China’s Supreme People’s Court (“SPC“) recently issued the SPC Provisions on Issues related to Enforcement of Arbitral Awards by the People’s Courts (the “Provisions“), which became effective on March 1, 2018.
The Provisions are applicable to the enforcement of arbitral awards rendered by Chinese arbitral institutions in China under the PRC Arbitration Law but not to those made outside mainland China. The latter remain to be handled in accordance with the New York Convention or the bilateral arrangements between PRC and Hong Kong, Macau or Taiwan.
This alert highlights some points which look new and are of importance to users of arbitration in China.
Third Party to Challenge Enforcement
The Provisions clarify the procedural and substantive criteria whereby a third party (non-party to the arbitration proceedings and arbitral award) can apply for non-enforcement of an arbitral award or mediation-based arbitral award to the court.
The procedural criteria include:
- there is evidence to prove that the parties to the arbitration proceedings have maliciously applied for arbitration or conducted a sham arbitration, which violates the third party’s legitimate interests;
- the enforcement process on the subject matter in which the third party claims to have legitimate interests has not been closed; and
- the application is brought within 30 days of the date when it becomes or should have become aware of the enforcement measures being taken by the court.
The substantive criteria include:
- the third party is indeed the legitimate holder of the rights or interests claimed;
- the rights or interests claimed are legal;
- the parties to the arbitration fabricated their legal relationship or facts of the case; and
- the dispositive parts of the award are partially or entirely wrong and violate the third party’s legitimate rights or interests.
Grounds for Non-enforcement
The Provisions clarify a few grounds for non-enforcement of domestic awards as provided in Article 237 of the PRC Civil Procedure Law.
In particular, as per the Provisions, the sentence “the matters arbitrated fall outside the purview of the arbitration agreement or the competence of the arbitration institution”, one of the grounds for non-enforcement in Article 237 of the PRC Civil Procedure Law, means any of the following circumstances:
- the matters arbitrated fall outside what is stipulated in the arbitration agreement;
- the matters arbitrated are non-arbitrable as per the law or the arbitration rules agreed on by the parties;
- the relief granted falls beyond what is requested by the parties;
- the arbitral institution administering the arbitration is not what is agreed in the arbitration agreement.
The above clarifications arguably also apply to Article 274 of the PRC Civil Procedure Law, which is applicable to foreign-related awards made by Chinese arbitral institutions because that article also has the same sentence.
As per the Provisions, the sentence “the counter-party conceals evidence from the arbitral tribunal which is material enough to impinge on fair and just adjudication”, one of the grounds for non-enforcement in Article 237 of the PRC Civil Procedure Law, means any of the following circumstances:
- the evidence concealed could have been a main piece of evidence to establish the basic facts of the case;
- the evidence concealed was only in the concealing party’s possession and was not produced to the tribunal;
- the opponent of the concealing party knew the existence of the evidence and had requested the concealing party to produce or applied for the tribunal’s order to produce but the concealing party failed to produce without justifiable reasons.
The concealing party itself cannot rely on this article, as per the Provisions.
Interestingly, the Provisions provide that, “where the applicable statutory arbitration procedures or arbitration rules have been “SPECIALLY REMINDED” to the parties and the parties have nevertheless chosen to proceed with the arbitration proceedings without raising objection, a party’s application for non-enforcement on the ground of breach of statutory procedures shall not be granted”. In reality, most arbitration rules have a waiver clause to the effect that a party proceeding with arbitration without raising objection who knows or should have known about a non-compliance with the arbitration rules is deemed to have waived objection to the non-compliance. There is no requirement for a special reminder there. Now the Provisions seem to be adding a condition of a special reminder for the waiver to take effect. However, what kind of reminder triggers this waiver is unclear. It remains to be seen how Chinese courts will interpret this provision in practice.
What It Means for You
The Provisions set a timeline for bringing proceedings to resist enforcement by the award debtor or a third party. For the award debtor, this is generally 15 days from the receipt of the enforcement notice. For a third party, this is 30 days from the day when it becomes or should have become aware of the enforcement measures being taken against the subject matter in which it claims interest. Failure to observe the timeline will result in the dismissal of an objection to the enforcement. This is a rather short timeframe compared with that for setting aside an award, which is six months. As a result, an award debtor should not waste any time to prepare the necessary documentation after it receives the award if it wishes to resist enforcement.