Enforcement mechanisms are particularly complicated in a multi-jurisdiction context.
Different jurisdictions have distinct legal systems, principles of law and enforcement rules, leading to legal conflicts and uncertainties in the enforcement process. This article introduces the recognition and enforcement of foreign arbitral awards and court judgments in the People’s Republic of China (“China”), analyzes the interaction among domestic law, foreign law and international law, and proposes suggestions for facilitating cross-border enforcement.
I. Recognition and Enforcement of Foreign Arbitral Awards
Arbitration is a method of dispute resolution, where parties voluntarily submit their disputes to an independent arbitral tribunal for adjudication in accordance with an arbitration Thanks to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as New York Convention), arbitration has become a mainstream way to resolve cross-border disputes. Since the contracting parties to New York Convention cover most countries and regions, foreign arbitral awards are recognized and enforced in China mainly relying on New York Convention.1
Chinese courts once reviewed foreign arbitral awards by reference to the legislative notions of Chinese Arbitration Law, such as determining the nationality of an award based on the
location of the arbitration institution that made the award2, and applying Chinese Arbitration Law to deny the validity of an ICC (International Chamber of Commerce) arbitration clause3. With the adoption and deepening of the concept of “facilitating awards enforcement”, Chinese courts actively follow the evolution trend of international commercial arbitration and fill the gaps in domestic arbitration legislation. More and more foreign awards have been recognized and enforced in China. According to the Annual Report on Judicial Review of Commercial Arbitration by the Supreme People’s Court (2023), Chinese courts recognized and enforced 69 foreign awards during the year of 2023, a year-on-year increase of 16.9%, and the arbitration-friendly judicial environment is highly appreciated.
In practice, recognition and enforcement of foreign awards still confront some challenges. For example, the importance of preservation measures is self-evident as it can prevent the respondent from dissipating assets to evade an unfavorable award. However, as for foreign arbitration proceedings, only in those seated in Hong Kong or Macau can parties apply to mainland courts for preservation measures. Besides, parties to foreign-seated arbitrations often apply to the arbitral tribunal to issue interim measures, requiring the respondent to perform or refrain from specific actions. At present, there are no relevant legislation and judicial practice on whether such interim measures can be recognized and enforced in China.
It is worthy of expectation that Chinese Arbitration Law is under the process of amendment. According to the Arbitration Law of the People’s Republic of China (Revision) (Draft for Comments) released by the Ministry of Justice, this revision will summarize previous successful experience, deal with practical problems, keep in line with international best practices, optimize arbitration procedures, and enhance the international credibility and competitiveness of arbitration in China. It can be foreseen that China will deepen international cooperation with a more open and inclusive attitude and strive to build a more just, efficient and convenient system for recognizing and enforcing foreign arbitral awards.
II. Recognition and Enforcement of Foreign Court Judgments
Due to the lack of judicial mutual assistance arrangements between China and most countries, foreign court judgments are recognized and enforced in China mainly based on the principle of reciprocity. 4When applying this principle, Chinese courts need to determine whether there is a reciprocal relationship between China and the country where the judgment was Regarding this issue, Chinese judicial practice undergone a shift from “examining whether Chinese court judgements have been recognized and enforced in this foreign country before”5 to “examining whether Chinese court judgments could be recognized and enforced under the law of this foreign country” 6. This shift has increased the possibility of foreign judgments to be recognized and enforced in China.
Chinese courts also need to consider whether recognition and enforcement of a foreign judgment matches Chinese legal principles and public interests, as well as whether there are
fraud, false litigation and other irregularities.7In judicial practice, judgment debtors rarely invoked such requirements to persuade the court to refuse recognition and enforcement. However, in the case of (2019) Yue 01 Xie Wai Ren No. 3, a local court in Guangzhou province denied the punitive damages awarded in a U.S. judgment that largely exceeded the actual losses. The reason for this refusal is generally considered to be that punitive damages violate a basic principle of Chinese law, i.e., civil and commercial damages are usually limited to actual losses.
In brief, when recognizing and enforcing foreign judgments, China strives to balance efficiency and fairness by many means, such as clarifying review standards, standardizing application processes, reasonably determining reciprocal relationships, and strictly applying the causes for non-recognition and non- enforcement. This contributes to promoting international judicial cooperation while resolutely safeguarding China’s judicial sovereignty, the legitimate rights and interests of parties and public interest.
III. Interaction among Domestic law, Foreign Law and International Law
Two cases are briefly summarized below to illustrate how Chinese courts review the application for recognizing and enforcing foreign arbitral awards and judgments:
In the case of (2018) Hu 01 Xie Wai Ren No. 23, the court first found that the arbitral award in question was made in Singapore and therefore applied New York Convention to review the recognition and enforcement issues. Regarding the respondent’s objection to validity of the arbitration clause, the court applied the judicial precedent of the Court of Appeal of Singapore and ruled that the arbitration clause was valid. The court then decided to recognize and enforce the arbitral award. In the case of (2018) Hu 72 Xie Wai Ren No. 1, the court first found that China and the UK had not concluded or participated in any international convention on mutual recognition and enforcement of civil and commercial court judgments. The principle of reciprocity was thus used as the legal basis. The court considered the possibility of Chinese judgments being recognized and enforced under English law and accepted the existence of a reciprocal relationship between China and the UK. Finally, the court rejected the grounds for non-recognition
and non-enforcement raised by the respondent, and recognized and enforced the UK judgement.
From the above examples, it can be seen that cross-border enforcement involves complex interactions among domestic law, foreign law and international law. Domestic law provides a basic legal framework and rules for the enforcement process. When reviewing the application for recognition and enforcement, Chinese courts may need to ascertain and apply foreign laws. International law stipulates the rights and obligations of different countries towards each other in the context of cross-border enforcement. Understanding and mastering these three different legal systems poses huge challenges to all parties involved.
Facing this reality, the applicant for enforcement should consider enforcement issues from the beginning of cross- border transactions to reduce risks by good preparation. Critical issues include: shall the parties choose arbitration or litigation as the dispute resolution method? If arbitration is preferred, which country should be chosen as the seat of arbitration? Is the country where the counterparty’s assets are located a contracting party to New York Convention? If litigation is selected, which court shall be chosen to hear the dispute? Has the country where the counterparty’s assets are located signed a mutual legal assistance treaty or established a “reciprocal relationship” with China?
Author: Zongnan Wu
Footnotes
1 At the 18th meeting of the Standing Committee of the Sixth National People’s Congress on December 2, 1986, it was decided that the People’s Republic of China should accede to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and declared at the same time that: (1) the People’s Republic of China should apply the Convention only on the basis of reciprocity to the recognition and enforcement of arbitral awards made within the territory of another contracting country; and (2)the People’s Republic of China only applies this convention to disputes arising from commercial legal relationships that are deemed contractual or non-contractual under the laws of the People’s Republic of China.
2. In 2004, the Supreme People’s Court replied to the Shanxi Provincial High Peo- ple’s Court regarding the application of the parties to recognize and enforce the arbitral award made by the International Chamber of Commerce Arbitration Court in Hong Kong, stating that the International Chamber of Commerce Arbi- tration Court is a French arbitration institution so that such award shall be made in
3. Reply of the Supreme People’s Court to the Request for Confirmation of the Validity of the Arbitration Agreement between Zublin International GmbH and Wuxi Woke General Engineering Rubber , Ltd. [(2003) Min Si Ta Zi No. 23].
4. Article 299 of the Civil Procedure Law: Having received an application or a request for recognition and execution of a legally effective judgment or ruling of a foreign court, a people’s court shall review such judgment or ruling pursuant to international treaties concluded or acceded to by the People’s Republic of China or in accordance with the principle of reciprocity. If, upon such review, the people’s court considers that such judgment or ruling neither contradicts the basic principles of the law of the People’s Republic of China nor violates State sovereignty, security and the public interest, it shall rule to recognize its effec-tiveness. If execution is necessary, it shall issue an order of execution, which shall be implemented in accordance with the relevant provisions of the Law. If such judgment or ruling contradicts the basic principles of the law of the People’s Republic of China or violates State sovereignty, security or the public interest, the people’s court shall refuse to recognize and execute the judgment or ruling.
5 In the Civil Ruling (2016) Su 01 Xie Wai Ren No. 3, Nanjing Intermediate People’s Court of Jiangsu Province recognized and enforced the civil judgment of the Singapore court because the Singapore High Court had previously enforced the civil judgment of the Chinese court.
6 In the Civil Ruling (2018) Hu 72 Xie Wai Ren No. 1, Shanghai Maritime Court pointed out that if civil and commercial judgments made by Chinese courts can be recognized and enforced by courts of a foreign country, it can be determined that there exists a reciprocal relationship between China and that country.
7 Article 300 of the Civil Procedure Law stipulates that in any of the following circumstances, a ruling shall be made not to recognize and enforce a judgment made by a foreign court: (1) According to Article 301 of this Law, the foreign court has no jurisdiction over the case; (2) The respondent has not been lawfully sum- moned, or although lawfully summoned, has not been given a reasonable op- portunity to present or argue, or the party without legal capacity for litigation has not been properly represented; (3) Judgments and rulings were obtained through fraudulent means; (4) The people’s court has already made a judgment or ruling on the same dispute, or has recognized a judgment or ruling made by a third country court on the same dispute; (5) There is violation of the basic principles of the laws of the People’s Republic of China or harming national sov- ereignty, security, and public interests.