In Taizhou Haopu Investment Co., Ltd. v Wicor Holding AG, Taizhou Court, P. R. China, Case Docket Number: [2015] Tai Zhong Shang Zhong Shen Zi, No. 00004 (2 June 2016), the Taizhou Intermediate People’s Court of Jiangsu Province (the “Taizhou Court”) denied the recognition and enforcement of an ICC award on the basis of the public policy exception under Article 7 of the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong SAR (the “Arrangement”). This is the second time a Chinese court has relied on the public policy exception to refuse enforcement and recognition of a foreign arbitral award, following the Jinan Intermediate People's Court of Shandong Province's 2008 decision in the “Hemofarm” case.[1]

Background

On 6 July 1997, the Claimant, Swiss Company Wicor Holding AG (“Wicor”), entered into a joint venture contract (the “Contract”) with a Chinese company, Taizhou Haopu Investment Co., Ltd. (“Haopu”). The Contract provided for arbitration under the ICC Rules (the “Arbitration Agreement”). Following a dispute, Wicor commenced an ICC Arbitration on 4 November 2011. The ICC Tribunal issued final arbitral award 18295 / CYK, dated 18 July 2014, with an addendum dated 27 November 2014 (the “Award”).

Prior to the Award, in a related dispute between the Parties under the Contract, the Jiangsu High People's Court held that the Contract’s arbitration clause was invalid under Chinese law for failure to specify an arbitration institution ([2012] Su Shang Wai Xia Zhong Zi, No. 0012, 11 December 2012). The Arbitration Law of China and its Judicial Interpretation requires an arbitration agreement to specify an arbitral institution, otherwise the agreement will be invalid. The Jiangsu High Court held that, because the Contract simply specified arbitration under the ICC rules, and the arbitration clause pre-dated the 2012 ICC Rules (which provide that the ICC Court is the only institution allowed to administer ICC Arbitrations), the parties had failed to specify an institution.

Shortly after the Award, Wicor applied for recognition and enforcement of the Award (the “Application”) pursuant to the Arrangement. Haopu filed an objection to the Application on the basis that the Award violated China’s judicial sovereignty.

The Decision

At issue before the Taizhou Court was whether a previous decision by the Jiangsu High People’s Court, in a related dispute between the parties, violated the public policy exception of the Arrangement. The Taizhou Court reasoned that the Jiangsu High Court’s decision, which was issued nineteen months prior the Award, had already found that the Contract’s arbitration agreement was invalid under Chinese Law. The Taizhou Court observed that the Award was made under the assumption that the Arbitration Agreement was valid, and thus, was in direct conflict with the Jiangsu High Court’s decision and violated the “societal public interest” of the PRC.[2] The Taizhou Court relied on the last paragraph of Article 7 of the Arrangement regarding public policy in denying recognition and enforcement of the Award.[3]

Comment

In the past, Chinese courts have tended to refuse requests to deny the enforcement of foreign arbitral awards on the basis of public policy.[4] However, it appears that Haopu is bucking this trend, in that this is the second time that a Chinese court has refused to enforce a foreign arbitral award on the basis that the award violates China's judicial sovereignty. Haopu has been distinguished from the “Castel” case, in which China's Supreme People's Court ruled that violation of judicial sovereignty was not a sufficient basis to deny enforcement of a foreign arbitral award, where the foreign award was rendered earlier than a Chinese court decision finding that the arbitration clause at issue was invalid.[5] Thus, it would seem that Hemofarm, Castel, and Haopu demonstrate that Chinese courts will likely, on the basis of public policy, refuse to enforce foreign arbitration awards that conflict with a prior Chinese court ruling on an issue of Chinese law.