Ennead Architects International LLP v. Fuli Nanjing Dichan Kaifa Youxian Gongsi (2016) Su 01 RenGang No.1 (13 December 2016), (Nanjing Intermediate People’s Court of Jiangsu Province).
In September 2012, the China International Economic and Trade Arbitration Commission (CIETAC), which is the biggest and longest established arbitration centre in China, established a branch in Hong Kong (CIETAC Hong Kong). The branch was established to further CIETAC's international profile and to enable parties with China related disputes that have a connection to Hong Kong to be heard in Hong Kong.
In a recent case in the Nanjing Intermediate People’s Court of Jiangsu Province (the Nanjing Court) enforcement of an award made by CIETAC Hong Kong was approved. This is the first case where the Chinese Court has made an order under the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong SAR (the Arrangement) to enforce a CIETAC Hong Kong arbitral award. In this article, we discuss the case and its significance in relation to the enforcement of contractual rights against Chinese parties.
The factual background
In 2015, an American Architectural firm, Ennead Architects International LLP (Ennead), commenced arbitration proceedings at CIETAC Hong Kong against a Chinese property developer, Fuli Nanjing Dichan Kaifa Youxian Gongsi (Fuli Nanjing) to recover design fees and unpaid interest due under two design contracts.
The hearing took place in Hong Kong on 25 August 2015. The tribunal issued its final award on 28 November 2015 (the Award). The Award found in favour of Ennead, and ordered Fuli Nanjing to immediately pay all of Ennead's design fees, interest and arbitration costs. Fuli Nanjing paid Ennead its design fees and arbitration costs. In relation to the interest awarded (which amounted to RMB 851,438.59), the parties agreed to enter into a settlement agreement whereby Ennead agreed to accept the lower sum of RMB 600,000 in full and final settlement provided Fuli Nanjing made payment by 31 May 2016. The settlement agreement provided that if Fuli Nanjing did not pay the agreed sum by that date, Ennead would be able to pursue Fuli Nanjing for the entire amount interest owed under the Award. Fuli Nanjing did not pay the settlement sum on the agreed date and so Ennead applied to the Court in Nanjing to enforce the Award for the full amount of interest awarded thereunder.
Under PRC law, the recognition and enforcement of an award issued in Hong Kong before Chinese Court is governed by the Arrangement. Article 1 of the Arrangement is a general clause for recognition and enforcement, which reads as follows:
Where one party fails to perform an arbitral award made in the Mainland or the Hong Kong SAR, the other party may apply for the enforcement of the arbitral award to the competent court at the place of domicile of the respondent or at the place where the respondent's property is located.
Article 7 of the Arrangement sets out a number of grounds on which enforcement of award may be refused covering such matters as the incapacity of one of the parties, procedural irregularities in the appointment of the tribunal or during the course of the arbitration proceeding or the suspension or setting aside of the award by the court of the seat of the arbitration.
On 13 December 2016, the Nanjing Court ruled to enforce the Award.
The Court found that the Award did not trigger any of the exceptions against recognition and enforcement under Article 7 of the Arrangement and so should be recognised and enforced. The decision was the first time a CIETAC Hong Kong Award has been enforced on the Mainland.
While the Chinese Courts have a reasonably good track record of recognizing foreign arbitral awards (in China, a refusal to recognize an award is subject to a fairly robust system of judicial review), enforcing an award against a Chinese entity is often more problematic. Bureaucratic delays and favouritism towards the Chinese entity can often frustrate the enforcement of an award and deny the successful party a recovery.
Against that background the decision in the Ennead case is a positive development. It indicates that the Chinese Courts will enforce a CIETAC Hong Kong award against a Chinese entity provided that it satisfies the requirements of the Arrangement.
Parties entering into contracts with Chinese entities may therefore wish to consider including a dispute resolution clause in the contract referring disputes to CIETAC Hong Kong. If the decision in Ennead is anything to go by, an arbitral award made by CIETAC Hong Kong may have a better chance of being enforced in the Mainland than an award issued under the rules of some other international arbitration institution because it will be viewed as an award issued by a leading arbitral institution in China.
Time will tell, however, as to whether the decision in the Ennead case will be followed in other enforcement cases.