The CIETAC Hong Kong Arbitration Centre (CIETAC HK) was established in September 2012 to enable China-related disputes to be resolved in Hong Kong, a jurisdiction with a world-class reputation for international commercial arbitration.
On 13 December 2016, the Nanjing Intermediate People’s Court of Jiangsu Province (Nanjing Court) handed down a decision in Ennead Architects International LLP v Fuli Nanjing Dichan Kaifa Youxian Gongsi (Decision) to enforce a CIETAC HK arbitral award in Mainland China for the first time. This timely Decision enhances CIETAC HK’s credentials and will bolster its claim to be an institution of choice for Belt and Road disputes.
The claimant, Ennead Architects International LLP (Ennead), an American architectural design firm, entered into two property design contracts (Contracts) with a Chinese property developer, Fuli Nanjing Dichan Kaifa Youxian Gongsi (R&F Real Estate Development Co. Ltd. Nanjing) (R&F).
In 2015, Ennead commenced arbitration proceedings at CIETAC HK against R&F to recover unpaid design fees and interest pursuant to the Contracts. The hearing took place in Hong Kong on 25 August 2015 and the tribunal issued its award on 28 November 2015 (Award), finding in favour of the claimant and ordering R&F to pay immediately all of Ennead’s design fees and interest owed under the Contracts, as well as to bear liability for all arbitration costs.
In compliance with the Award, R&F paid Ennead its design fees (RMB6,407,640) and arbitration costs (RMB299,476.50) on 3 February 2016 and 16 March 2016, respectively. However, in relation to the overdue interest, the parties entered into a settlement agreement whereby Ennead agreed to accept the lower sum of RMB600,000 on condition that R&F completed payment by 31 May 2016, failing which, R&F would be liable for the full amount of interest incurred amounting to RMB851,438.59. R&F failed to pay the required interest by the deadline of 31 May 2016.
Consequently, Ennead brought enforcement proceedings against R&F before the Nanjing Court, seeking to recover the interest element of the Award and the cost of bringing such proceedings. R&F informed the Nanjing Court that it did not seek to contest the Award and admitted failure to pay the interest as required by the Award.
The Nanjing Court, in its Decision, enforced the outstanding interest element of the Award and made express reference to Articles 1 and 7 of the 1999 Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong (Arrangement). Article 1 of the Arrangement provides that where a party fails to comply with an arbitral award made in the Mainland or Hong Kong, the other party may apply to the relevant court in the place where the defaulting party domiciles or situates his property to enforce the award. Under Article 7 of the Arrangement, the party against whom an enforcement application is filed may, after receiving notice of an arbitral award, adduce evidence of one of the grounds specified under this article, which mirrors Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention), challenging enforcement.
The Nanjing Court noted that R&F had not sought to invoke any of the grounds in Article 7. In addition, as the dispute was capable of being settled by arbitration under PRC law and enforcement of the Award would not have been contrary to the public interests of Mainland China, a residual ground for refusing enforcement under Article 7, the Nanjing Court ruled to enforce the outstanding interest under the Award and ordered costs against R&F.
In a landmark ruling, the Chinese courts demonstrated that they would recognise the validity of awards rendered under the auspices of CIETAC HK. Admittedly, the facts of this case are somewhat unusual in that the respondent did not resist enforcement of the Award in Mainland China by relying on any of the grounds available under the terms of the Arrangement. R&F had, in fact, affirmed its agreement to the terms of the Award, and voluntarily complied with all the orders made, except the payment of interest, arguably simplifying the decision of the Nanjing Court.
Nevertheless, this case is an important milestone for CIETAC HK as it increases its appeal as a dispute resolution centre for arbitrations seated in Hong Kong and strengthens its position as an institution to administer Belt and Road disputes.
More generally, this case will be welcomed by the international arbitration community as it offers comfort to parties engaging with Chinese entities, and their legal representatives, that arbitral awards can and will be enforced in Mainland China provided that the aforementioned conditions are satisfied.