Arbitral awards can be divided into four categories for the purpose of enforcement in China:
- Awards made in foreign countries which are enforceable pursuant to the New York Convention.
- Awards made in foreign countries which are not enforceable pursuant to the New York Convention.
- Awards made by PRC arbitration commissions that involve a foreign element ("foreign-related awards").
- Awards made by PRC arbitration commissions which do not involve a foreign element ("domestic awards").
Awards made by foreign arbitration institutions that require recognition and enforcement in China will be dealt with pursuant to the international treaties entered into by China, or under the principle of reciprocity. In general, such awards are recognised and enforced in China under the New York Convention, which has been ratified in more than 135 countries including China. Signatories to the New York Convention agree that they will recognise and enforce arbitral awards made in the territories of other contracting states. In this regard, an award made abroad in a signatory state will, in principle, be recognised and enforced in China. Awards made by PRC arbitration institutions (be it foreign-related awards or domestic awards) which require recognition and enforcement in China will be dealt with in accordance with the PRC Civil Procedure Law and Arbitration Law.
As arbitration awards are final and binding on parties, they may only be set aside or their enforcement refused in limited circumstances. PRC Arbitration Law sets out several grounds for setting aside and refusing enforcement of foreign-related and domestic arbitral awards.
The People's Court may review a foreign-related award if it receives an application by a party to set aside or enforce an award. In these circumstances the review will be of a procedural nature and not a consideration of the merits of the award. The grounds of setting aside or refusing enforcement of foreign-related awards are set out in Article 258 of the PRC Civil Procedure Law, and include situations where:
a. the contract does not contain an arbitration clause or that a written arbitration agreement was not entered into after the dispute arose;
b. the party against whom the arbitration is filed was unable to a) appoint the arbitrator of his choice; b) did not receive notice of the arbitration proceedings; or c) was unable to present his case through no fault of his own;
c. the composition of the arbitration tribunal or the procedure of the arbitration did not conform with the arbitration rules;
d. the matters dealt with by the award fell outside the scope of the arbitration agreement or the jurisdiction of the arbitration tribunal; and
e. the award violates the public interest.
Article 58 of the Arbitration Law, and Article 213 of the PRC Civil Procedure Law also provide a number of grounds under which domestic awards may be set aside or have their enforcement refused, including where:
i. the law has been applied incorrectly;
ii. the evidence on which the award is based was forged; and
iii. the arbitrators have misappropriated funds, accepted bribes or have been involved in other forms of malpractice in the arbitration of the case.
It should be noted that if a People's Court intends to either set aside or not enforce a foreign or foreign-related arbitral award, it is required to follow an internal reporting procedure, referring the matter to the appropriate higher People's Court. In turn, the higher People's Court will consider whether the award should be set aside or its enforcement refused, and it must report its opinions to the Supreme People's Court for comment. As such, in these cases there will be no formal ruling until a reply from the Supreme People's Court has been received.