SUMMARY

The China Supreme People’s Court (the SPC) has issued a recent document confirming that awards made in ad hoc arbitration proceedings in Hong Kong are enforceable in the PRC.

Introduction

Arbitration is the preferred binding mechanism for resolving China-related business disputes, and Hong Kong is the leading international venue for such arbitrations. In Hong Kong, as is the case elsewhere, arbitration proceedings can be conducted in two ways, by adopting either: 

  • the arbitration rules of an arbitral institution, with the arbitration administered by the institution under its rules (institutional arbitration); or 
  • by adopting a more flexible procedure or adopting arbitration rules not affiliated with any particular institution and without the administrative services of an arbitral institution (non-institutional or ad hoc arbitration). International Chamber of Commerce (ICC) arbitration, conducted under ICC rules and administered by the ICC court, is a well-known example of an institutional arbitration. An arbitration conducted under United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, without the administration of an arbitral institution, is a typical example of an ad hoc arbitration.

The problem

Under the laws of most countries, agreements providing for either institutional or ad hoc arbitration are valid. However, in the PRC, arbitration agreements that are governed by PRC law and that provide for ad hoc arbitration are generally regarded as invalid. Instead, all arbitrations conducted in the PRC must be administered by an arbitral institution (or ‘arbitration commission’). This emphasis on ‘institutionality’ owes much to the historical development of arbitration in the PRC.

As a result of this quirk of PRC law, doubts have sometimes been voiced over whether an ad hoc arbitration award made in Hong Kong, whether or not the arbitration agreement is governed by PRC law, is recognised and enforceable in the PRC. This issue is of heightened concern in Hong Kong because it is not entirely free from doubt as to whether arbitration awards made with the assistance of the Hong Kong International Arbitration Centre (HKIAC) would necessarily be treated as an institutional award, or simply as an ad hoc award.

Clarification sought

Earlier this year, the Secretary of Justice of the Hong Kong Special Administrative Region (SAR) sought clarification for the legal basis of enforcement in the PRC of Hong Kong awards made under ad hoc arbitrations.

The SPC has set out its reply, in a letter dated 25 October 2007, expressing its view that ad hoc arbitration awards made in Hong Kong are enforceable in the PRC. It noted, however, that enforcement of such awards is still subject to Article 7 of the relevant arrangement between the PRC and Hong Kong on arbitration (the Memorandum of Understanding on the Arrangement concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong SAR (the Arrangement)). Article 7 of the Arrangement largely reproduces the well-established and limited New York Convention grounds for resisting enforcement of awards, and should not cause undue concern.

Conclusion

The SPC reply helpfully confirms that ad hoc awards made in Hong Kong are enforceable in the PRC. This confirmation covers many types of arbitrations conducted in Hong Kong, including arbitrations conducted under the UNCITRAL Arbitration Rules, whether or not the HKIAC is involved. This confirmation will therefore allow parties who arbitrate in Hong Kong to confidently adopt an arbitral procedure most suitable to their transactions, without being overly concerned that the resulting award might not be recognised and enforced in the PRC on a technicality.