Chen Lei: Application of New York Convention by Chinese Courts

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

Mr. CHEN Lei

Associate Dean & Associate Professor ，School of Law，

City University of Hong Kong

I hope I can have about 10 minutes, cause we're running a little bit behind on the schedule. It's my great honour to be here, to be invited to attend this such a high-profile conference, addressing "New York Convention". I feel particularly honoured given the fact that I'm the only member in this panel who is not a judge.

The approach I will take in my study is slightly different from the previous presentations. I will neither address the policy discussion on China's compliance with NYC, nor will I address the technical questions, as Anselmo just mentioned. Rather, my approach is focusing on speaking of statistical empirical evidence to show the actual compliance of Chinese courts under the New York Convention.

As you know this morning, China has acceded to the NYC in 1987 with two reservations, commercial and reciprocity. In the interests of time, I'll skip that over. This is just a legal framework of Chinese domestic legislation which has incorporated New York Convention provisions. So basically if you want to refer to the Chinese national position on how a foreign arbitral award can be enforced or recognised, please refer to three major legislative sources, the first is Arbitration Law, the second is Civil Procedure Law, and the third, a number of judicial pronouncements and interpretations issued by the Supreme People's Court. Besides, we have a number of Arrangements as already alluded to this morning, with Hong Kong SAR, Macau SAR, and Taiwan.

There are a number of good studies on how Chinese courts comply with NYC on recognising and enforcing foreign arbitral awards. They are published in Chinese language. But I found this one particularly interesting, because it covers a wide range of localities in China and the time of study is quite long. That is a survey conducted by King & Wood Mallesons Hong Kong Office. According to the study, in China, the overall average enforcement rate is about 68%, with Beijing, Shanghai and Guangzhou enjoying a higher enforcement rate, being 76%. The average time to obtain final order on enforcing from time of arbitration was nearly a year. So I will be going back to this point in a minute or two. And also I will address this trial reporting system in China with greater detail later on. So basically to give you some methodology information.

So what I did is I will take stock of all the cases involving arbitral enforcement in China, between 1998 and 2017. So this is about 20 years. Because some studies only focus on either one specific location, such as Beijing or Shanghai or Guangdong, or they may only address a short time span, say in the last three, five or ten years. So this is a national survey, based on the 20-years timeframe. It is a titanic task, to be honest, and I have to give credit to my co-author, Justice Wang from the Hainan People's Court. That is data on the slide for your attention.

So that is the application number, and applications enforced and refused. We have taken in total 208 cases, but this does include the Hong Kong arbitral award to be enforced and recognised in Chinese court. So we made a chart listing out all the arbitral awards with the seat of Hong Kong. So you can see from this number. But there is a recent case in last month, one of the Hong Kong ICC cases has been refused to be enforced in Beijing No. 4 Intermediate Court, although my survey is up to 2017, but I put it in to make it more complete.

This project, by the way, is still ongoing. And enforcement rate, generally speaking, the overall enforcement rate is 65.6%, which is largely in line with the survey conducted by King & Wood Mallesons. However, if you look at this chronological survey, you will find in the early years, the refusal rate is very high. Particularly so between 2003 and 2007. The refusal rate is around 42%. And since 2007 and onwards, the refusal rate is going down. So the enforcement situation is getting much better. 

So very often the people from outside of where we asked have an interesting question. So in China, actually, there are 34 areas, where we have so many provinces and sub-cities. So which province is more arbitration-friendly? So yes, on paper we have this system, but in practice, different provinces or localities may have different judicial attitude. I’m talking about a typical one. So here is general statistics about geographical diversity of refusal. So in Beijing, people can't really assume the enforcement rate in Beijing, Guangdong and Shanghai is more than others, because they're more economically developed and the quality and capacity of judicial personnel is better than other areas. However, if you look at this picture, you may have a second thought. In some areas, actually, the enforcement rate is quite high. So that is not bad, compared with Shanghai and Guangdong.

The grounds for challenges against the recognition and enforcement, that is here. I won't touch on it with too much detail. Basically there are two categories on the ground challenging against the recognition and enforcement: procedural matters and jurisdictional matters. So the fundamental difference between these two kinds of grounds is this. For procedural matters, a court has no inherent power to review and deny recognition and enforcement based on the grounds in this category, unless the parties themselves made such request. But for the second category, jurisdictional matters, a court may ask of its own initiative. So that is the recent survey on what ground this has been taken, but as I said it's an ongoing project, so we'll keep adding in the new cases. Hopefully we will publish this paper by the end of this year.

Before I conclude, I would like to talk about two things. One is the prior reporting system. This morning, this topic has been repeatedly addressed. It has been applauded by many, saying that, for the sake of consistency and uniformity of the application of NYC, SPC has adopted this system. So in case there's any doubt, any concern on the enforcement or recognising the foreign arbitral awards, you've got to report upward and tell the SPC. That is nice. I understand that. It's functioning well. But is there kind of other side of the story to be told? Because the people may argue that, well, actually that would jeopardise the independence of the lower-level courts, because their decision may not be final because you have this kind of internal coordination between different levels. But as society is functioning, so far in China, that could be Chinese characteristics. However, what I really want to address is this. So as you know, as Judge Gao and many other Chinese judges just mentioned, in the last few months, under this judicial pronouncement, there was no material difference between domestic arbitral awards and foreign arbitral awards to be examined. But what does this mean for the already time-consuming PRS process? Because according to the KWM survey, the average time is nearly one year, 331 days. I don't know how precise that survey is. Perhaps there are so many experts here and they can give me a clear picture about it. But if we put all the domestic arbitral awards to apply this system as well, that obviously will increase up the workload of SPC in this regard. So this is just the prior reporting system and its practical application in different locations.

The last thing before I conclude is social and public interest. I remember when I gave a presentation in the ICC last year in Paris about a Chinese arbitration thing, and they all argued that social and public interest. Because the Chinese national legislation adopted, as Prof. Lu Song this morning mentioned, almost identical provisions, with one technical difference. That is, we use the term "social and public interest", whereas NYC use the term "public policy". People say public policy itself is well enough, running the risk of being an unbridled horse already. But now you have social and public interest. That could be even more dangerous. But I can tell you, actually, it's not the case, based on my empirical study, because in the last 20 years, there was only one foreign arbitral award which has been refused to be enforced based on this ground, and if you examine that case, I think the judgment was a very fair assessment of the foreign arbitral award, if you examine all the material facts of that case. 

Please allow me to provide some concluding remarks. The first, given this statistical survey, I would say there's strong support for arbitration as an alternative means of dispute resolution with a goal to develop China as a preferred choice of venue for international arbitration. In that regard, I totally agree with the previous presenters. China in deed become more and more arbitration friendly.

Second point, the policies and interpretations that favour recognition and enforcement of foreign arbitral awards have been issued. So you have seen at SPC level we have judicial interpretation, and even at provincial level, we have seen different kinds of judicial documents which are in favour of enforcement of foreign arbitral awards, I mean, complying with NYC. And then there is a positive judicial attitude on this.     

However, the very last point I want to address is this. It still has perceived problems. Because that is not -- I'm not saying it's actual, because it's hard for me, as a non-judge, as a scholar in Hong Kong, to prove it. So some Intermediate People's Court and High People's Court might not follow strictly the reporting system, rigidly. That means they may not report as they are supposed to. But I look at this SPC website and I found these two cases, so they are the final judgments given without any record of SPC. So I am highly suspicious about this thing. And the second, to echo what I said earlier, there's a lack of manpower in SPC or High People's Court to deal with this prior reporting system at the moment, in the view of the fact that all the domestic arbitration cases will be applied under this prior reporting system. So it becomes more time-consuming. That could be a practical concern. With that, I conclude. Thank you very much.