 487 (FG Hemisphere), there is an extract from a letter issued by the Office of the Commissioner of the Ministry of Foreign Affairs of China to the Hong Kong courts, which provides:
The consistent and principled position of China is that a state and its property shall, in foreign courts, enjoy absolute immunity from jurisdiction and from execution, and has never applied the so-called principle or theory of “restrictive immunity”… China has never accepted any foreign courts having jurisdiction over cases in which the state or Government of China is sued as a defendant, or over cases involving the property of the state or Government of China…
According to this letter, China adopts the doctrine of absolute immunity: foreign states are completely immune from the jurisdiction of municipal courts of another state, both in respect of suit and enforce-ment.Therefore, a state may successfully raise a defence of state or sovereign immunity at the enforcement stage.
As to whether a state entity, like a state department may enjoy the same protection, we would also need to imply China’s position from judgments published in places outside China.
In Hua Tian Long (No 3) [2010] 3 HKC 557, the court held that the Guangzhou Salvage Bureau is not a separate legal entity but is part of the Ministry of Communication (MOC) under its direct control, and thus enjoy state immunity.Therefore, it would be theoretically possible for a state entity to raise a defence of state or sovereign immunity at the enforcement stage.
In sum, mainland China has no legislation or case law on state immunity or how it may apply in a specific case.The FG Hemisphere case shows that China adopts the doctrine of absolute immunity. Hua Tian Long provides a guideline on how to apply the doctrine of state immunity in the enforcement of a judgment against a Chinese institutional organisation. It should be noted that the rationale of Hua Tian Long only serves as a guideline.
47、Confidentiality
To what extent are arbitral proceedings in your jurisdiction confidential?
Article 40 of the Arbitration Law provides that an arbitration shall not be conducted in public unless the parties stipulate otherwise.
Other rules concerning confidentiality are provided in the rules of the arbitration institutions. For example, article 38 of the 2015 CIETAC Rules provides that the parties and their representatives, the arbitrators, the witnesses, the interpreters, the experts consulted by the arbitral tribunal, the appraisers appointed by the arbitral tribunal and other relevant persons shall not disclose to any outsider any substantive or procedural matters relating to the case.
Given the above, we suggest the parties resolve their dispute through arbitration when there is a particular concern over confidentiality. Moreover, given the Supreme People’s Court’s recent movements on judicial transparency (eg, publish of court judgments, big data, smart courts, etc), arbitration seems to be more attractive where confidentiality is of particular concern.
48、Evidence and pleadings
What is the position relating to evidence produced and pleadings filed in the arbitration? Are these confidential? Is there any way that they might be relied on in other proceedings (whether arbitral or court proceedings)?
As discussed in question 47, an arbitration shall not be conducted in public unless the parties stipulate otherwise. Rules of most of the arbitration institutions also require that evidence produced and pleadings filed in the arbitration shall be confidential.
As to the potential use of those evidence and pleadings in other proceedings, article 9(5) of the Supreme People’s Court’s Certain Requirements on Evidence in Civil Procedure provides that a court may rely on the facts ascertained by an effective arbitral award rendered by an arbitration institution. However, those facts are subject to the other party’s challenge with counter-evidence.
49、Ethical codes
What ethical codes and other professional standards, if any, apply to counsel and arbitrators conducting proceedings in your jurisdiction?
The ethical codes on counsel are provided in the Law on Lawyers of the People’s Republic of China.
The ethical codes on arbitrators are provided in the Arbitration Law and the rules of the arbitration institutions. For example, article 34 of the Arbitration Law provides the circumstances under which an arbitrator must withdraw from adjudicating an arbitration.Article 25 of the 2015 SHIAC Rules provides that an arbitrator shall sign a declaration and disclose to SHIAC in writing any facts or circumstances that may give a rise to justifiable doubts as to his or her impartiality or independence. Similar rules exist in the 2015 CIETAC Rules and the rules of other arbitration institutions.
In addition, the parties may stipulate that the IBA Guidelines on Conflicts of Interest in International Arbitration shall apply.
50、Procedural expectations
Are there any particular procedural expectations or assumptions of which counsel or arbitrators participating in an international arbitration with its seat in your jurisdiction should be aware?
We would suggest a company pay particular attention to the following aspects:
Time frame
The time frame of an international arbitration administered by institutions in mainland China is relatively shorter than an arbitration conducted overseas (eg, a HKIAC arbitration seated in Hong Kong). For example, article 48(1) of the 2015 CIETAC Rules provides that the arbitral tribunal shall render an arbitral award within six months from the date on which the arbitral tribunal is formed. Extensions would be allowed in certain circumstances and are not uncommon.
By contrast, it usually takes a tribunal of an HKIAC arbitration 12 months to render an award.The six-month time frame is, however, subject to potential extensions. Most of the arbitrations in practice do not complete in six months. Some could last a couple of years.
Disclosure
Disclosures are rarely held in an international arbitration conducted in Mainland China.A party bears the burden to collect and submit evidence to support its claims.
Witness examination
Witnesses are rarely introduced in an international arbitration conducted in mainland China.A tribunal usually relies on documentary evidence on fact-findings.
Interaction with the tribunal
The hearing in an international arbitration conducted in Mainland China is more of an inquisitorial style rather than an adversarial one. That means arbitrators are usually more active in asking questions and engaging in discussions. Counsel usually do not make long statements like the ones seen in international arbitrations conducted overseas.
Written submissions
There are usually lesser rounds of submissions.And the submissions tend to be short.
Parties would usually be required to submit lists of evidence explaining the purposes of each evidence submitted.The parties would then be given opportunities to challenge each other’s evidence.
Arbitrator
Most rules allow the presiding arbitrator to be with the same nationality of one or both of the parties.A foreign company may want to stipulate in the arbitration agreement that the presiding arbitrator shall not be with a nationality same as either of the parties.
Language
The arbitration will be Chinese unless the parties agree otherwise.A foreign company may want to stipulate in the arbitration agreement that the arbitration shall be conducted in English or in both English and Chinese.
Foreign counsel
Foreign counsel, including China-qualified attorneys working at China offices of international firms, are only allowed to provide factual statements and opinions concerning foreign laws.
Enforcement
The Civil Procedure Law applies different standards for setting aside an arbitral awards on domestic arbitrations and foreign-related arbitrations. For domestic arbitrations, a court will not only look at the procedural but also the substantial aspects of the case. For example, article 237(4) and (5) of the Civil Procedure Law provides that a court may set aside an award when:
● the evidence used as a basis for rendering an award is fabricated; or
● the other party to the case conceals important evidence, which is substantial enough to affect the impartial ruling by the arbitration institution.
The implication of the above is that a party may challenge an award rendered by the tribunal on the basis that there are defects in the arbitration such as the other party’s failure to disclosure material evidence that may impact the impartiality of the award.
A foreign company may want to devise the arbitration as a foreign-related one, if possible.As discussed above, a foreign-related award enjoys more protection at the enforcement stage – if an intermediate court decides not to enforce an award rendered in a foreign-related arbitration, it needs to seek approval from a High Court; if the High Court decides the same, it needs to seek approval from the Supreme Court, while in a domestic arbitration only under certain circumstances should the Supreme People’s Court be reported to.
51、Third-party funding
Is third-party funding permitted in your jurisdiction?
Chinese laws do not expressly prohibit third-party funding.
Practitioners in China just started exploring this area in recent years. But there are only limited examples. For instance, on 19 September 2016, a litigation fund called Duomeng Litigation Funding was established by a funding alliance and a law firm in China. According to Duomeng, the fund would cover attorney fees and other expenses incurred in litigation and arbitration and charge a certain percentage of what the client recovers from the legal proceedings. The fund mainly focuses on cases involving the recovery of account receivables.
It is worth noting that third-party funding involves critical issues concerning:
● definition – ie, what exactly is a funder;
● transparency – ie, whether the funder’s participation should be disclosed;
● privilege – ie, whether relevant attorney privileges extend to a funder;
● conflict of interests – ie, how should we evaluate the relationship between the funder, the arbitrator, the attorney and other parties in the arbitration; and
● costs – ie, whether the existence of a funder affects the allocation of costs.
The above issues still remain to be explained by Chinese laws and the rules of the arbitration institutions.
39、Costs
Are parties able to recover fees paid and costs incurred? Does the “loser pays” rule generally apply in your jurisdiction?
According to article 9 of the Arbitration Fee Collection Measures of Arbitration Commissions, fees paid to the arbitration commission shall, in principle, be borne by the losing party. However, if a party only partially wins, the arbitration tribunal shall determine the allocation of fees based on the parties’ liabilities and the percentage of the party’s success. If the case is settled by the parties or through conciliation by the arbitral tribunal, the parties can reach an agreement on the allocation of fees.
Article 52(1) of the 2015 CIETAC Rules provides that the arbitral tribunal has the power to determine in the arbitral award the arbitration fees and other expenses to be paid by the parties to CIETAC. Article 52(2) provides that the arbitral tribunal has the power to decide in the arbitral award that the losing party shall compensate the winning party for the expenses reasonably incurred by it in pursuing the case. In deciding whether or not the winning party’s expenses incurred in pursuing the case are reasonable, the arbitral tribunal shall take into consideration various factors such as the outcome and complexity of the case, the workload of the winning party and/or its representatives, the amount in dispute, etc. In practice, parties may be invited to provide submissions or arguments in this regard.
In practice, the tribunal will also review the engagement letters and relevant payment records. In particular, the tribunal will determine whether the expenses are reasonable or appropriate by referring to relevant guidelines on legal fees issued by corresponding provinces or cities.
40、Interest on the award
Can interest be included on the principal claim and costs? Is there any mandatory or customary rate?
The Arbitration Law does not expressly provide any rule on interest.
Article 253 of the Civil Procedure Law provides that if a person subject to execution fails to perform his obligations to pay within the time limit specified in a judgment, ruling or other legal document, he shall pay twice the amount of interest on the debt (Judgment Debt) for the period during which the performance is deferred.
Interpretation of the Supreme People’s Court on Several Issues concerning the Application of Law in the Calculation of Interest on Debts during the Delay in the Performance of Execution Procedures (Interpretation on Interest) further specifies the calculation of the Judgment Debt.
According to article 1 of the Interpretation on Interest, the formula of calculating the doubled interest on debts shall be as follows:
the doubled interest on debts = the outstanding pecuniary debts determined by the effective legal instruments other than the general interest on debts × 0.175‰/day × the period of delay in the performance.
Therefore, if a party fails to perform in accordance with an arbitral award, the other party may request the court through which the award is being enforced to request that party to pay interest on award in accordance with the above formula.
41、Grounds for appeal
Are there any grounds on which an award may be appealed before the courts of your jurisdiction?
The grounds for appealing an arbitral award are different for domestic awards, foreign-related awards, and foreign awards.
As to domestic awards, article 58 of the Arbitration Law provides that a party may request a competent intermediate people’s court to set aside an award based on any of the following grounds:
● there is no arbitration agreement between the parties;
● the matters of the award are beyond the scope of the arbitration agreement or not under the jurisdiction of the arbitration commission;
● the composition of the arbitral tribunal or the arbitration procedure is in contrary to the legal procedure;
● the evidence on which the award is based is falsified;
● the other party has concealed evidence which is sufficient to affect the impartiality of the award; or
● the arbitrator(s) has (have) demanded or accepted bribes, committed graft or perverted the law in making the arbitral award.
As to foreign-related awards (see question 18 for the definition of foreign-related), article 70 of the Arbitration Law provides that a party may request a competent intermediate people’s court to set aside a foreign-related award if it involves one of the circumstances prescribed in article 274 of the Civil Procedure Law, which are:
● the parties have neither included an arbitration clause in their contract nor subsequently reached a written arbitration agreement;
● the person against whom the application is made was not requested to appoint an arbitrator or take part in the arbitration proceedings or the person was unable to state his opinions due to reasons for which he is not responsible;
● the composition of the arbitration tribunal or the arbitration procedure was not in conformity with the rules of arbitration;
● matters decided in the award exceed the scope of the arbitration agreement or are beyond the arbitral authority of the arbitration institution; or
● the people’s court determines that the execution of the said award would be against public interest.
In addition, article 21 of Hearing Provisions provides that in judicial review cases where parties apply to the court for determination of validity of arbitration agreements related to Hong Kong, Macao or Taiwan, and in judicial review cases where parties apply to the court for enforcement or set-aside of arbitral awards related to Hong Kong, Macao or Taiwan made by domestic arbitration institutions, the court should review the case by referring to provisions applicable to foreign-related judicial review cases.
As to foreign awards (ie, awards rendered by foreign arbitration institutions such as HKIAC), assuming that those awards are made in countries that are signatories to the New York Convention, a party may request a competent intermediate people’s court to set aside an award only if it involves one of the circumstances prescribed in article V of the New York Convention, which are:
● the arbitration agreement is invalid;
● the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
● the award deals with a matter or dispute out of the scope of the arbitration agreement or the submission to the arbitration;
● the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;
● the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made; or
● the competent authority in the country where recognition and enforcement is sought finds that:
● the subject matter of the dispute is not capable of settlement by arbitration under the law of that country; or
● the recognition or enforcement of the award would be contrary to the public policy of that country.
It should be noted that foreign-related and foreign awards receive extra “protection” from the Supreme Court.According to articles 2 and 3 of Reporting Provisions and other judicial interpretations, if a local court (ie, the competent intermediate court) decides to set aside a foreign or foreign-related arbitral award, it needs to seek approval from a competent High Court; if the High Court decides the same, it needs to seek approval from the Supreme Court. However, if the competent intermediate court decides to set aside a domestic arbitral award, it should report to the higher level High Court and the High Court has the final voice, with two exceptions where (i) the domiciles of disputing parties are transprovincial, or (ii) the court decides to set aside or not to enforce the award on the ground that the award contradicts with public interests, the High Court should report to the Supreme People’s Court for the final decision.
Given the above, we suggest a foreign company devise its arbitration as a foreign or foreign-related arbitration in order to seek more protection at the enforcement stage. For example, if possible, it may have the arbitration initiated by a foreign entity instead of its China-registered subsidiary.
42、Other grounds for challenge
Are there any other bases on which an award may be challenged, and if so what?
Other than the ones discussed in question 41, there is no ground to challenge a foreign or foreign-related arbitral award.
43、Modifying an award
Is it open to the parties to exclude by agreement any right of appeal or other recourse that the law of your jurisdiction may provide?
No. Pursuant to article 52(5) of the Contract Law, any agreement inconsistent with the mandatory laws of China shall be null and void. The above rules on the right of appeal are mandatory rules in China’s laws.
44、Enforcement of set-aside awards
Will an award that has been set aside by the courts in the seat of arbitration be enforced in yourjurisdiction?
If the seat is mainland China, an award that has been set aside by the courts will not be enforced.
If the seat is outside mainland China, article V(1)(e) of the New York Convention provides that the recognition and enforcement of an arbitral award may be refused, at the request of the party against whom it was invoked, if that party proves that the award “has been set aside or suspended by a competent authority of the country in which, or under the law of the country in which, that award was made”.
45、Trends
What trends, if any, are suggested by recent enforcement decisions? What is the prevailing approach of the courts in this regard?
In recent years, the China’s courts have been more flexible in considering whether an arbitration is “foreign-related” in the enforcement of arbitration.
In SIEMENS International Trading (Shanghai) Co, Ltd v Shanghai Golden Landmark Co, Ltd (2013) Hu Yi Zhong Min Ren (Wai Zhong) Zi No. 2 (27 November 2015), the Court decided to recognise and enforce an award rendered by a foreign arbitration (the Singapore International Arbitration Centre), even though the arbitration took place in Singapore between two PRC-incorporated companies and the transaction was mainly conducted in mainland China.The Court determined that the arbitration was foreign-related based on the following reasons:
● both parties were WFOEs registered in the Shanghai Free Trade Zone, which suggested that the source of capital, eventual ownership of interests and the business decisions had close connections to foreign investors.
● although the final delivery of the equipment under the contract was within the territory of mainland China, the equipment was shipped from outside the territory of mainland China in order to be delivered inside mainland China.
This decision goes beyond earlier China courts’ decisions, which held that a dispute between two WOFEs concerning a transaction conducted in mainland China was a domestic dispute and should not be arbitrated outside mainland China.
On 9 January 2017, the Supreme People’s Court issued the Opinion on the Provision of Judicial Protection to the Development of the Free Trade Zone, which further provides that:
if two WOFEs registered in a FTZ resolve their dispute through an arbitration conducted outside Mainland China, a court shall not determine that the arbitration agreement is invalid because there is no “foreign element” in the dispute. if one or two parties are WOFEs registered in a FTZ and the two parties resolve their dispute through an arbitration conducted outside Mainland China, but one of the parties contends that the arbitration agreement is not valid after the award has been rendered, a court shall not support such a contention.
In sum, the China’s courts, especially the Supreme Court, have been putting efforts to respect the parties’ autonomy in arbitrating their dispute by adopting a broad interpretation of the existing laws and enacting new rules.We believe this trend will continue and will make mainland China a more arbitration-friendly jurisdiction.
46、State immunity
To what extent might a state or state entity successfully raise a defence of state or sovereign immunity at the enforcement stage?
China has not introduced any legislation or case law dealing with state or sovereign immunity. China’s position on sovereign immunity can therefore only be implied indirectly from a number of judgments published in places outside China.
In FG Hemisphere Associates LLC v Democratic Republic of Congo & Ors [2010] 2 HKC 487 (FG Hemisphere), there is an extract from a letter issued by the Office of the Commissioner of the Ministry of Foreign Affairs of China to the Hong Kong courts, which provides:
The consistent and principled position of China is that a state and its property shall, in foreign courts, enjoy absolute immunity from jurisdiction and from execution, and has never applied the so-called principle or theory of “restrictive immunity”… China has never accepted any foreign courts having jurisdiction over cases in which the state or Government of China is sued as a defendant, or over cases involving the property of the state or Government of China…
According to this letter, China adopts the doctrine of absolute immunity: foreign states are completely immune from the jurisdiction of municipal courts of another state, both in respect of suit and enforce-ment.Therefore, a state may successfully raise a defence of state or sovereign immunity at the enforcement stage.
As to whether a state entity, like a state department may enjoy the same protection, we would also need to imply China’s position from judgments published in places outside China.
In Hua Tian Long (No 3) [2010] 3 HKC 557, the court held that the Guangzhou Salvage Bureau is not a separate legal entity but is part of the Ministry of Communication (MOC) under its direct control, and thus enjoy state immunity.Therefore, it would be theoretically possible for a state entity to raise a defence of state or sovereign immunity at the enforcement stage.
In sum, mainland China has no legislation or case law on state immunity or how it may apply in a specific case.The FG Hemisphere case shows that China adopts the doctrine of absolute immunity. Hua Tian Long provides a guideline on how to apply the doctrine of state immunity in the enforcement of a judgment against a Chinese institutional organisation. It should be noted that the rationale of Hua Tian Long only serves as a guideline.
47、Confidentiality
To what extent are arbitral proceedings in your jurisdiction confidential?
Article 40 of the Arbitration Law provides that an arbitration shall not be conducted in public unless the parties stipulate otherwise.
Other rules concerning confidentiality are provided in the rules of the arbitration institutions. For example, article 38 of the 2015 CIETAC Rules provides that the parties and their representatives, the arbitrators, the witnesses, the interpreters, the experts consulted by the arbitral tribunal, the appraisers appointed by the arbitral tribunal and other relevant persons shall not disclose to any outsider any substantive or procedural matters relating to the case.
Given the above, we suggest the parties resolve their dispute through arbitration when there is a particular concern over confidentiality. Moreover, given the Supreme People’s Court’s recent movements on judicial transparency (eg, publish of court judgments, big data, smart courts, etc), arbitration seems to be more attractive where confidentiality is of particular concern.
48、Evidence and pleadings
What is the position relating to evidence produced and pleadings filed in the arbitration? Are these confidential? Is there any way that they might be relied on in other proceedings (whether arbitral or court proceedings)?
As discussed in question 47, an arbitration shall not be conducted in public unless the parties stipulate otherwise. Rules of most of the arbitration institutions also require that evidence produced and pleadings filed in the arbitration shall be confidential.
As to the potential use of those evidence and pleadings in other proceedings, article 9(5) of the Supreme People’s Court’s Certain Requirements on Evidence in Civil Procedure provides that a court may rely on the facts ascertained by an effective arbitral award rendered by an arbitration institution. However, those facts are subject to the other party’s challenge with counter-evidence.
49、Ethical codes
What ethical codes and other professional standards, if any, apply to counsel and arbitrators conducting proceedings in your jurisdiction?
The ethical codes on counsel are provided in the Law on Lawyers of the People’s Republic of China.
The ethical codes on arbitrators are provided in the Arbitration Law and the rules of the arbitration institutions. For example, article 34 of the Arbitration Law provides the circumstances under which an arbitrator must withdraw from adjudicating an arbitration.Article 25 of the 2015 SHIAC Rules provides that an arbitrator shall sign a declaration and disclose to SHIAC in writing any facts or circumstances that may give a rise to justifiable doubts as to his or her impartiality or independence. Similar rules exist in the 2015 CIETAC Rules and the rules of other arbitration institutions.
In addition, the parties may stipulate that the IBA Guidelines on Conflicts of Interest in International Arbitration shall apply.
50、Procedural expectations
Are there any particular procedural expectations or assumptions of which counsel or arbitrators participating in an international arbitration with its seat in your jurisdiction should be aware?
We would suggest a company pay particular attention to the following aspects:
Time frame
The time frame of an international arbitration administered by institutions in mainland China is relatively shorter than an arbitration conducted overseas (eg, a HKIAC arbitration seated in Hong Kong). For example, article 48(1) of the 2015 CIETAC Rules provides that the arbitral tribunal shall render an arbitral award within six months from the date on which the arbitral tribunal is formed. Extensions would be allowed in certain circumstances and are not uncommon.
By contrast, it usually takes a tribunal of an HKIAC arbitration 12 months to render an award.The six-month time frame is, however, subject to potential extensions. Most of the arbitrations in practice do not complete in six months. Some could last a couple of years.
Disclosure
Disclosures are rarely held in an international arbitration conducted in Mainland China.A party bears the burden to collect and submit evidence to support its claims.
Witness examination
Witnesses are rarely introduced in an international arbitration conducted in mainland China.A tribunal usually relies on documentary evidence on fact-findings.
Interaction with the tribunal
The hearing in an international arbitration conducted in Mainland China is more of an inquisitorial style rather than an adversarial one. That means arbitrators are usually more active in asking questions and engaging in discussions. Counsel usually do not make long statements like the ones seen in international arbitrations conducted overseas.
Written submissions
There are usually lesser rounds of submissions.And the submissions tend to be short.
Parties would usually be required to submit lists of evidence explaining the purposes of each evidence submitted.The parties would then be given opportunities to challenge each other’s evidence.
Arbitrator
Most rules allow the presiding arbitrator to be with the same nationality of one or both of the parties.A foreign company may want to stipulate in the arbitration agreement that the presiding arbitrator shall not be with a nationality same as either of the parties.
Language
The arbitration will be Chinese unless the parties agree otherwise.A foreign company may want to stipulate in the arbitration agreement that the arbitration shall be conducted in English or in both English and Chinese.
Foreign counsel
Foreign counsel, including China-qualified attorneys working at China offices of international firms, are only allowed to provide factual statements and opinions concerning foreign laws.
Enforcement
The Civil Procedure Law applies different standards for setting aside an arbitral awards on domestic arbitrations and foreign-related arbitrations. For domestic arbitrations, a court will not only look at the procedural but also the substantial aspects of the case. For example, article 237(4) and (5) of the Civil Procedure Law provides that a court may set aside an award when:
● the evidence used as a basis for rendering an award is fabricated; or
● the other party to the case conceals important evidence, which is substantial enough to affect the impartial ruling by the arbitration institution.
The implication of the above is that a party may challenge an award rendered by the tribunal on the basis that there are defects in the arbitration such as the other party’s failure to disclosure material evidence that may impact the impartiality of the award.
A foreign company may want to devise the arbitration as a foreign-related one, if possible.As discussed above, a foreign-related award enjoys more protection at the enforcement stage – if an intermediate court decides not to enforce an award rendered in a foreign-related arbitration, it needs to seek approval from a High Court; if the High Court decides the same, it needs to seek approval from the Supreme Court, while in a domestic arbitration only under certain circumstances should the Supreme People’s Court be reported to.
51、Third-party funding
Is third-party funding permitted in your jurisdiction?
Chinese laws do not expressly prohibit third-party funding.
Practitioners in China just started exploring this area in recent years. But there are only limited examples. For instance, on 19 September 2016, a litigation fund called Duomeng Litigation Funding was established by a funding alliance and a law firm in China. According to Duomeng, the fund would cover attorney fees and other expenses incurred in litigation and arbitration and charge a certain percentage of what the client recovers from the legal proceedings. The fund mainly focuses on cases involving the recovery of account receivables.
It is worth noting that third-party funding involves critical issues concerning:
● definition – ie, what exactly is a funder;
● transparency – ie, whether the funder’s participation should be disclosed;
● privilege – ie, whether relevant attorney privileges extend to a funder;
● conflict of interests – ie, how should we evaluate the relationship between the funder, the arbitrator, the attorney and other parties in the arbitration; and
● costs – ie, whether the existence of a funder affects the allocation of costs.
The above issues still remain to be explained by Chinese laws and the rules of the arbitration institutions.