Enforcement in China
Cotton Bulletin October 2010 – Enforcement in China
With the growth of cotton consumption in Asia, parties are increasingly faced with the prospect of having to enforce their English arbitral award in the People’s Republic of China (“PRC”). This article considers a claimant’s ability to enforce an English judgment or an English arbitral award in the PRC as well as highlighting some useful steps a party can take prior to the execution of a contract and during arbitration that would assist enforcement.
Enforcement of English Court Judgments
In the PRC, it is only possible to enforce a foreign court judgment where there is a concluded treaty, or if there is a principle of reciprocity. Currently, there is no bi-lateral convention between the PRC and the UK nor is there a principle of reciprocity. It is therefore highly unlikely that an English court judgment would be enforced in the PRC.
There is however an alternative for parties who contract with Chinese counterparts – electing to litigate in Hong Kong, rather than arbitrate. Under the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters the PRC has agreed to enforce certain Hong Kong judgments and awards. Certain conditions apply such as (i) the contract must have a “choice of court” clause, (ii) the judgment must be from the District Court of Hong Kong or higher and (iii) the judgment must be final judgment requiring payment of money (i.e. it cannot be used for an injunction or interim orders).
Enforcement of English Arbitration Awards
In 1987 the PRC ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) subject to the following two reservations:
1. Recognition and enforcement of foreign awards are made on the basis of reciprocity.
2. The PRC courts will only enforce disputes that arise out of “commercial legal relations of a contractual or non-contractual nature”.
The PRC Supreme Court issued a Notice in 1987 on the PRC’s accession to the New York Convention which stated that “commercial legal relations of a contractual or non-contractual nature” was a reference to economic rights and obligations arising out of contracts, infringements or law, such as the purchase and sale of goods, processing, technology transfer, joint venture, cooperative business, agency, transportation by sea, air, rail or road and product liability.
Subject to the above two reservations, English arbitral awards are theoretically enforceable in the PRC by virtue of the New York Convention.
Inability to enforce
The PRC courts may refuse to enforce an English arbitral award if:
- There is no arbitration agreement or the agreement was invalid.
- The party against whom the award was made had insufficient chance to defend themselves in arbitral proceedings.
- The matters decided upon fall outside the scope of the arbitration agreement/arbitration commission.
- The award has not become binding or has been set aside.
- The matter is not capable of settlement by arbitration under Chinese law.
- Enforcement would be contrary to the social and public interest of the PRC.
It is important to remember that social, economic and political pressures may influence local judges when deciding whether or not to enforce an English arbitral award. Practice and attitudes of PRC courts vary depending on location – in larger cities, judges are likely to look more favourably on enforcement whereas in small towns, enforcement may be hindered by local protectionism.
That said, any PRC court who denies a party the right to enforce in China, must first obtain permission from the Supreme Court.
Maximising chances of enforcement
Negotiation
- Ensure that the correct names and addresses of the parties are included in the contract in both Mandarin/Cantonese and English – do not use abbreviations.
- If possible, ask the Chinese company to affix its company stamp.
- Ask for evidence that the person negotiating on behalf of the Chinese company has authority to bind the company.
- Seek written agreement that should a dispute arise, payment into an escrow account outside of China will be made.
Arbitration & Enforcement
- When a dispute arises, engage local lawyers to advise on the influence of local protectionism and local government influence.
- Mr Song, Partner at Commerce and Finance Law Offices in Beijing and whom we instruct to advise on enforcement issues in the PRC explained that it is important for parties to maintain evidence of service of process by both fax and courier.
- For service of notices in relation to the arbitration, obtain a translation of the notices from English to Mandarin/Cantonese and use a courier to serve notices in both English and Mandarin/Cantonese, even if the agreement provides for service by fax.
- Ensure you obtain notarisation and legalisation of important documents (i.e. award, contract) in time, together with translations.
- If it is possible to categorise a claim as being maritime in nature, a claimant may apply for a property preservation order in the PRC before enforcement proceedings are commenced
Remember – enforcement proceedings in the PRC must be commenced within two years from the date of award.
For further information, please contact Brian Perrott, Partner, on +44 (0)20 7264 8184 or brian.perrott@hfw.com, or Alice Paterson, Associate, on +44 (0)20 7264 8471 or alice.paterson@hfw.com, or Declan McKeever, Attorney at Law, on +44 (0)20 7264 8442 or declan.mckeever@hfw.com or your usual contact at HFW.