On 26 December 2017, the Chinese Supreme People’s Court (the “SPC”) published the Provisions on Issues relating to the Reporting and Review of Cases Involving Judicial Review of Arbitration (the “Reporting and Review Provisions”) and the Provisions on Several Issues relating to the Trial of Cases Involving Judicial Review of Arbitration (the “Trial Provisions”), which became effective from 1 January 2018. (The above mentioned two provisions are jointly hereinafter referred to as the “Provisions”). The issuance of the Provisions is another step forward in strengthening arbitration, after enacting the PRC Arbitration Law in 1994 and the SPC’s Interpretation on the PRC Arbitration Law in 2006. The Provisions focus on the judicial review of arbitration cases in China. Below we summarize their most important new features.
1. Reporting and review system for both domestic and foreign-related arbitration cases
Previously there was a reporting and review system specifically for foreign and foreign-related arbitration cases. I.e. if a court does not recognize the validity of a foreign related arbitration agreement, revokes or does not enforce a foreign-related arbitration award or refuses to recognize and enforce a foreign arbitration decision (the “Negative Decision”), the case must be submitted to the Higher People’s Court, i.e. on provincial level, for review. If the Higher People’s Court agrees with the Negative Decision, the case shall be submitted to the SPC, i.e. on national level, for final decision.
Now the Reporting and Review Provisions also extend the application of such system to the judicial review of non-foreign related arbitrations, i.e. purely domestic arbitration without any foreign element, however, though in a slightly modified and weaker way: For the judicial review of non-foreign-related arbitration, in case of a Negative Decision, generally the competent Higher People’s Court has the right to make the final decision. Only under the below two circumstances the case shall be decided by the SPC: 1) the domiciles of the parties are located in different provinces; 2) the court refuses to enforce or revokes an arbitration decision for the reason that public interests are violated.
2. Jurisdiction for related cases
According to the PRC Arbitration Law, when filing an application for recognition and enforcement of a foreign arbitration award at a Chinese court, the application shall be made at the Intermediate People’s Court of the place where the person subject to enforcement or its property is located. In practice, however, in some cases neither the person subject to enforcement nor its property is located in China, which leads to the impossibility of enforcement of such awards.
To solve the above issue, the Trial Provisions clarify that for cases of application for enforcement of a foreign arbitration award, where neither the person subject to enforcement nor its property is located in China, if such foreign arbitration award is related to a case tried by a People’s Court, such court shall have jurisdiction; if such foreign arbitration decision is related to a case decided by a domestic arbitration institution, the Intermediate People’s Court at the place where such arbitration institution is located shall have jurisdiction.
3. Applicable law for deciding the validity of an arbitration agreement
The Trial Provisions make clearer the following aspects concerning the applicable law for deciding the validity of an arbitration agreement.
a) The agreed applicable law for the contract is not necessarily the applicable law for deciding on the validity of the arbitration agreement, i.e. if the parties only agree on the applicable law for the contract, such law must not in all cases be regarded as applicable law for deciding on the validity of the arbitration agreement.
b) Introduction of the principle in favorem validitatis: if the law of the place where the arbitration institution is located and that of the place of arbitration are subject to different laws and regulations on the validity of an arbitration agreement, the laws and regulations that find the arbitration agreement effective shall apply.
c) When a court reviews a case on recognizing and enforcing an foreign arbitration award by referring to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), if the defending party to the application claims that the arbitration agreement is not valid, the court shall decide the validity in accordance to the relevant provisions of the New York Convention, i.e. the law agreed by the parties shall prevail; if no law is chosen by the parties, the law in the place of arbitration shall apply.
4. Documents required for recognizing and enforcing a foreign arbitration decision
In practice, upon application for recognizing and enforcing foreign arbitration decision, some courts require that the submitted documents must be notarized and legalized, which is time consuming. Now the Trial Provisions abolish the requirement of such a notarization and legalization process. This will largely simplify the procedure.
The two Provisions will positively affect arbitration and its enforcement in China. Arbitration agreements should be drafted under consideration of both Provisions, and existing arbitration agreements should be given a careful review. In particular, in some cases it may be worth considering to add a specific provision on the choice of law governing specifically the arbitration agreement or arbitration clause.