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A Uniform, Internationally Oriented Legal Framework for the Recognition and Enforcement of Foreign Arbitral Awards in Mainland China, Hong Kong and Taiwan?

José Alejandro Carballo Leyda

© The Author 2007. Published by Oxford University Press. All rights reserved.
Subject(s):
UNCITRAL Model Law — Enforcement in domestic courts — Enforcement through home state action — Enforcement of award — Stay of enforcement

I.  Introduction

1.  During the last decade, Western countries have increased commercial transactions with, and investments in, Mainland China1 and the Taiwan Region (hereinafter Taiwan)2. At the same time, economic integration between Mainland China, Hong Kong Special (p. 346) Administrative Region (hereinafter Hong Kong) and Taiwan has largely increased. After the accession to the World Trade Organization (WTO), Mainland China (11 December 2001) and the Taiwan Customs Territory (1 January 2002) are compelled to open direct trade and shipping between them. Although this will not resolve the tension between them, it should eliminate the main obstacle to cross-strait trade.3 Mainland China and Hong Kong also signed a WTO compliant Common Economic Partnership Agreement (effective on 1 January 2004), which will further foster economic relations between them.4 However, the growth in commercial transactions normally entails an increase in disputes.

2.  Mainland China, Taiwan and Hong Kong share the same traditions dating back to ancient China (particularly their attitude towards arbitration and the gap between written and practised law5), but their legal evolution and economic development highly differ. Therefore, it becomes necessary to analyse critically their legal framework for the recognition and enforcement of foreign arbitral awards, in order to ascertain whether or not:

  1. 1.  it is in line with the current international framework, namely the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter New York Convention)6 of 1958, and

  2. 2.  there is any specific legal framework for the recognition and enforcement of Mainland China awards in Hong Kong and Taiwan and vice versa.

3.  First, this paper will briefly identify the existing legal frameworks for the recognition and enforcement of foreign commercial arbitral awards in Mainland China, Hong Kong and Taiwan. Secondly, it will examine the main aspects of those frameworks critically. Finally, the paper will comment on the specific problems and shortcomings of mutual recognition and enforcement of commercial arbitral awards among Mainland China, Hong Kong and Taiwan.

II.  Legal framework for the recognition and enforcement of foreign arbitral awards in Mainland China, Hong Kong and Taiwan

II.A.  Mainland China7

4.  Arbitration is an important mechanism for resolving international commercial disputes involving a Mainland Chinese party. Contrary to the general lack of recognition and (p. 347) enforcement of foreign court judgments in Mainland China8 (until very recently this also included those rendered in Hong Kong9 and Taiwan10), there exists a more encouraging framework for the recognition and enforcement of foreign commercial arbitral awards.

5.  Mainland China did not directly adopt the 1985 UNCITRAL Model Law on International Commercial Arbitration (hereinafter Model Law11), but made selective use of it as a guide in the drafting of the 1994 Arbitration Law (which came into force on 1 September 1995). However, the 1994 Arbitration Law does not establish a mechanism for the recognition and enforcement of foreign arbitral awards (even though Chapter VII of the Model Law contains rules greatly resembling the New York Convention mechanism). It merely invokes the relevant provisions of the 1991 Civil Procedure Law (hereinafter 1991 CPL), which in conjunction with the judicial interpretations made by the Supreme People’s Court (SPC) take a crucial position in the framework under study.

6.  However, the cornerstone of Mainland China’s system for recognition and enforcement of foreign arbitral awards remains its ratification of the New York Convention in 1987.12 The Convention has to be construed through the “Notice of the Supreme People’s Court on the implementation of the Convention on the Recognition and Enforcement of foreign arbitral awards to which China has acceded”, issued on 10 April 1987 (hereinafter, the SPC 1987 Notice).

II.B.  Hong Kong13

7.  The 1982 Arbitration Ordinance governed both international and domestic arbitrations until an amendment was introduced in 1990 to incorporate the Model Law as the law applicable to all international arbitrations (as defined in relation to Article 1.3 of the Model Law).

8.  On 1 July 1997, Hong Kong became a Special Administrative Region of the People’s Republic of China. Despite this change, the Arbitration Ordinance remains applicable according to the Basic Law of Hong Kong, under the principle of “One Country, Two Systems”.14 New amendments related to the enforcement regime were introduced in 2000 to solve problems with the recognition of awards rendered in Mainland China and in States that are not parties to the New York Convention.

(p. 348) 9.  In 1977, the United Kingdom acceded to the New York Convention on behalf of Hong Kong. After the reversion of Hong Kong to the sovereignty of Mainland China, Hong Kong remained a party to the New York Convention through Mainland China’s ratification. This situation appears to be in confrontation with the 1965 Washington Convention.15 However, the 1923 Geneva Protocol on Arbitration Clauses and the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards were repealed as from the 2000 Amendments.

II.C.  Taiwan16

10.  In 1998, after an important debate, Taiwan amended its Statute for Commercial Arbitration (SCA) of 1961 to conform its legal framework to the Model Law.17 Later amendments in 2002 do not affect Chapter VII on recognition and enforcement. However, due to political reasons, Taiwan is not a signatory to the New York Convention (neither is it a signatory to the 1965 Washington Convention), so it is for the SCA to regulate the mechanism of recognition and enforcement of both domestic and foreign arbitration awards.

III.  Critical analysis of the different frameworks

11.  It is not the purpose of this paper to deal with a detailed account of the enforcement regimes. This will instead focus on a critical analysis of the main aspects of the frameworks applied by the courts of Mainland China, Hong Kong and Taiwan. Hence, due to a length limit and for the sake of clarity and structure, some aspects such as the documentation required are beyond the purview of this study and will not be covered.18

III.A.  Mainland China

12.  The 1982 Trial CPL provides, subject to certain restrictions,19 for the recognition of foreign arbitral awards through the rough mechanism of judicial assistance. It substantially hindered the enforcement of arbitration awards and was inconsistent with international practice.

(p. 349) 13.  After the promulgation of the 1991 CPL, however, Article 269 provided for the enforcement in Mainland China of arbitral awards issued by foreign arbitration institutions. It states that “if an award made by a foreign arbitration organ requires the recognition and enforcement by a people’s court of China, it shall deal with the international treaties concluded or acceded to by China or on the principle of reciprocity”. Even though no express grounds for refusal are contained, in practice, “ad hoc” awards (not rendered by any “foreign arbitration institution”) and awards for which enforcement would be contrary to Chinese social public interests would not be enforceable.

14.  Therefore, in accordance with Article 269 of the CPL, applications for the enforcement of arbitral awards are to be decided either under the scope of an international treaty concluded by or acceded to Mainland China, or on the basis of reciprocity. Both Article 238 of the CPL and Article 142 of the General Principles of Civil Law (promulgated in 1986) codify the principle of supremacy of international treaties concluded by or acceded to Mainland China.

15.  As mentioned before, Mainland China is a signatory to the New York Convention, albeit subject to two reservations20:

  • •  The reciprocity reservation, by which Mainland China’s agreement is restricted to foreign arbitral awards made in the territory of a state which is also a party to the New York Convention. It must be stated that Mainland China foreclosed the possibility of applying the New York Convention to foreign awards rendered in Mainland China, the so-called “non-domestic” awards (CIETAC21/CMAC22 awards or ICC23 awards made in Mainland China), at the time of its ratification of the New York Convention. This is a different approach from the one adopted in the Taiwan region as to the definition of “foreign awards”.

  • •  Mainland China also made the commercial reservation. According to the SPC 1987 Notice, Mainland China would apply the New York Convention only to disputes arising from commercial legal relationships of a contractual or non-contractual nature, but excluding disputes between foreign investors and governments of host countries (therefore, the New York Convention regime is not applicable to the ICSID awards24).

(p. 350) 16.  The 1987 Notice defined the term “commercial legal relationships” by providing a non-exhaustive list of examples such as: “disputes relating to the sale of goods, property leasing, construction contracting, contract processing, technology transfer, equity joint ventures, cooperative joint ventures, prospecting and developing natural resources, insurance, credit, personal services, agency, consultancy services and carriage of goods by sea, civil aviation, rail transport and road transport, as well as product liability, environmental pollution, marine casualties and title.” However, as there exists no definite and authoritative definition of the term (in clear separation of the concepts of civil and economic law) within China’s legislation or jurisprudence, the vague approach adopted by the Notice may lead to problematic applications.

17.  The competent Intermediate People’s Court25 through which enforcement is sought26 must base any decision of refusal to enforce only on the provisions of Article V(1) (which require allegation and evidence by the party against whom recognition and enforcement are sought) or Article V(2) (where the court may decide ex officio). Examination and control over foreign awards by the Courts of Mainland China are only of a purely procedural nature and cannot be subjected to substantive supervision (as it is in the case of domestic awards).

18.  Although the ground of public policy27 has raised many worries among scholars and legal practitioners,28 longstanding practice of the Courts of Mainland China has showed that no judicial decision has yet been denied the enforcement on the grounds of violation of public policy,29 under Article V[2(b)] (in cases where lower Courts did, the SPC later overruled it). The same goes for the grounds of impossible successful arbitration of the dispute,30 Article V[2(a)].

(p. 351) 19.  According to Wang,31 “Chinese courts … paid more attention to substance, justice, fairness and equity rather than observation of procedures … the understanding of ‘due process’ is quite different in China from that in common law jurisdictions”. Consequently, “the issue of ‘unable to present his case’ (Article V.1.b) has been seldom raised as a defence”.

20.  With regard to arbitral awards (i) made in countries that are not parties to the New York Convention, or (ii) rendered in the territory of a State member to the New York Convention but in cases of a non-commercial nature under Chinese Law or before the New York Convention become applicable in Mainland China (22 April 1987): unless a specific judicial assistance agreement that provides for the mutual recognition of arbitral awards has been signed with that country (only a few of the bilateral Judicial Assistance Treaties signed by Mainland China refer to the recognition of awards), the reciprocity principle will be required.

21.  In practice, the reciprocity mechanism codified by Article 269 of the CPL has not much effect due to local protectionism and to the fact that at least 137 states are now party to the New York Convention. Furthermore, even if the article does not contain any explicit grounds for refusal, it only applies to “arbitration institutions”, excluding therefore “ad hoc” arbitral awards. In addition, no arbitral award would be enforceable if it should be contrary to Chinese public policy.32

22.  Nevertheless, although the legal grounds upon which a Mainland Chinese Court can deny enforcement of a foreign arbitral award are limited, foreign parties are frequently unable to enforce the arbitral award.33

23.  One of the first cases34 in which an Intermediate People’s Court of Mainland China dealt with the recognition and enforcement of a foreign arbitral award pursuant to the New York Convention was Guangzhou Ocean Shipping Company v. Marships of Connecticut Company Limited (17 October 1990),35 in which enforcement was granted in favour of a Chinese party against the property in Mainland China of a foreign company. It also confirmed the enforceability of ad hoc awards under the New York Convention.

24.  However, when dealing with the recognition and enforcement of foreign awards against a Chinese party, things do not go so smoothly, and problems of local protectionism arise.36 A commonly cited example is the case of Revpower Ltd. v. the Shanghai Far East (p. 352) Aero-Technology Import and Export Corporation (1 March 1996).37 Another example can be found in Food Industries Planning & Servicing Ltd. v. China Hua Yang Technology and Trade Corporation (17 November 1997),38 where it took 2 years for the foreign applicant to obtain enforcement of the award against the Chinese party.

25.  For the purpose of unifying criteria, avoiding the undue refusal for enforcement and establishing an internal control mechanism to fight local protectionism, the SPC issued a judicial interpretation on 28 August 1995 (Notice on Handling of Issues Regarding Foreign-related Arbitration and Foreign Arbitration), by which an Intermediate People’s Court seeking to refuse recognition and enforcement of a foreign award must submit a report to the Higher People’s Court. If the latter also agrees to refuse recognition and enforcement of the foreign award, then it must first seek approval from the SPC. The local court cannot refuse the recognition and enforcement of a foreign award until the SPC replies in favour.

26.  The 1995 reporting mechanism provides for a more unified, pro-enforcement, learned and internationally oriented application of the grounds for refusal established in the New York Convention and the reciprocal rules (non-convention awards). However, it is not an appeal process,39 so the applicant has neither a right to make any submission in relation to the report of the Intermediate People’s Court or the Higher Court nor a right to appear before the High Court or the SPC. Furthermore, the 1995 reporting mechanism seems neither to be applicable to foreign ad hoc awards (it only applies to awards rendered by arbitration institutions) nor to be applicable to those awards rendered in Hong Kong and Taiwan. Finally, the replies given by the SPC at the request of Higher Courts40 raise some doubts as to their utility in establishing uniform criteria to be used by lower courts in similar cases in the future, because the Supreme Court merely gives its ruling without setting out the facts and the reasons for the decision in detail.

27.  As the 1995 SPC Notice did not expressly set out the limits for the Court to report upwards, and in order to improve efficiency, in 1998 (and within four months difference), the SPC released two new regulations to impose time constraints on courts: The Enforcement Regulation and the Fee Regulation (only applicable to Convention awards). However, the deadlines imposed in both regulations are inconsistent and contradictory. In practice, courts ignore the time restrictions for accepting a case, “thus circumventing the 1995 Notice’s reporting mechanism,”41 as it was showed in the above-mentioned case of Food Industries Planning. Furthermore, probably in order to not “stress” the work of the SPC, no time limit is stipulated for the SPC to give its final reply to the competent local court.

(p. 353) 28.  Nevertheless, some gaps were still not covered by the combined effects of the 1991 CPL and the several SPC Notices. Therefore, the SPC issued for consultation the Draft of the “Certain Provisions Regarding the Handling by the People’s Court of Cases Involving Foreign-related Arbitrations and Foreign Arbitrations” (2003 Draft SPC Provisions).42 While some of the 2003 Draft SPC Provisions raise important concern,43 others help to clarify the previous enforcement system. A positive example is the obligation imposed on the People’s Court to refuse recognition and enforcement of a foreign arbitral award which has been set aside; this clearly differs from the discretionary approach of the New York Convention. Another positive aspect is the new obligation imposed on the People’s Court to notify the parties concerned within 5 days upon putting the case on record in order to allow the defendant to raise objections. On the other hand, the 2003 Draft SPC Provisions seem to adopt a stricter approach as to the enforcement of ad hoc awards based on the nationalities of the parties44; this is an approach “which may breach China’s Convention duty by imposing additional criteria … which falls outside of the items permitted under Art. V of the New York Convention”.45

29.  The draft wording (“may apply by reference”), in conjunction with the definition of foreign-related award given in Article 38,46 does not clarify whether People’s Courts are to apply those Provisions when handling arbitration cases relating to Hong Kong, Macao or Taiwan (confirming the current Mainland tendency of considering those cases as foreign-related). Clarification on this point would be helpful to determine, among other things, whether the 1995 report mechanism is applicable to awards rendered in Taiwan and Hong Kong.

30.  However, the recently published (8 September 2006) judicial interpretation on several issues concerning the application of the PRC Arbitration Law deals only with issues of the form, interpretation and effect of arbitration agreements (Articles 1–11), as well as with some procedural aspects concerning challenges to and enforcement of domestic awards (Articles 12–15 and 17–31). The judicial interpretation gives no final definition of foreign-related award47 (a clarification of the legal nature of Hong Kong, Macau and Taiwan awards is still needed),48 nor does it address important issues of the 2003 Draft SPC Provisions related to foreign awards.

(p. 354) III.B.  Hong Kong

31.  Article 2GG (2) of the Arbitration Ordinance (amended in 2000) contains a “universal” enforcement provision under which an award made in or outside Hong Kong by an arbitral tribunal is summarily enforceable in the same way as a judgment of the Court of First Instance, but only with the leave of the Court. If leave is given, the Court may enter judgment in terms of the award. Order 73 (“arbitration proceedings”), rule 10, of the Rules of the High Court (Chapter 4A of the Laws of Hong Kong) governs the procedure for applying for leave to enforce; procedure which was summarised by Justice Kaplan in China Nanhai Oil Joint Service Corporation Shenzhen Branch v. Gee Tai Holdings Co Ltd.49

32.  The only exceptions are for cases where the New York Convention (Hong Kong is still a party to the New York Convention and as such, incorporates Article V into Section 44 of its Arbitration Ordinance) or the Arrangement with Mainland China (which will be discussed afterwards) are to apply.

33.  In 1993, two different cases Paklito Investment Ltd. v. Klockner East Asia Ltd.50 and Quinhuangdao Tongda Enterprise Development Co & Anor v. Million Basic Co Ltd.51 dealt with the issue of public policy adopting a narrow approach: “… the public policy limitation of the Convention is to be construed narrowly and to be applied only where the enforcement would violate the forum State’s most basic notions of morality and justice”.

34.  Some years later, the Court of Final Appeal of Hong Kong developed the meaning of the term in the case Hebei Import & Export Corporation v. Polytek Engineering Company Limiteds52 regarding the enforcement of a Mainland China award:“… there must be compelling reasons before enforcement of a Convention award can be refused on public policy grounds… mean those elements of a State’s own public policy which are so fundamental to its notions of justice that its courts feel obliged to apply the same not only to purely internal matters but even to matters with a foreign element by which other States are affected…”.

35.  However, according to some scholars,53 while the Hong Kong courts refer to “domestic” public policy, in practice they appear to give a meaning consistent with the recommendation of the International Law Association’s Final Report54 on Public Policy of 2002 (which favours a narrow “international” approach endorsed by the Drafting Committee of the New York Convention in its Report55).

36.  As many other jurisdictions party to the New York Convention, Hong Kong’s Courts enjoy some discretion to refuse enforcement. The Court of Final Appeal in the (p. 355) Polytek case confirmed Justice Kaplan’s approach in the China Nanhai Oil Case stating “that the use of the word ‘may’ in Sect. 44 and Art. V of the Convention enables the enforcing court to enforce an award, notwithstanding that a Sect. 44 ground might otherwise be established”.56

37.  Some guidelines for exercising this discretionary power were outlined in the same judgment.57 Although courts should adopt a pro-enforcement approach consistent with the principles of “finality and comity” and only material violations of the respondent’s rights should be taken into consideration, the grounds for refusal should be flexibly applied. Furthermore, “it would be inconsistent with the principles on which the Convention is based to hold that the refusal by a court of supervisory jurisdiction to set aside an award debars an unsuccessful applicant from resisting enforcement of the award in the court of enforcement.” However, as pointed out in the Polytek case, the exercise of the discretion to refuse enforcement “would depend in very large measure on the particular circumstances.” Hence, it is not possible to establish some fixed rules.58

38.  In relation to non-convention awards,59 the Courts of Hong Kong will apply the same grounds for refusal as stated in Article 34 of the Model Law (incorporated to the Arbitration Ordinance), with the residual judiciary discretion previously mentioned for the enforcement of Convention awards.

39.  The Committee on Hong Kong Arbitration Law issued a Final Report60 on 30 April 2003 for the purpose of amending the Arbitration Ordinance. It recommended the adoption of further amendments to Section 2GG in order to introduce the reciprocity principle in relation to non-convention awards, because “the Court should be given a discretion to refuse enforcement of a foreign award which is not covered by Part IIIA (Mainland Awards) or Part IV (Convention Awards) if it is not shown that the place in which the award was made extends reciprocal enforcement to Hong Kong awards”.

40.  Although it is not in contradiction with general international practice, it departs from the approach adopted by Article 35(1) of the Model Law, and could hinder the current pro-enforcement system of recognition and enforcement of non-convention/Mainland awards. However, taking into account the high number of signatories to the New York Convention and the reciprocal enforcement by Taiwan’s Courts, the effect should not be very harmful.

III.C.  Taiwan

41.  Taiwan is not a signatory to the New York Convention, so it is for the SCA to govern the recognition and enforcement of both domestic and foreign arbitration awards. These last (p. 356) were defined (in accordance with the New York Convention and contrary to the approach taken by Mainland China) as “an arbitral award which is issued outside the territory of the Republic of China or issued pursuant to foreign laws within the territory of the Republic of China.” Some criticisms have been raised against the lack of clarity of the reference to “foreign laws”.61

42.  Foreign arbitral awards are enforceable in Taiwan only after they have been recognised by the Court. In accordance with Article 49 of the SCA, the court shall dismiss an application for recognition of a foreign arbitral award if (a) the recognition or enforcement would be contrary to the public order or good morals of Taiwan, or (b) if the subject matter of the dispute was not subject to arbitration under Taiwanese law.

43.  The Court “may” also refuse recognition if the country where the arbitral award is made, or whose laws govern the arbitral award, does not recognise and enforce Taiwanese arbitral awards. However, the Supreme Court has confirmed the discretionary character of the power vested in the court for the purpose of enhancing international judicial cooperation.62 This approach slightly departs from the enforcement-friendly character of Article 35(1) of the UN Model Law, which completely eliminates the reciprocity reservation.

44.  Furthermore, Article 50 provides for a mechanism mirroring Article V of the New York Convention, by which the respondent may request the court to dismiss the application for recognition. Even if Article 50 of the SCA avoided the ambiguous and conflictive wording63 (“may be refused”) contained in Article V of the New York Convention and retained by Article 36 of the Model Law, it does not state clearly whether or not the feared64 judicial discretion has been eliminated.

IV.  Specific problems of mutual recognition and enforcement of arbitral awards among Mainland China, Hong Kong and Taiwan

IV.A.  Mainland China-Hong Kong

45.  After July 1997, due to the reversion of sovereignty over Hong Kong to Mainland China, an arbitration award obtained in Hong Kong could not theoretically be enforced in Mainland China as a Convention award because Hong Kong ceased to be a foreign state to the Mainland (and vice versa).

(p. 357) 46.  Immediately after, problems arose. On 19 January 1998, the Court of First Instance in Hong Kong, in the case of Ng Fung Hong Ltd v. ABC,65 held that a mainland arbitral award was no longer enforceable in Hong Kong, either by the New York Convention mechanism or under Article 2GG of the Ordinance as it then was in force. The angry answer from Mainland China was in the form of a general refusal to enforce Hong Kong awards in the Mainland.

47.  The vacuum was finally solved by the “Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region” (the Arrangement), entered into on 21 June 1999. The effect of the arrangement is that the arbitration awards made in Hong Kong are to be enforced in the Mainland as if the New York Convention does apply, and vice versa. It was brought into legal effect in Hong Kong by the Arbitration (Amendment) Ordinance 2000 (Section 40), and in the Mainland by the Explanatory Document of the SPC No. 3 of 2000 issued on 24 January 2000. Two important aspects have to be outlined: (i) the Agreement does not contain any provision concerning the recognition (only enforcement), and (ii) there is no limitation to “commercial” disputes.

48.  Although the Arrangement, which does not allow simultaneous enforcement of awards in both Mainland China and Hong Kong, sets out similar grounds for the refusal of enforcement (mirroring Article V of the New York Convention),66 the different implementation instruments give rise to some important divergences.67 In the amended Arbitration Ordinance, the wording “shall” related to partial awards differs from the discretionary power contained in Article V[1(c)] of the New York Convention and incorporated in the SPC Note. In addition, the grounds for the refusal based on the lack of proper service of the arbitration proceedings (amended Arbitration Ordinance) are not contained under the SPC Note. Further problems relate to inconsistencies between the Chinese and the English versions of the Arbitration Ordinance amended.

49.  The main exception to the uniform regime,68 however, is the concession granted to Mainland China in order to refuse enforcement of a Hong Kong award on the grounds of conflict with the “social public interest” of Mainland China. This exception goes beyond the narrower scope of the “public policy” codified in the New York Convention and applicable in Hong Kong for the awards rendered in Mainland China. In the previously cited Hebei Import case, the Court of Appeal held that “The concept of public policy in Hong Kong is something which is generally part of the common law and it is difficult to see how it could be the same as that relating to the ‘social and public interest’ of the PRC”.69

(p. 358) 50.  Although in the post-1999 Agreement case Hong Kong Heung Chun Cereal & Oil Food Co Ltd v. Anhui Cereal & Oil Food Import & Export Co.70 both the Intermediate People’s Court and the Higher Court grounded the refusal of enforcement in the defence of the “social public interest” of the Mainland, none of them explained the standards and extent of the concept. In 2003, the SPC (through the 1995 report mechanism) considered that they had abused discretionary power under the guise of social public interest and rectified the decision, but did not explain the meaning of the concept.

51.  As it has been pointed out,71 under the 1999 Agreement, both Mainland China and Hong Kong are obliged to recognise and enforce ad hoc awards rendered in each other’s territory. Therefore, Mainland China prohibits domestic ad hoc awards; it is bound to recognise and enforce ad hoc awards rendered in Hong Kong. One of the first cases should have been the Wei Mao International (Hong Kong) Co Ltd v. Shanxi Tianli Industrial Co Ltd,72 where an award rendered in 2001 in Hong Kong under the rules of the ICC (therefore an ad hoc Hong Kong award) sought enforcement in Mainland China.

52.  However, the SPC wrongly applied the New York Convention to the case, instead of the 1999 Arrangement, stating that “the award involved in this case is an institutional arbitral award made by ICC Arbitration Court on the basis of the arbitration agreement concluded between the parties. Since ICC Arbitration Court is an arbitration institution established in France, both China and France are the member states of the … New York Convention, we shall apply the provisions of this Convention for reviewing the recognition and execution of the award to this Case, but shall not apply the provisions of the Arrangements … ”.73

53.  Another important concern is the (theoretical) non-applicability of the 1995 report mechanism to the enforcement of Hong Kong awards in Mainland China74 (however, it was used in the post-1999 Agreement Mainland China’s decision in the Anhui case). On the contrary, on 13 March 2003, the SPC issued a Notice stating that People’s Courts “may” apply the 1998 SPC Provisions (related to time limits) when dealing with applications for the enforcement of Hong Kong awards.75

54.  As to the real effects of the Agreement in the practice of the courts of Mainland China,76 two surveys were conducted in 2002 and 2004 at the request of the Department of Justice of Hong Kong.77 In the first survey none of the few responses actually complained (p. 359) about any unfair refusal by a Mainland court after the implementation of the Arrangement. As to the second survey, a record is still not available from the Mainland.

55.  To solve the remaining technical differences and inconsistencies between the framework of Hong Kong and Mainland China for the recognition of each other’s awards, and on the issue of “finality”, informal negotiations started in 2002 are ongoing.78

IV.2.  Mainland China-Taiwan

56.  According to Article 74 of the “Act Governing Relations Between Peoples Of The Taiwan Area and The Mainland Area”,79 promulgated in 1992 by the Taiwanese Executive Yuan, an application for “recognition” of a final and irrevocable arbitral award rendered in Mainland China “may be filed” before a Taiwanese Court unless the arbitral award is contrary to the public order or good morals of Taiwan.

57.  The wording used (“may be filed”) does not compel the Taiwanese court to immediate recognition of the Mainland China award. Therefore, it seems logical to understand that Articles 49 (namely the compulsory requirement that the subject matter of the dispute shall be subject to arbitration under Taiwanese law) and 50 of the SCA will still be applicable. Hence, once an application for the recognition of a Mainland China award has been notified, the respondent should be able to request the Court to dismiss the application, on the grounds listed in Article 50 of the SCA.

58.  In relation to the “enforcement” of those recognised arbitral awards rendered in Mainland China, Article 74 of the Act only states that, when performance is required, such an award “may serve as a writ of execution”. Subsequent amendments to Article 74 (promulgated by Presidential Order on 14 May 1997) imposed a compulsory (not discretionary as Art. 49 SCA) reciprocity reservation by which that regime would not enter into force until Mainland China grants similar recognition. In 1998, the SPC of Mainland China promulgated the “Regulation for Recognition of Civil Judgments of the Courts of the Taiwan Region” (effective since 26 May 1998), recognizing judgments of a Court of Taiwan. Following the announcement, Taiwan restored its recognition of arbitral awards rendered in Mainland China.

59.  Article 19 of the SPC Regulation extends the applicability of the Regulation to arbitral awards rendered in Taiwan. It must be stressed that the 1998 SPC Regulation only sets out a mechanism for “recognition”, and only in relation to those applicants whose permanent domicile, habitual residence or involved properties are in Mainland China or Special Autonomous Regions. Any application for the enforcement of a recognised Taiwanese arbitral award must be submitted before a competent intermediate court in accordance with the pertinent provisions of the 1991 CPL of Mainland China. Although the practice of Mainland China courts is to treat awards rendered in Hong Kong and Taiwan as foreign related, there is no definite provision about the real nature of those awards. Therefore, it is not clear which (p. 360) enforcement regime within the 1991 CPL should apply and whether the 1995 report mechanism will be applicable. Most probably, they will continue to be treated as foreign related although Mainland China Courts will reciprocally apply similar requirements as Taiwan Courts apply for the enforcement of Mainland China awards.

60.  However, since the grounds to recognise each other’s commercial arbitral awards are based on unilateral legislation, mutual recognition will still depend on cross-strait politics. Article 4 of the SPC Regulation requires that the civil judgments of Taiwan courts being recognised “shall not violate the one China principle”. However, since the Democratic Progressive Party became the governing party of Taiwan in 2000, there has been increasing tension in this regard.

IV.C.  Taiwan-Hong Kong

61.  Awards rendered in Hong Kong are enforceable in Taiwan through the “Act Governing Relations with Hong Kong and Macau”,80 promulgated on 2 April 1997. According to Article 42 of the Act, “the validity, petition for court recognition and suspension of execution proceedings in cases involving civil arbitral awards made in Hong Kong or Macau” are governed by the SCA (although reference to the old Commercial Arbitration Act has not been amended since the current SCA entered into force).

62.  Although the 1998 Rules of the SPC of Mainland China for Recognition of Civil Judgments of the Courts of Taiwan are not applicable in Hong Kong (because of the provisions of the Basic Law), Taiwan awards may be enforced under the “universal” enforcement provision contained in the modified Section 2GG (2) of the Arbitration Ordinance of Hong Kong. Therefore, a Taiwan arbitral award is enforceable in the same way as a judgment of the Court of First Instance of Hong Kong, but only with the leave of the Court. In the near future, the potential amendment to Section 2GG of the Arbitration Ordinance (in order to introduce the reciprocity principle) would affect the recognition and enforcement of awards rendered in Taiwan.

63.  When exercising its discretion whether to grant leave to enforce a Taiwan award, a Hong Kong Court is likely to apply the common law principles enunciated in the authoritative statement of Lord Wilberforce in Carl Zeiss Stiftung v. Rayner & Keeler Ltd. & Ors,81 more recently applied by the Court of Final Appeal n Chen Li Hung v. Ting Lei Miao82 to a judgment of a Taiwan Court:

“In certain circumstances our courts will give effect to the orders of non-recognized courts … I mean to cover courts sitting in foreign states the governments of which our sovereign does not recognize as well as courts sitting in territory under the de jure sovereignty of our sovereign but presently under the de facto albeit unlawful control of a usurper government. Our courts will give effect to the orders of non-recognized courts where: (i) the rights covered by those orders are private rights; (ii) giving effect (p. 361) to such orders accords with the interests of justice, the dictates of common sense and the needs of law and order; and; (iii) giving them effect would not be inimical to the sovereign’s interests or otherwise contrary to public policy”.

V.  Conclusions

64.  However different the legal evolution of Mainland China, Hong Kong and Taiwan has been, we cannot find a substantial “clash” in relation to their legal framework for the recognition and enforcement of foreign arbitral awards, since they are—in accordance with international practice—either subject to (Mainland China and Hong Kong), or modelled on (Taiwan), the New York Convention. Yet, when it comes to implementing this framework, each has a distinct approach and dissimilarities arise.

65.  Although dissimilarities apparently are bigger in relation to the worrying grounds for the refusal based on public policy, it has rarely been used by the Courts of Taiwan, Hong Kong or Mainland China, yet all of them adopt a narrow approach in conformity with international practice. Furthermore, even if Taiwan stands out as the most problematic jurisdiction because of the reciprocal requirement (even if discretionally applied by the courts), it does not differ much from the reciprocity reservation made to the New York Convention by many signatories (including Mainland China-Hong Kong) and the reciprocity rule applied by many states in relation to non-convention awards (including Mainland China and probably soon, also Hong Kong).

66.  Finally, the specific legal framework for the recognition and enforcement of Mainland China awards in Hong Kong and Taiwan, and vice versa, still raises some concerns and is not fully reliable. The main shortcomings relate to the lack of definite clarification by Mainland China about the status of awards rendered in Taiwan and Hong Kong, and the dependence on cross-strait politics of Mainland China-Taiwan mutual recognition of awards.

Footnotes:

According to the 2006 statistics of the Ministry of Commerce, the European Union and USA are the leading trade partners (http://www.english.mofcom.gov.cn/static/column/statistic/ie.html/1).

2006 Taiwan’s Bureau of Foreign Trade comparison of global trade. (http://www.cus93.trade.gov.tw/english/FSCE/ FSC0011E.ASP).

Qingjiang Kong, Cross-Taiwan Strait Relations: What Are the Legitimate Expectations from the WTO? 14 Minn J Global Trade (2004–2005), 91; John Shijian Mo, Settlement of Trade Disputes Between Mainland China and the Separate Customs of Taiwan within the WTO, 2 Chinese JIL (2003), 145.

Neil Kaplan, HKIAC’s Perspective on Arbitration and Conciliation Concerning China, in: New Horizons in International Commercial Arbitration and Beyond, ICCA Congress Series No. 12, Kluwer Law International, The Hague/London/New York (2005).

Although such a gap exists in every country, “the distance is wider in China than elsewhere”. Randall Peerenboom, Seek Truth from Facts: An Empirical Study of Enforcement of Arbitral Awards in the PRC, 49 AM J Comp L (2001), 307.

An English translation of Chinese laws can be found at the website of the National People’s Congress (http://www.npc.gov.cn/zgrdw/english/law/lawDBSearch.jsp).

China’s 1991 CPL provides that foreign judgments may be enforced in accordance with international agreements to which the Mainland is a party or in accordance with reciprocity. See table (updated on 2003) of the reduced number of bilateral Judicial Assistance Treaties signed by China: http://www.fmprc.gov.cn/eng/wjb/zzjg/tyfls/tyfl/ 2631/t39537.htm.

On 14 July 2006, the Hong Kong and Mainland China signed an Arrangement on Reciprocal Enforcement of Judgments in Civil and Commercial Matters (http://www.doj.gov.hk/eng/topical/pdf/mainlandrej20060719e.pdf).

10  In 1998, the SPC granted the “Regulation for Recognition of Civil Judgments of the Courts of Taiwan Region”, under which Mainland China recognises judgments of Taiwanese courts.

12  Bruce R. Schulberg, China’s Accession to the New York Convention: An Analysis of the New Regime of Recognition and Enforcement of Foreign Arbitral Awards, 3 J Chinese L (1989), 117.

13  An English text of Hong Kong legislation can be found at the website of the Department of Justice (http://www. legislation.gov.hk/eng/index.htm).

14  The principle implies independence (to some extent) of the judicial and legal systems of Hong Kong.

15  Mainland China has not deposited any written notice of exclusion as required by Article 70 of the Washington Convention. See number 1721 within the list of Treaties in Force in Hong Kong as to 9.9.2004 (http://www.legislation.gov.hk/interlaw_e.htm).

16  An English translation of Taiwan legislation can be found in the database of the Ministry of Justice (http://www.mojlaw.moj.gov.tw/Eng/flawqry01.asp).

17  Opinions strongly opposing the adoption of the Model Law were led by the Taiwanese High Court. Honglin Yu, The Taiwanese Arbitration Act 1998, 15-4 J Int Arbitration (1998), 107.

18  Recent comments on these aspects and others can be found in Randall Peerenboom, The Evolving Regulatory Framework for Enforcement of Arbitral Awards in the People’s Republic of China, 1 APLPJ (2000), 1–69; Guiguo Wang, Wang’s Business Law of China, (4th edn.) Lexis Nexis, Hong Kong/Singapore/Malaysia (2003); Jingzhou Tao, Arbitration Law and Practice in China, Kluwer Law International, The Hague/ London/New York (2004); ICCA Congress Series, No. 12, above n. 4. A very practical approach can be read at Mark Lin, Enforcing a foreign arbitral award in Mainland China—Some Recent Experience, Asian DR (2001), 79–81.

19  Jingzhou Tao, above n. 18, 135–136.

20  Those reservations have been made by many other states.

21  China International Economic and Trade Arbitration Commission.

22  China Maritime Arbitration Commission.

23  International Chamber of Commerce. In the 2003 Draft SPC Provisions, the SPC sticks to the arbitral institution criteria, which implicitly denies the eligibility of ICC to conduct arbitration in China (as its awards would not be considered as “foreign related”).

24  In 1992, China acceded to the “1965 Convention on the Settlement of Investment Disputes between States and Nationals of other states” (The Washington Convention). However, China only considers submitting to ICSID arbitrations “disputes over compensation resulting from expropriation or nationalisation”. This is changing after China started renegotiating its Bilateral Investment Treaties (BIT). The new BIT signed with Germany in 2003 provides for submission to ICSID or ad hoc arbitrations of “any dispute concerning investments” (http://www.iisd.org/pdf/2006/itn_germany_china_bit_2003.pdf). According to Article 54 of the Washington Convention, execution of ICSID awards “shall be governed by the laws concerning the execution of judgments” in the State where execution is sought. Article 268 of the CPL sets out the requirements for recognition and enforcement of a foreign judgment. Although the Convention allows for the assertion of the sovereign immunity privilege concerning the execution of the award (Article 55) and China already did it in the past, it is unlikely that China will assert it nowadays for it would expose China to problems of credibility v. the international community.

25  According to the SPC 1987 Notice and Article 269 of the CPL, the competent local Court will be the Intermediate People’s Court located where the respondent has his domicile, its principal business office, or where the property is situated (when the respondent has no domicile within Mainland China). This compels the award winning party to deal with problems of local protectionism. Some problems arise as to the special jurisdiction (not confirmed by the SPC) of Maritime Courts over the enforcement of maritime arbitral awards, as showed in the case of Nautilus Shipping and Trading Company Ltd v. International Economic and Trade Development Company of Jilin, 1995, referenced by John Shijian Mo, Arbitration Law in China, Sweet and Maxwell Asia (2001), 428–429.

26  It is generally assumed that Article 219 of the CPL governs the deadlines for applying the enforcement of a foreign award (6 months were all parties are companies or 1 year if one of the parties is a natural person). It is a very short period in comparison with other jurisdictions.

27  For a commentary on the public order in China’s Private International Law, see Yongping Xiao and Zhengxin Huo, Ordre Public in China’s Private International Law, 53-53 American Journal Comparative Law (2006), 653–678.

28 “The fear has long been that PRC courts would find that enforcement of virtually any award against a Chinese party would violate public policy or social public interests”, Peerenboom (2001), above n. 5, 289.

29  Jingzhou Tao, above n. 18, 161; Guiguo Wang, above n. 18, 938–939; Lu Xialong, The Recognition and Enforcement of Foreign Arbitral Awards in China, ICCA Congress Series N. 12, above n. 4, 349.

30  Lu Xiaolong, above n. 28, 349.

31  Guiguo Wang, above n. 18, 938.

32  Peerenboom (2000), above n. 18, note 119; Wang Shengchang, Resolving Disputes in the PRC—A Practical Guide to Arbitration and Conciliation in China—, FT and Tax, Hong Kong (1996), 25–29.

33  For an authoritative, extensive comment regarding the problems of enforcing foreign arbitral awards in Mainland China, see Randall Peerenboom (2001), above n. 5, 249–327.

34  Generally speaking, judicial decisions of Chinese courts—as in many other civil law jurisdictions—are shorter than common law decisions, do not state all the facts and do not create any specific legal rule that could be used in later similar cases. Furthermore, there exists no official registry of enforcement cases.

35  XVII Yearbook Commercial Arbitration (1992), 485–487.

36  Local protectionism mainly appears in favour of parties strongly backed by the corresponding local government, as the courts are financially dependent on the corresponding level of government. Peerenboom (2000), above n. 18.

37  An extensible comment can be read in Jingzhou Tao, above n. 18, 168–170.

38  XXIII Yearbook Commercial Arbitration (1998), 641–643.

39  Article 140 of the CPL states that refusal to enforce an award cannot be appealed.

40  Some English translations are available in private databases such as http://www.lawinfochina.com.

41  Peeremboon (2001), above n. 5, 289.

42  An English copy can be found in ICCA Congress Series No. 12, above n. 4, 112–118.

43  Michael J. Moser and Peter Yuen, Chinese SPC Provides Clarification—and Confusion—on Arbitration Issues, in: ICCA Congress Series No. 12, above n. 4, 99–111.

44  The provision requires all the countries of which the parties are nationals, to be members of the New York Convention and the laws of such countries not to prohibit ad hoc arbitration.

45  Jingzhou Tao, above n. 18, 86.

46  Those awards given by the CIETAC, the CMAC or an arbitration commission organised under the 1994 Arbitration Law.

47  Article 16 deals only with the issue of the law applicable to the validity of a foreign-related arbitration agreement, yet it gives no definition.

48  The only clarification of the term “foreign-related” (contained in a SPC’s Opinion on the Civil Code, dated 2.04.1988) does not help to determine whether or not Hong Kong, Macau and Taiwan awards are to be considered foreign-related awards.

49 [1995] 2 HKLR 215. An English text of Hong Kong judicial decisions can be found within the official database (http://legalref.judiciary.gov.hk/lrs/common/ju/judgment.jsp).

50 [1993] 2HKLR 39.

51 [1993] 1HKLR 173.

52 [1999] 1HKLR 665.

53  Teresa Y. Cheng, Comments on Enforceability of Awards, in: ICCA Congress Series N. 12, above n. 18, 363.

55  UN Doc. E/2704 and E/AC.42/4/Rev.1.

56 [1999] 1HKLR 665, par. 93.

57  Michael J. Moser and Teresa Y. Cheng, Hong Kong Arbitration: A User’s Guide, Kluwer Law International (2004), 85.

58  For some examples of the use of this discretion, see Michael Moser and Teresa Cheng, above n. 55, 85–86 and Teresa Cheng, above n. 52, 351–363.

59  Michael Moser and Teresa Cheng, above n. 55, 87.

61  Catherine Li, The New Arbitration Law of Taiwan—Up to an International Level?, 16-3 J Int Arbitration (1999), 137; Hong-Lin Yu, above n. 17, 113–114.

62  Supreme Court ruling (Serial No. 75th Year Tai-Kang Tzu No. 335) cited by the Taiwan High Court (Serial No. 78th Year Shang Tzu No. 1306, 5 February 1990) in order to remind the judicial discretionary power in relation to the reciprocity principle. XVII Yearbook Commercial Arbitration (1992), 576–580.

63  According to the travaux préparatoires of the Model Law, “for the sake of certainty and predictability, the court should not be given such discretion” as it might be inferred from the ambiguous wording (A/CN.9/233, par. 140) (http://www.uncitral.org/pdf/english/travaux/arbitration/ml-arb/acn9-233-e.pdf).

64  In some cases [Société Himaltorn v. Société Omnium de Traitment et de Valorisation, Cass. Civ. 1ère, 1994 Rev. Arb. 327; and In the Matter of the Arbitration of Certain Controversies Between Chromalloy Aeroservices and Egypt, 939 F. Supp. 907 (DDC 1996)], arbitral awards set aside in the country of origin were enforced by a foreign court on the grounds of the above-mentioned judicial discretion.

65 [1998] 1HKC 213 “I must say that I reach this conclusion with some regret … There seems to be no obvious reason why there should not be a simple mechanism put in place for the mutual enforcement of arbitral awards between mainland China and Hong Kong, and I hope we will see such a system before too long”.

66  However, as Peerenboom points out (2000, above n. 18, 34–35), slight revisions were introduced to “allow for the fact that Hong Kong is not a country, but rather a region”.

67  John Shijian Mo (2001), above n. 25, 448–450.

68  Other exception relates to the Status of limitations (to be determined by local law).

69 [1998] 1HKLRD 287, par. 30.

70  Reported and commented by James Lee, A Review of the Enforcement of Hong Kong Awards in Mainland China, Asian DR (2006), 52–53.

71  Mauricio J. Claver-Carone, Post-Handover Recognition and Enforcement of Arbitral Awards Between Mainland China and Hong Kong SAR: 1999 Agreement v. New York Convention, 33 Law Pol’y Int’l Bus. (2001–2002), 393.

72  Reported and commented by James Lee, above n. 67, 53–55.

73  Wei Mao International case reported and commented by James Lee, above n. 67, 53–55.

74  Mauricio Claver-Carone, above n. 68, 396–397; Michael Moser and Teresa Cheng, above n. 55, 93–94.

75  Michael Moser and Teresa Cheng, above n. 55, 94.

76  For some statistics about enforcement in Hong Kong of Mainland awards during 2000–2003, see Neil Kaplan, above n. 4, 65–67.

77  Oral reply by the Hong Kong’s Secretary for Justice to a question on the enforcement of arbitral awards (26 January 2005) http://www.doj.gov.hk/eng/archive/pdf/sj20050126e.pdf.

78  Oral reply by the Hong Kong’s Secretary for Justice, ibid.

79  For an English text of the Act, see the website of the Taiwan Mainland Affairs Council (http://www.mac.gov.tw/english/english/law/law1.htm).

80  For an English text of the Act http://www.mac.gov.tw/english/index1-e.htm.

81 (No.2) [1967] 1 A.C. 853.

82 [2000] 1 HKLRD 252.