China’s rapid economic growth, and its emergence on the world stage as an international trader of real significance, has had a significant impact on the development of the rule of law in China, and on its legal system.
China has, since the 1980s, taken giant strides towards developing an institutionalised codified system of laws
China is a Contracting State to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which entered into force in China on 22 April 1987. China has made two reservations under the Convention, being:
- Reciprocity – China will only apply the New York Convention to the recognition and enforcement of awards made in another Contracting State
- Commercial relationships – China will only apply the New York Convention to disputes arising out of legal relationships that are considered “commercial” under Chinese law.
Historically, Chinese courts have not always enforced foreign arbitral awards in the routine manner that successful claimants might have hoped for. The Chinese judicial system is a relatively young system that until recently (and perhaps currently) was at risk of external influences. Additionally Chinese judges are not necessarily drawn from the ranks of experienced lawyers.
Presumably in order to address this external perception, and to improve China’s standing as a reliable country with which to engage in international trade, on 17 April 2000, the Supreme People’s Court of China mandated that foreign arbitral awards could not be vacated, or enforcement refused, unless the Court had first approved that action. Since then, lower court decisions vacating arbitral awards are subject to review by the Supreme People’s Court.
Wan E’xiang, a Deputy Chief Justice of the Supreme People’s Court, has said that between 2000 and 2008 lower courts refused to enforce foreign arbitral awards on public policy grounds but the Supreme People’s Court did not uphold any of those decisions. It appears that this happy state of affairs was short lived, as Chinese media reported in August 2008 that the Supreme People’s Court upheld a decision of an intermediate court that had refused to enforce an arbitral award issued by a Parisian tribunal on the basis the award contravened Chinese public policy. In this case the violation of public policy was constituted by the Parisian tribunal deciding a matter that should have been determined by a Chinese court. That is, the tribunal usurped the judicial sovereignty of China.
While not totally devoid of risk, arbitration is by far the most preferable method of enforcing rights against a Chinese company. Foreign arbitral awards are enforced, even in China, with relative ease compared to the impossibility of enforcing a judgment of a foreign court. Successful claimants should note that time limits apply to enforcement proceedings, which must be commenced within 2 years from the last day of the period specified in the award (or judgment) for its performance, or if no period is specified for its performance, the time limit is calculated from the day when the award takes effect. A foreign arbitral award in China is enforced by application to the Intermediate People’s Court for the region where the party against which the award is to be enforced is resident.