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Article

Non-Convention Enforcement of Arbitral Awards in Mainland China, Hong Kong, Macau and Taiwan

19 December 2011
Mayer Brown Article

Introduction

The People’s Republic of China (PRC) today has three separate legal systems. In addition to the PRC’s Central People’s Government (CPG), which governs Mainland China, there are two Special Administrative Regions (SARs): Hong Kong (HKSAR) and Macau. SARs have their own constitutions,1 providing for independent executive, legislative and judicial powers, but they are subject to the sovereign control of the CPG as regards external affairs, including entry into bilateral treaties and multilateral conventions.

The PRC ratified the New York Convention2 (Convention) in 1987. It was extended to Hong Kong in 1997, after the transfer of Hong Kong’s sovereignty by the United Kingdom, and to the Macau SAR on 19 July 2005. As a result, arbitral awards made in the PRC, the HKSAR or the Macau SAR can be enforced in any of the 142 member states of the Convention, and awards from the Convention countries may be enforced in each of these jurisdictions. 

However, the Convention is not applicable between these three jurisdictions, as they each form part of a single member state: the PRC. Consequently, enforcement among these jurisdictions must take place under the non-Convention arrangements outlined below.

Taiwan stands out as a highly developed, modern economy that has significant trade ties to other countries but that is not a member state of the Convention. This is because the government of Taiwan was replaced by the PRC at the United Nations in 1971. Although there are no formal constitutional ties between the PRC and Taiwan, they have each entered into arrangements to facilitate trade and commerce, including arrangements for mutual recognition and enforcement of arbitral awards.

Arrangement between Mainland China and the HKSAR

A Memorandum of Understanding on the Arrangement concerning Mutual Enforcement of Arbitral Awards between Mainland China and HKSAR was signed on 21 June 1999 (the Mainland-HK Arrangement). This provides for reciprocal recognition and enforcement of arbitral awards between Mainland China and the HKSAR and sets out detailed procedures for applications to their respective courts for enforcement.

The Mainland-HK Arrangement applies to:

  • Arbitral awards made under the HKSAR’s Arbitration Ordinance (which covers all arbitrations where the HKSAR is the “seat” or lex fori). Mainland China’s Supreme People’s Court (SPC) has clarified that the Mainland-HK Arrangement applies to ad hoc arbitral awards made in the HKSAR and also to arbitral awards made in the HKSAR under the rules of the International Chamber of Commerce (ICC) or other foreign arbitration institution;3 and
  • Arbitral awards made pursuant to the Arbitration Lawof the PRC by specified arbitral authorities in the Mainland (see below).

An application for enforcement must be justified by the domicile or the presence in the place of enforcement of interests or assets belonging to the party against whom the application is made.  This determines the location of the Intermediate People’s Court (IPC) where the application may be filed. An application may only be filed with one IPC. In the HKSAR, applications are made to the High Court.

A party may not seek enforcement of the award against assets in Mainland China and in the HKSAR concurrently, unless and until the result of enforcement proceedings in one place proves insufficient to fully satisfy the award.

An application for enforcement must contain the detailed information set out in Article 4 of the Mainland-HK Arrangement, which includes a copy of the arbitral award and the arbitration agreement.4

Applications must be made within the limitation period for such proceedings in the place of enforcement. As the limitation period in Mainland China can be as short as six months from the date of the award,5 it is important to seek the advice of local counsel as quickly as possible.

Article 7 of the Mainland-HK Arrangement provides for refusal of enforcement on seven grounds which correspond to the seven grounds for refusal set out in Articles V(1)(a) to (e) and V(2)(a) to (b) of the Convention.6

In relation to the seventh ground for refusal, while Article V(2)(b) of the Convention recognizes refusal when enforcement is “contrary to the public policy,” the Mainland-HK Arrangement provides for refusal if the Mainland China court holds that enforcement would be contrary to “the public interests of Mainland China.”

In the HKSAR, the Mainland-HK Arrangement is now implemented under the new Arbitration Ordinance (Cap. 609)7 (the HK Ordinance). Sections 92 to 95 of the HK Ordinance provide for enforcement of Mainland China awards in accordance with the procedures set out above. Additionally, Section 97 of the HK Ordinance requires the HKSAR’s Secretary for Justice to publish, by notice in the Government Gazette, the list of recognized Mainland China arbitral authorities supplied from time to time by those authorities.

Arrangement between Mainland China and the Macau SAR

The Arrangement on Mutual Recognition and Enforcement of Arbitral Awards Made in the Mainland and Macau SAR (the Mainland-Macau Arrangement) came into force on 1 January 2008. It provides for the reciprocal enforcement of arbitral awards in both jurisdictions.

Enforcement of arbitral awards under the Mainland-Macau Arrangement is generally similar to enforcement under the Mainland-HK Arrangement as set out above, subject to the following substantive differences:

  • In the Macau SAR, the intermediate courts have jurisdiction over applications for recognition of arbitration awards and the lower courts have the right to enforce arbitration awards.
  • Under Article 3 of the Mainland-Macau Arrangement, where there are assets or domiciles in both places, applications for enforcement may be made in the Macau SAR and in Mainland China at the same time. If approved, the courts in each place may seal, detain or freeze the relevant property. The court at the place of arbitration executes payment first. The other court may then proceed to execute after receiving a certificate stating the amount of the award that remains unsatisfied.
  • Under Article 3 of the Mainland-Macau Arrangement, the first six grounds for refusal of enforcement correspond with the first six grounds set out in Article V of the Convention. In respect of the seventh ground, the Mainland-Macau Arrangement provides for refusal if enforcement would be contrary to “the basic principles of law or the public interests of Mainland China” or if enforcement would be contrary to the “the basic principles of law or the public order of the Macau SAR.”
  • Article 9 of the Mainland-Macau Arrangement provides for suspension pending determination of an application for revocation in another jurisdiction, subject to provision of a sufficient guarantee, in terms similar to Article VI of the Convention. Provision is also made for interim protective measures to be taken against the property of the party against whom enforcement is sought, in accordance with the legal provisions of the place of enforcement.

Enforcement of Arbitral Awards between Mainland China and Taiwan

Although there is no formal bilateral arrangement between Mainland China and Taiwan for mutual arbitration enforcement, each has unilaterally enacted complementary legislation, which provides for reciprocal enforcement.

In 1992, Taiwan enacted the Act Governing Relations between Peoples of the Taiwan Area and the Mainland Area (the Taiwan-Mainland Act). Article 74 of that Act, as subsequently amended, provides for recognition and execution of “any irrevocable civil ruling or judgment, or arbitral award rendered in the Mainland Area” to the extent that it is not “contrary to the public order or good morals of the Taiwan area,” upon application to the Courts of Taiwan. The operative parts of Article 74 of the Taiwan-Mainland Act were made subject to a specific proviso that they would not come into force until such time as Mainland China makes provision for reciprocal recognition and execution of any irrevocable civil ruling, judgment or arbitral award rendered in the Taiwan Area.

In 1998, the SPC promulgated the Regulations Concerning Recognition by People’s Courts of Civil Judgments of Taiwan Courts (the Mainland-Taiwan Regulations), which provide for recognition and enforcement of civil judgments and arbitral awards rendered by Taiwan courts.

The Mainland-Taiwan Regulations were clarified and extended by the Supplementary Regulations Concerning Recognition by People’s Courts of Civil Judgments of Taiwan Courts (the Supplementary Regulations), which came into force on 15 May 2009.

The PRC’s promulgation of the Mainland-Taiwan Regulations and the Supplementary Regulations satisfied the proviso of Article 74 of the Taiwan-Mainland Act, stating that final Mainland China civil  judgments and arbitral awards are now recognisable in Taiwan, subject to the “public order or good morals” exception.

A Taiwan arbitral award that is recognised by a PRC court must be given the same effect as a judgment of a Mainland China court. An application for recognition of a Taiwan arbitral award must be submitted to the IPC where the applicant is domiciled or where the assets against which enforcement is sought are located.8 The Supplementary Regulations extend the limitation period for such application from one to two years, starting from the effective date of the award. Specific provision has also been made for interim preservation measures to be taken against the assets which are the subject of enforcement proceedings during the recognition proceedings.

Neither Mainland China nor Taiwan has provided for the refusal of enforcement of awards  between their jurisdictions on grounds reflecting those set out in Article V of the Convention.

Article 74 of the Taiwan-Mainland Act only provides for the “public order or good morals” exception. The grounds for refusal of recognition applicable to foreign awards from non-Chinese jurisdictions, which reflect Article V of the Convention, are not applicable to Mainland China awards.9

The Supplementary Regulations provide for refusal of recognition of a Taiwan arbitral award if:

  • The effectiveness of the award has not been determined (e.g., if the award is subject to an application for revocation).
  • The respondent was absent and was not legally summoned, lacked capacity or was not given access to appropriate legal assistance.
  • The case falls within the exclusive jurisdiction of a Mainland China People’s Court.
  • The case has already been adjudicated by a Mainland China People’s Court.
  • The case violates fundamental principles or social and public interests of Mainland China.

Taiwan: Enforcement of Arbitral Awards Made in the HKSAR or Macau SAR

There is no formal bilateral arrangement between Taiwan and either the HKSAR or the Macau SAR for mutual enforcement. Each jurisdiction has, however, unilaterally made legislative provision for reciprocal enforcement.

In Taiwan, Article 42 of the Act Governing Relations with Hong Kong and Macau, which came into force on 1 July 1997 for the HKSAR and on 10 December 1999 for the Macau SAR, provides that enforcement of an arbitral award from the HKSAR or Macau SAR is governed by Articles 47 to 51 of Taiwan’s Arbitration Law (1998). These are the same provisions applicable to enforcement of awards from all other non-Chinese foreign jurisdictions, which are largely based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (Model Law). They provide for refusal to recognize foreign arbitral awards on grounds corresponding to the first six grounds of refusal in Article V of the Convention, as well as the additional ground that refusal may be enforced where the award is “contrary to the public order or good morals of the Taiwan area.”

HKSAR: Enforcement of Arbitral Awards Made in the Macau SAR or Taiwan

As at the time of this writing, the HKSAR government has entered into formal discussions with the government of the Macau SAR concerning a proposed arrangement on mutual enforcement of arbitral awards between the HKSAR and the Macau SAR. The HKSAR government also proposes to work with relevant Taiwanese authorities to foster the establishment of a mechanism for reciprocal recognition and enforcement of arbitral awards within the region.10

Pending formalisation of the proposed bilateral arrangements, non-Convention enforcement of awards made in the Macau SAR or Taiwan is provided for under the HK Ordinance.

Sections 84 to 86 of the HK Ordinance provide for enforcement of awards that are not enforceable under the Convention and which are not Mainland China awards, with the leave of the High Court of the HKSAR. The seven grounds for refusal are almost identical to those set out in Article V of the Convention, with an additional ground of “for any other reason the court considers it just to do so.”

Section 86(4) provides for adjournment pending determination of an application for revocation in another jurisdiction, subject to possible provision of security, in terms similar to Article VI of the Convention.

A party also is entitled to bring an action at common law to enforce an arbitral award made in the Macau SAR or Taiwan by way of a writ, followed by an application for summary judgment in the terms of the arbitral award. This alternative route is unlikely to provide any greater assistance than the procedure under the HK Ordinance,11 as the HKSAR High Court has stated that  its role in allowing enforcement of an award through the statutory procedure or at common law should not be fundamentally different, and the Court’s role in both cases should be minimal and “as mechanistic as possible.”12

Macau SAR: Enforcement of Arbitral Awards Made in the Macau SAR or Taiwan

Awards made in the HKSAR or Taiwan are enforceable in the Macau SAR under provisions applicable to all non-Convention awards, contained in the Macau SAR’s Decree Law 55/98M (the Decree Law).

The Decree Law governs “international commercial arbitration,” which is defined in Article 1(4) in terms similar to Articles 1(1) and 1(3) of the Model Law, except that “State” is replaced with “State or territory” (i.e., to include any arbitration where the parties have places of business in different states or territories).

Non-Convention awards, including those made in the HKSAR or Taiwan, may be recognised under Articles 35 and 36 of the Decree Law, subject to grounds for refusal of recognition which are similar to those set out in Article V of the Convention, with the exception that a term which translates as “public order” is used in lieu of “public policy” in the seventh ground.

Article 36(2) provides for adjournment pending determination of an application for revocation in another jurisdiction, subject to possible provision of appropriate security, in terms similar to Article VI of the Convention.

An application for enforcement must include a copy of the award and the arbitration agreement, together with a certified translation in Chinese or Portuguese, if the documents are written in another language.

Alternatively, if an award made in the HKSAR or Taiwan is not within the scope of the Decree Law, it may be enforceable under Articles 1199 to 1200 of the Macau SAR’s Code of Civil Procedure, which provides for enforcement of any arbitral award made outside the Macau SAR subject to the leave of the Macau SAR Courts. Such recognition is subject to the applicant proving the following:

  • The authenticity and interpretation of the award.
  • The finality of the award according to the law of the place where it was rendered.
  • The award does not involve subject matter within the exclusive jurisdiction of courts of the Macau SAR or the jurisdiction of the arbitral tribunal has not been acquired by fraud.
  • The subject matter has not been adjudicated by  the Macau SAR courts, unless submitted earlier to the foreign tribunal.
  • Proper notice of the proceedings was given to the party against whom enforcement of the award is sought, and due process has been observed.
  • Recognition of the award would not be contrary to the public policy of the Macau SAR.

Conclusion

The close connections and significant commercial relationships between Mainland China, the HKSAR, the Macau SAR and Taiwan require each to ensure that effective reciprocal arrangements are in place to facilitate the enforcement of arbitral awards among these four jurisdictions, despite the fact that they do not have Convention enforcement available.

The various mutual arrangements and unilateral legislation which have been brought into effect between these jurisdictions in recent years largely achieve these objectives, in most cases by implementation of enforcement arrangements that mirror those prescribed under the Convention, subject only to a residual discretion in most cases to refuse enforcement on “public policy” related grounds that are wider than those prescribed under the Convention. This approach appears to demonstrate a desire to promote more legal uniformity across the Greater China region, while at the same time retaining a residual element of caution reflecting the historical divisions between each of these jurisdictions.


Footnotes:

1. The Basic Law of the HKSAR Administrative Region of the People’s Republic of China (1997) and the Basic Law of the Macau Administrative Region (1999).
2. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.
3. Supreme People’s Court of the PRC - Notice of Relevant Issues on the Enforcement of Hong Kong Arbitral Awards in the Mainland, Fa [2009] 415 (On 30 December 2009).
4. In Mainland China, the award and arbitration agreement, if in another language, must be filed together with a certified translation in Chinese. In the HKSAR, a certified translation is required only for awards that are in a language other than Chinese or English. cf. Article IV of the Convention.
5. Article 219 of the PRC’s Civil Procedure Law (1991) provides a limitation period of six months which is applicable to legal entities in certain circumstances. For individuals, the corresponding limitation period is one year.
6. These are :
(1) Invalidity of the arbitration agreement or incapacity of a party to the arbitration agreement under the governing law of the arbitration agreement or the law of the country where the award was made.
(2) Lack of or improper notification of appointment of arbitrator or of arbitration proceedings, or inability of one party to present his case.
(3) Parts of the award are outside or beyond the scope of the arbitration.
(4) Invalidity of the arbitral authority or of the arbitral procedure followed under the law of the country where the award was made.
(5) The award is non-binding, suspended or has been set aside by a competent authority.
(6) The subject matter of the difference was wrongly referred to arbitration.
(7) Recognition or enforcement of the award would be contrary to the public policy of the country where enforcement is sought.
7. The new Arbitration Ordinance (Cap. 609) replaced the previous Arbitration Ordinance (Cap. 341)  effective 1 June 2011.
8. In accordance with Article 217 of the PRC’s Civil Procedure Law (1991).
9. Articles 47, 49 and 50 of Taiwan’s Arbitration Law (1998).
10. As reported to the LegCo Panel on Administration of Justice and Legal Services in Legislative Council (LC) Paper No. CB(2)2412/10-11(01) [http://legco.hk/yr10-11/english/panels/ajls/papers/aj0228cb2-2412-1-e.pdf].
11. The common law enforcement route may indeed be more cumbersome and less likely to succeed, as the burden of proof and available defences are more exhaustive - see Halsbury’s Laws of Hong Kong, Volume 1(2) (2008 Reissue), [Arbitration] at 25.187.
12. Xiamen Xingjingdi Group Ltd v. Eton Properties Ltd [2008] 4 HKLRD 972 at 47 and 63, affirmed on appeal: [2009] 4 HKLRD 353; Re Petrochina International (Hong Kong) Corp Ltd. [2011] 4 HKLRD 604.

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