REN Mingyan: Shanghai Courts' Recognition and Enforcement of Foreign Arbitral Awards

Keynote Speech on the 60th Anniversary of New York Convention and “One Belt and One Road” Conference

Ms. REN Mingyan

Judge of Shanghai No.1 Intermediate People’s Court

Good afternoon distinguished guests, ladies and gentlemen. Today I would like to share with you the views of Shanghai No. 1 Intermediate People's Court to apply the New York Convention in the past 10 years and some suggestions about the Belt and Road initiative.

I. The judicial practices of Shanghai Courts on Recognition and Enforcement of Foreign Arbitral Awards in the Past Ten Years.

As it's put into effect, countries have more interchanges between each other. As a diversified dispute resolution mechanism, arbitration is an important legal safeguard in the implementation of the Belt and Road initiative. Supreme People's Court has issued series of guidelines in 2015, which require all the local courts to understanding and application correctly on New York Convention and unified judicial scale. Shanghai, as it works on the New York Convention practices, has made exploration to build a business environment for international and legalization.

From 2008 to 2017, we have accepted 22 cases for recognize and enforce of foreign arbitration.

(1) From the perspective of the nationality of the parties, most of the applicants are foreign parties, while most of the respondents are domestic parties. Foreign parties involved in countries along the Belt and Road are Singapore, India and Bulgaria.

(2) The seats of arbitration are distributed in Singapore, South Korea, Japan, the United Kingdom, the United States, Sweden and other countries and regions. However, the number of cases of the arbitration seats in Asian countries has an absolute advantage, which is 68.2%. Among them, the maximum number of arbitral awards in Singapore is six, which indicates that Singapore has been favored by the Chinese party as a seat of arbitration.

(3) Among the grounds for defense submitted by the respondent, the effectiveness of the arbitration agreement and the frequency of public policy appear to be the highest, however, the parties have not yet took the award has no binding or has been set aside or suspended as grounds for defense.

(4) The New York Convention was applied to all other cases, except for two cases that arbitral awards made in Hong Kong were applied the Arrangements. 

(5) The result of judgment. In 21 ended-cases, only one case was withdrawn by parties and only one case was rejected for enforcement by judge. The rest cases, 19 cases, were all recognized and enforced which embody the performance of Shanghai's duty to apply the New York Convention.

II. Judicial ideas and typical cases of Shanghai courts on Recognition and Enforcement Foreign Arbitral Awards

Cases recognized and enforced by Shanghai courts in foreign arbitral awards are examined by a trial of a foreign-related commercial panel to ensure that the professional standards of such cases are examined. In the past ten years, the Shanghai courts have made the following explorations and breakthroughs in the interpretation and application of the New York Convention:

Firstly, the interpretation of the arbitration clause should be in favor of valid as effective as possible.

We should make a broad understanding of the written form of the convention to achieve the purpose of the convention. In the case of Jiashi International Co., Ltd. v. Shanghai Zhenrong Petroleum Co., Ltd. in our court, regarding the issue of whether the signing of the e-mail exchange purchase and sale terms between the two parties complied with the written form of the Convention, we held that the New York Convention was signed In 1958, electronic data communication methods including e-mail were not yet available at the time. However, the interpretation of the word “letter” and the intention of the provisions of the Convention should be used to confirm that the e-mail was in a form of writing.

Secondly, we apply the principles of “estoppel” and good faith to judicial review of international arbitration in order to respect the jurisdiction of arbitration and the effectiveness of arbitral awards.

One party was aware of the defect of the jurisdiction, and they have not raised it in the arbitration process. Instead, they submitted the objection of jurisdiction in the process of recognition and enforcement. Can it still be a reason for refusing recognition and enforcement? The New York Convention does not specify this issue.

We held that based on the principle of estoppel and good faith, if the parties fail to raise jurisdictional objections in the arbitral proceedings, they should generally be deemed to approval the jurisdiction except for the ground of non-arbitrability and public policy.

In the process of recognition and enforcement, the party submits on the ground that the arbitral tribunal has no jurisdiction, and the defense will not be adopted. In the case of “Siemens AG v. Gold Land Company” heard in our court, the court held that the entire arbitration process was initiated by the Gold Land Company and they partially complied with the ruling’s determination after the arbitration award was made. This shows that the Gold Land Company was approval the effectiveness of arbitration clause and jurisdiction of arbitration. In such case, it is inconsistent with generally accepted legal principles such as estoppel, good faith and fairness that Gold Land Company alleged the arbitration clause is invalid.

Thirdly, we breakthrough the traditional limited of “foreign-related elements” in cases and confirm the validity of foreign judgments.

According to the current laws and regulations of China and the approval of the Supreme People's Court, the arbitration agreement shall be null and void if the parties refer their dispute to a foreign arbitration institution without any foreign-related elements.

To distinguish the foreign-related elements, it is based on the traditional theory of three elements. However, this theory has changed in the case of "Siemens v. Gold Land" case.

We held that the performance of the contract of sale between two Chinese legal entities in China does not have typical foreign-related elements. However, since both parties are wholly foreign-owned enterprises registered in the Shanghai Free Trade Zone, such entities have more obvious foreign-related elements over ordinary domestic-funded companies.

Besides, the matter of the contract flow process also has a certain characteristic of the international sale of goods contracts because of the performance of the contract in accordance with the use of special customs supervision measures involving the free trade zone.

Therefore, it was finally determined that the sales contract had foreign elements. Both parties agreed to submit the contract dispute to the Singapore International Arbitration Center for arbitration. The arbitration clause was valid, and the award was finally recognized and enforced.

Fourthly, we reaffirm that party autonomy is the cornerstone of the international commercial arbitration system.

Article V, section 1 of the New York Convention stipulates that “the composition of the arbitration authority or the arbitral procedure was not in accordance with the agreement of the parties or was not in accordance with the law of the country”.

Such the agreement of the parties includes not only the agreement of the parties in the arbitration agreement, but also the provisions of the arbitration rules invoked by the parties. However, which is the priority when there is a conflict between the content of the arbitration agreement and the arbitration clause chosen by the parties? The New York Convention did not give us an answer. The case of "Luobao Resources International Pte. Ltd. v. Shanghai Xintai International Trade Co., Ltd." was the first case heard by Shanghai court that refused to recognize and enforce foreign arbitral award.

The key issue involved in the case was that the party’s arbitration clause clearly stipulated the composition of the tribunal. Can a arbitration institution exercise discretion to change it and decided that just one arbitrator to hear the case and apply expedited procedure?

In this case, the Court reaffirmed the party autonomy in arbitration. We believed that when an arbitration institution exercises discretion in accordance with its arbitration rules, it should fully respect the parties’ willingness to form the arbitral tribunal. Without prejudice to the compulsory provisions of the place of arbitration, the arbitral institution, as the governing body of the arbitral proceedings that has been authorized by the parties to obtain arbitration jurisdiction, shall fully respect this decision and shall give priority to its application.

Fifthly, actively exercise jurisdiction to protect the legitimate rights and interests of Chinese and foreign parties under arbitral awards.

In the application of the Chinese party for recognition and enforcement of a foreign arbitral award, it shall comply with the limitation of action stipulated by the Civil Procedure Law of P.R.C, otherwise the court will not accept it.

In the case of “Shanghai Jinwei Machinery Manufacturing Co., Ltd. v. Switzerland Ruite Company, Jinwei Company”, the applicant found that the other party had a batch of equipment in Shanghai, and then submitted an application for recognition and enforcement. Considering the purpose of the New York Convention is to facilitate arbitral awards smoothly enforced in all parties, it is allowed to be recognized and enforced as long as the arbitral award meets the basic conditions of the Convention.

Our country’s law stipulates that the initial period of application for enforcement is a rule for the general situation of the enforced person or his property in the country’s territory when the arbitral award is made. We understand that the applicant is not subjectively unwilling or negligent to exercise their rights, but objectively. The respondent and his property were not yet in China, resulting in the applicant being unable to apply to the People’s Court for enforcement. In this case, the limitation of action for the parties to apply for enforcement shall be counted from within the realm of the country of the executor of the property being applied for, and finally the arbitral award is recognized and enforced.

III. Suggestions and Reflections on Recognition and Enforcement of Foreign Arbitral Awards under the Belt and Road Initiative

I'd like to move on to several personal ideas in terms of recognition and enforcement of foreign arbitration under the Belt and Road.  

Firstly, we have the responsibility to promote the goals and principles of the New York Convention. New York Convention is the cornerstone, and judges' attitudes are the key to implement such convention. So as a judge, it's necessary to know the very purposes, principles and interpretations of the clauses of the Convention, so as to fully interpret the Convention's provisions in accordance with the principles that are conducive to implementation.

Under the Belt and Road Initiative, China will have close commercial transactions with at least 65 countries and regions along the route. Due to different legal systems in those countries, we should take full consideration of both domestic and foreign laws in the context of international law. We should maintain a neutral position, avoid local protectionism, and equally safeguard the rights and interests of the Chinese and foreign parties.

Secondly, it should further clarify the nature of the awards of foreign arbitration institutions in mainland China. On April 8, 2015, The State Council issued the “Proposal on Further Deepening the Reform and Opening-up of China's Shanghai Free Trade Experimental Zone” clearly stating that it supports the entry of internationally renowned commercial dispute resolution agencies to increase the degree of internationalization of commercial dispute arbitration. Under the spirit of this guidance, the Hong Kong International Arbitration Center and the International Chamber of Commerce The Arbitration Institute and the Singapore Arbitration Center successively set up representative offices and arbitration offices in the Shanghai Free Trade Zone, which indicates that China has gradually opened the door for arbitration by foreign arbitration agencies in the Mainland.

How should we define the nature of such arbitration institutions? That is the very premise of such arbitration. On the one hand, under the current legal framework in China, such awards cannot be recognized as Chinese arbitral awards, which are recognized and enforced as domestic arbitral award applications. On the other hand, China has made reciprocal reservations to the New York Convention, and these awards also do not meet the conditions that are imposed in the territory of another Contracting State and therefore cannot be applied to the New York Convention for recognition and enforcement. Such an awards could have applied the "non-domestic awards" to apply the New York Convention, however, it will not work because of our country does not recognize the "non-domestic awards" standard. The fundamental solution of this problem needs further legislation in our country.

Thirdly, the relationship between the party’s agreement and the arbitration rules should be further discussed.

There are still divergence in theory and practice regarding the priority between provisions of the arbitration rules and the parties’ agreement.

Although the expedited procedures save time and cost and make them popular with major arbitration institutions around the world, how can these mechanisms be guaranteed while respecting party autonomy? How to balance efficiency and procedural fairness? These are still issues that need to be considered when setting up arbitration rules for various arbitration institutions. For the court, how the reasonable boundary of institutional management and party autonomy can be defined? How to grasp the standard of judicial review? Those are the issues further to be discussed.

Fourthly, we should strengthen the judicial cooperation and promote the recognition and enforcement of arbitral awards with the countries on the Belt and Road initiative.  

We should promote the bilateral mutual legal assistance treaty between China and non-Contracting States of the New York Convention on the recognition and enforcement of arbitral awards, establishing a platform for the identification of foreign law, and where the countries along the route have not yet joined the New York Convention or have not signed legal assistance with China, It can promote legal reciprocity and promote the recognition and enforcement of arbitral awards in countries along the route.

The implementation of the Belt and Road initiative is accompanied by opportunities and challenges. Only when we have the courage to explore and innovate can we embrace the new development of international commercial arbitration. My speech is finished, thank you all.