On 23 February 2018, the Supreme People's Court of China issued the Provisions of the Supreme People’s Court on Several Issues Concerning Handling the Cases of Enforcement of Arbitral Awards by People’s Courts (hereinafter referred as the “New Provisions”), which came into effect on 1 March 2018. This article analyzes the key clauses under the New Provisions and provides tips for practicing.
I. Applicable Scope of the New Provisions
Article 1 makes it clear that the New Provisions applies to cases where a party applies to a People’s Court for enforcement of an arbitral award or a med-arb award issued by an arbitration institution1 under the Arbitration Law of China. However, this definition does not distinguish among domestic arbitrations, foreign-related arbitrations, or foreign arbitrations, nor does it refer to ad hoc arbitrations (So far, based on the Opinions of the Supreme People's Court on Providing Judicial Safeguard for the Development of Free Trade Zones on 9 January 2017, the prevailing view is that under Chinese law, ad hoc arbitrations, subject to certain limitations, are allowed in Free Trade Zones).
Regarding the applicable scope of the New Provisions, Dongning He, the Deputy Director of the Enforcement Department of the Supreme People's Court of China, pointed out in one press conference that “... arbitrations relating to labor and employment affairs and arbitrations of rural land contracting... These two types of arbitrations are governed by statutory rules, which incorporate special arbitration rules, application basis, and remedy procedures, so the New Provisions does not apply to these two types of cases”.
He also made further explanations on the applicable scope of the New Provisions, from which one can infer that the applicable scope of the New Provisions should be arbitral awards issued by mainland domestic arbitration institutions relating to commercial disputes between purely mainland domestic parties (i.e. the New Provisions do not apply to foreign-related or Hong Kong/Macau/Taiwan-related cases). However, it still waits for official legislative interpretation to further clarify this issue.
II. Vesting Jurisdiction in Grassroots Courts to Handle Enforcement Cases
Article 29 of the Interpretation of the Supreme People's Court on Certain Issues relating to Application of the Arbitration Law of the People's Republic of China stipulates that the jurisdiction to handle the enforcement of an arbitral award is vested in the Intermediate People’s Court where the party against whom enforcement is sought domiciles or property is
located. Now, Article 2 of the New Provisions confirms an exception to this general principle and vests jurisdiction in Grassroots People's Courts, when:
- The monetary amount of the enforcement is within the acceptable scope of the Grassroots People's Courts, and
- The place where the party against whom enforcement is sought domiciles or where the property subject to enforcement is located is within the jurisdiction of the designated Grassroots People's Courts, and
- With the approval of the superior People’s Court which administers the Intermediate People’s Court
Then, the Intermediate People’s Court may appoint the relevant Grassroots People's Court to exercise its jurisdiction over the case.
In addition, in order to unify judicial standards, for cases of judicial review of the applications for non-enforcement, Article 2.3 clearly stipulates that even if a case has been designated to a Grassroots People’s Court, it should be handed over back to the People’s Court which has the original jurisdiction over the case.
It should be pointed out that the New Provisions has vested certain jurisdiction of some arbitration enforcement cases (excluding cases of non-enforcement) to the grassroots courts. While the transferring is subject to a certain limitation, it is also quite clear that while it is an Intermediate People’s Court which issued the order, it is the superior People’s Court who administers the Intermediate People’s Court makes the real decision.
Therefore, even if a party wants a lower court to handle the case, it should still file the case in an Intermediate People’s Court rather than directly in a Grassroots People’s Court. In addition, because empowerment made by the Intermediate People’s Court is based on the approval of its superior People's Court, this procedure requires additional waiting time. However, since time is of the essence in many enforcement cases, therefore, in practice, it is not suggested that a party who seeks enforcement should rely on the possibility that a Basic People’s Court may handle the case. This is because both the application and decision-making process may take a long period of time and, very likely, the party will miss the best timing to seek enforcement.
III. Clarifying the standard of Ambiguity and “Two-step” Remedy Approach
Article 463 of the Interpretations of the Supreme People's Court on the Application of the Civil Procedural Law of the People's Republic of China requires the legal documents, based on which enforcement is sought, should be precise enough without ambiguity. However, no further interpretation regarding to what amounts to ambiguity. To this extent, Article 3 of the New Provisions listed 4 scenarios under which ambiguity may exist, namely, a. the rights and obligations of the subject are not clear; b. the specific amount of the payment is not clear; c. the subject matter which shall be delivered is not clear; d. the standards, objects, and scope of the performance is not clear. Paragraph 2 of the Article also stipulates that when an arbitral
award requires that the contract shall still be performed, but the award is not clear as for the rights, obligations, methods, and timing regarding the performance, the court may also dismiss the application for enforcement.
Article 4 provides that the clerical errors, calculation errors, and matters that have been identified by the arbitration tribunal but omitted in the award may be corrected or amended, a People's Court shall inform the arbitral tribunal in written notice and order it to make corrections or clarifications, or order the related arbitration institution to hand over the case file for the court to review. If the arbitration tribunal does not make corrections or clarifications, and the content regarding the enforcement after the court review is still unclear, the court may decide to dismiss the application for enforcement. This “two-step approach” (i.e. the court will first give the arbitration tribunal an opportunity to correct its arbitral award before rendering a judgment against enforcement) is undoubtedly an effective means to support arbitration and reduce unnecessary non-enforcement rates.
Based on the foregoing mentioned provisions, it should be noted that for a claimant in an arbitration case, it is critical to make sure that the submissions are clear and concrete. Any unnecessary ambiguity may later cause at least two types of risks: a. the arbitral tribunal makes an ambiguous award, which would possibly be set aside by the court during the enforcement stage; b. even if the arbitration tribunal makes a clear award as for how the losing party should fulfill its obligation under the award, there is still a substantial possibility that the party against whom enforcement is sought argues against the enforcement and claims that the tribunal exceeds its jurisdiction and the award contain extra issues which have not been submitted by the parties. (Article 237.2 of the Civil Procedure Law states that application for enforcement shall be refused if the subject matter does not fall under the scope of the arbitration agreement or the arbitration institution has no jurisdiction over the case). Therefore, when applying for arbitration, the claimant shall ensure that the submissions are clear and specific enough.
IV. Extending the Eligibility as to the Application for Non-enforcement
Article 237 of the Civil Procedure Law and Article 30 of the Provisions of Supreme People’s Court on Several Issues regarding Enforcement Objection and Reconsideration Cases Handled by the People’s Court only allow the party against whom enforcement is sought to bring up an application against the enforcement. To this extent, Article 7 of the New Provisions extends the eligibility for the application by granting the right of apply for non-enforcement to a certain type of third party, thus preventing the parties from maliciously applying for arbitration and jeopardize lawful rights of the related third parties.
Of course, there are still restrictions on the extension. According to Article 9 of the New Provisions, the eligible third party shall prove that the parties under the arbitration case maliciously apply for arbitration to jeopardize its lawful rights and interests whereas the subject matter has not yet been enforced.
V. Shorten the Statute of Limitations for the Application against Enforcement
Article 8 of the New Provisions stipulates that the party against which the enforcement is sought shall file a written application against the enforcement within 15 days from the receipt of the enforcement notice (if the arbitrator has conducted corruption or bribery, the party against whom enforcement is sought shall make a written application within 15 days from the date when he knows or should have known the matter), which is far shorter than the statute of limitations set forth in Article 481 of the Provisions of Supreme People’s Court on Several Issues regarding Enforcement Objection and Reconsideration Cases Handled by the People’s Court, as per which the application against the enforcement of a judicial decision shall be filed before the end of enforcement.
For a third party’s application, it shall be filed within 30 days from the date when the third party knows or should have known that a People's Court has taken enforcement measures.
This new article undoubtedly offers protection to third parties, but it is far from enough for a third party to solely rely on this article. In practice, as one of the fundamental principles of arbitration is confidentiality, a third party usually is impossible to know the arbitration process between its trading partner and the other party. However, since time is of the essence, if a third party has not filed an application against enforcement within the statute of limitations or it only knows the relevant arbitral award until the enforcement has been finalized (i.e. the subject has been enforced), then it still cannot protect its rights.
Therefore, when signing the contract, the parties should pay special attention to the possible impact of the relating upstream and downstream contracts. If necessary, additional disclosure clauses should be added in the contracts which stipulate that any dispute resolution proceedings (litigation, arbitration, mediation, etc.) and the result shall be promptly disclosed whenever the ongoing proceedings, which one contracting party (party A) is involved, may affect the opponent contracting party’s (party B) interests and any loss or damage thereof suffered by party B shall be compensated by party A.
VI. Unifying the Standard of Judicial Review Relating to the Non-enforcement of Mainland Domestic Arbitrations
Under Chinese law, arbitral awards are classified into three categories: foreign arbitral awards, mainland domestic arbitral awards, and foreign-related arbitral awards. Different types of arbitral awards apply different rules regarding the enforcement. The reasons for refusing enforcement of mainland domestic arbitral awards are stipulated in Article 237 of the Civil Procedure Law. The New Provisions further explains the reasons for non-enforcement.
As for refusing enforcement because the arbitration institution has no jurisdiction over the case, Article 13 lists four situations: a. the award deals with issues which exceed the scope of the arbitration agreement; b. the subject matter is not arbitrable; c. the award contains rulings beyond the parties’ submissions; or d. the arbitration institution is not appointed by the parties via mutual agreement.
As for refusing enforcement because the arbitral procedure is not in accordance with the legitimate procedures, Article 14 stipulates 3 situations: a. violation of the procedure stipulated by the Arbitration Law of China; b. violation of the agreed arbitration rules; c. violation of the parties’ specific agreement relating to the arbitration proceedings.
As for refusing enforcement because the evidence is forged or withheld, Article 15 stipulates 3 prerequisites：a. the evidence has been adopted by the tribunal；b. the evidence is substantial relating to fact finding; d. the evidence is formed or obtained by illegal means or violates the requirements of objectivity, relevance, and legality.
VII. Identifying the Procedural Connection between Setting-aside and Non-enforcement of Arbitral Awards
In the case of mainland domestic arbitral awards, the party against whom enforcement is sought can apply for non-enforcement or setting-aside. In practice, there are also situations in which the party applies for both non-enforcement and setting-aside. However, the previous legislations did not deal with the potential overlap between the two proceedings. To this extent, the New Provisions fills the gap.
After the application for setting-aside is dismissed, the party can still apply for non-enforcement. Article 8.2 provides that before the statute of limitations of applying for non-enforcement expires, if the application for setting-aside has been accepted but then dismissed, the statute of limitations for applying for non-enforcement shall be restarted from the day that the application for setting-aside is dismissed.
The same grounds claimed by the party against whom enforcement is sought can only be used once in the two proceedings. Article 20.1 stipulates that if the application for setting-aside of the arbitral award is dismissed, the same grounds cannot be used to apply for non-enforcement, and vice versa.
When the two proceedings happen parallelly, the judicial review for setting-aside shall be dominant. Article 20.2 stipulates that if there is a case where the application for setting-aside and non-enforcement of an arbitral award has been filed at the same time, the court shall suspend the judicial review of the non-enforcement application. When the arbitral award is then set aside, the court shall rule that the application for non-enforcement is refused. If the application for setting aside is rejected by the court or withdrawn by the party against whom enforcement is sought, the court shall resume the judicial review of the application for non-enforcement. If the party against whom enforcement is sought files the application for setting-aside and non-enforcement of the arbitral award but then withdraws the application for setting-aside, the court shall terminate the review of the application for non-enforcement except when the application for non-enforcement is then filed by a third party.