LIU Xiaochun: The New York Convention and International Arbitration in China

Keynote Speech on the 60^th Anniversary of New York Convention and

“One Belt and One Road” Conference

Dr. LIU Xiaochun

President of SCIA

Distinguished Ms. Anna Joubin-Bret, Ms. Elsie Leung and Mr. Rimsky Yuen, guests, ladies and gentlemen:

Good morning! At the very beginning, on behalf of the organizers of this seminar, SCIA and UNCITRAL, I would like to express my sincere gratitude to the Supreme People’s Court, the Ministry of Commerce, and the Shenzhen Municipal Government, for their special support to this conference, and also I would like to extend my gratitude to the guests present at this meeting. Welcome!

As the speakers in last session said, the theme of today’s seminar has a special connection with Shenzhen. As we are gathering in Shenzhen, before I move forward to the next chapter, let us take a brief review of the history that the New York Convention and the SEZ’s international arbitration have been through under the background of China’s reform and opening up.

60 years ago, in 1958, at the UN conference held in New York, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards(New York Convention) was born. Up until now, it has 159 contracting states covering the major trading states all over the world and become one of the most successful international conventions.

40 years ago, in 1978, China launched the reform and opening up.

38 years ago, in 1980, China's first special economic zone was established in Shenzhen.

36 years ago, in 1982, the Shenzhen Special Economic Zone (SEZ) of China prepared to establish an international arbitration institution for SEZ in line with international practices to accommodate the needs for the reform and opening up, the development of SEZ, and the cooperation between Guangdong, Hong Kong and Macao.

35 years ago, on April 19, 1983, Shenzhen Court of International Arbitration (i.e. South China International Economic and Trade Arbitration Commission, formerly known as China International Economic and Trade Arbitration Commission Shenzhen Sub-commission and China International Economic and Trade Arbitration Commission South China Sub-commission; hereinafter “SCIA”) was established as the first arbitration institution in Guangdong, Hong Kong, and Macao Greater Bay Area.

32 years ago, on December 2, 1986, the Standing Committee of the National People's Congress of China made a decision on China’s accession to the New York Convention. In April of the following year, the New York Convention became into effect in China.

30 years ago, in July 1988, SCIA made a landmark arbitral award which was later enforced by the High Court of Hong Kong in June 1989, setting the precedent for Chinese arbitral awards being enforced overseas according to the New York Convention. China’s arbitral award went overseas.

21 years ago, in July 1997, Hong Kong returned to China and implemented “One Country, Two Systems”. The enforcement of arbitral awards in mainland China and Hong Kong and the application of the New York Convention faced new problems. However, this issue was successfully resolved two years later.

19 years ago, in June 1999, Ms. Elsie Leung, the first Secretary of Justice of the Hong Kong Special Administrative Region Government (also a Council Member of SCIA) and Mr. Shen Deyong, the then Vice Chief Justice of the Supreme People's Court, respectively on behalf of Hong Kong SAR Government and Supreme People's Court, signed the “Arrangement on the Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region” (Arrangement) in Shenzhen. This arrangement inherited the spirit of the New York Convention and accommodated the actual needs of "One Country, Two Systems". It has played a positive role in maintaining the prosperity and stability of Hong Kong and the smooth progress of reform and opening up. It can be said that the Arrangement is the result of the innovative practice of New York Convention in China and has provided experience for the universal application of the New York Convention in other similar countries and regions.

For the above reasons, the first commemoration of the 60^th anniversary of New York Convention co-organized by SCIA and UNCITRAL was held in Shenzhen to reflect the special coincidence between Shenzhen and the New York Convention. Especially in the context of the further progress of the “One Belt and One Road” international cooperation, we should take the initiative to issue the Chinese voice of international rules. As the pioneering city of China’s reform and opening up and the bridgehead at the Maritime Silk Road, Shenzhen has the obligation and ability to assume more responsibilities in the development of new rules and new orders for international economic and trade relations. I believe that when the New York Convention meets the “One Belt and One Road” it will certainly be extraordinarily different.

My keynote speech today covers three parts: the link between the New York Convention and SEZ’s international arbitration; overseas enforcement of China’s arbitral awards; and prospect of future interaction of the New York Convention and China’s international arbitration.

Part I The Link between the New York Convention and SEZ’s International Arbitration

—— China’s First Arbitral Award Enforced Overseas

To begin with, I would like to share with you the landmark case in the history of China’s international arbitration: Guang Dong Yue Hai Import and Export Corporation and Delta Industrial Corp. The arbitration agreement was signed by both parties on 1 November 1986; the case was accepted by SCIA in 1987; the arbitral award was rendered on 12 July 1988 following the hearing in Shenzhen on 29 February 1988. Afterwards, plaintiff, i.e. claimant in the arbitration proceeding, sought leave to enforce the arbitral award before the High Court of Hong Kong and defendant, i.e. respondent in the arbitration proceeding, raised two reasons for objecting enforcement, both of which were rejected by the judge of this case, G.P. Nazareth. The judge found that the arbitral award rendered by SCIA is the “(New York) Convention Award” as defined by the Arbitration Ordinance of Hong Kong and therefore should be enforced. This case is significant in two senses: it is not only the first China’s arbitral award enforced overseas according to the New York Convention but also the very first New York Convention Award enforced by the courts of Hong Kong.

Notwithstanding that the two grounds raised by the defendant for opposing enforcement failed, it does reflect two typical issues recurrently occurred in the recognition and enforcement of arbitral awards. To take the first opposing ground for example, the defendant contended that the award was not made by the arbitrators provided for in the relevant arbitration agreement and should therefore be refused under Section 44(2)(e) of the Arbitration Ordinance which provides that “enforcement may be refused if the composition of the arbitral authority was not in accordance with the agreement.” In fact, it involves the issue of the change in the name of the agreed arbitration institution.

Both parties actually agreed upon the Shenzhen international arbitration institution in its former name but afterwards the arbitral award was rendered under the new name of the agreed arbitration institution. It is actually an award made by the same arbitration institution only with its name changed. The judge concluded that the defendant’s first objection failed because the arbitral award was rendered by the same arbitration institution as agreed upon by both parties, regardless of the change in the name of that arbitration institution. What is worth mentioning here is that, after the return of Hong Kong, the Hong Kong Judiciary has also taken the same position as the judge of this case regarding the change in the name of the arbitration institution, meaning the change in the name does not mean the change of the institution and the institution remains unchanged even it changes its name. This position has been constantly reflected in the statistics released by the Hong Kong Judiciary in relation to the recognition and enforcement of foreign arbitral awards

The second objection raised by the defendant is that Section 2 of the Arbitration Ordinance defines “Convention Award” as “an award made in pursuance of an arbitration agreement in a State or territory, other than Hong Kong, which is a party to the New York Convention” and in this definition, the words “in a State or territory” qualify “arbitration agreement” and not “an award”. In other words, the defendant was of the opinion that an award can only be regarded as a Convention Award so long as when the arbitration agreement was concluded the State or territory where the award was made is already a party to the New York Convention. The facts of this case are as follows: both parties concluded the arbitration agreement on 1 November 1986; New York Convention become into effective in China in April 1987; and the arbitral award was rendered on 12 July 1988. The defendant pointed out that when the arbitration agreement was concluded, China was yet to be a party to the New York Convention and the arbitral award is not a “Convention Award” as per Section 2 of Arbitration Ordinance even if New York Convention is binding on China at the time when the arbitral award was made. If a contrary interpretation was taken, the Arbitration Ordinance would have acquired the retrospective effect to cover awards that fall outside the definition of “Convention Award”. For these reasons, the defendant requested the court to not enforce the arbitral award in question.

Judge Nazareth dismissed the defendant’s objection for three reasons. First, the court found that regarding the definition of “Convention Award” in Section 2 of the Arbitration Ordinance, the words “in a State or territory” qualify “an award” rather than “arbitration agreement”. The provisions in the Arbitration Ordinance relating to enforcement of “Convention Award” are procedural and of effect to the enforcement procedure after China became a party to the New York Convention. Clarifying the words “in a State or territory” qualify “an award” would not give the retrospective effect. Second, the construction approach taken by the court, as compare to that of the defendant, was more consistent with the object of the Arbitration Ordinance. When it comes to the New York Convention, it is the award that is material, rather than the agreement. Third, if the construction favored by the court did indeed give the ordinance retrospective operation (the court repeatedly denied that), such construction is both clear upon the words and arises by necessary implication.

The above-mentioned is the details of this landmark case in the history of Chinese international arbitration. It is clear that as early as in 1989, the High Court of Hong Kong has already given an unequivocal analysis and determination on the issues of change in name of arbitration institution and the place where the arbitral award was made, which is of great importance to stabilizing the market expectations, understanding the New York convention, facilitating the cross-border recognition and enforcement of arbitral awards. The analysis of Judge Nazareth still deserves an in-depth research. 

Part II Overseas Enforcement of Chinese Arbitration Awards

--From the perspective of the enforcement of SCIA’s arbitration awards in Hong Kong

Since this milestone case, the mutual recognition and enforcement of arbitration awards between mainland China and Hong Kong are mainly carried out in accordance with the New York Convention, and the enforcement is fairly effective. Statistics show that, before the return of Hong Kong, more than 150 arbitral awards made in mainland China had been enforced by the High Court of Hong Kong, and only 2 arbitral awards had been rejected from enforcement due to certain procedural irregularities; while there were 26 arbitration awards which had been made in Hong Kong applying to courts of mainland China for enforcement in accordance with the New York Convention, and about 50% had been actually enforced.

After the return of Hong Kong on July 1, 1997, the recognition and enforcement of arbitration awards between Hong Kong and mainland China has become an issue between two different jurisdictions under the same sovereignty, therefore the New York Convention is no longer applicable. In Ng Fung Hong Limited v. ABC of 1998, the arbitral award made in mainland China was not recognized by the High Court of Hong Kong as a Convention Award, neither it was a “domestic” award of Hong Kong; as a result, the nature and application of law related to the arbitration award were not clear. At the same time, the mainland courts also has received some applications for enforcing arbitral awards made in Hong Kong, but the mainland court did not make any judgment on whether these arbitral awards should be enforced or not. For some period of time afterwards, there was no enforcement of arbitral awards between mainland China and Hong Kong. Therefore, it was very urgent and important, at that time, to establish a new mechanism of convenience and efficiency on the enforcement of arbitration awards to meet the practical demand. In June 1999, the Arrangement on the Mutual Enforcement of Arbitration Awards between Mainland China and the Hong Kong Special Administrative Region (Arrangement) was formally signed in Shenzhen, so the judicial assistance for arbitration between mainland China and Hong Kong was able to return to the right track and move into a new historical stage.

The Arrangement was formulated in the spirit of the New York Convention to maintain the continuity and stability of these legal instruments. As for the specific content, the Arrangement also inherited the basic rules of the New York Convention, especially in the following four aspects.

First, scope of mutual enforcement of arbitration awards. According to Article 1 of the New York Convention, the scope of recognition and enforcement shall be “arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought”, rather than arbitral awards made by arbitration institutions. As regards Hong Kong, all the arbitral awards made in mainland China, no matter by domestic arbitration institutions or foreign-related arbitration institutions, shall be enforced as long as they satisfy the conditions of enforcement. This principle has been reflected in the following provision of the Arrangement: “ the Courts of the HKSAR agree to enforce the awards made pursuant to the Arbitration Law of the People’s Republic of China by the arbitral authorities in the Mainland (the list to be supplied by the Legislative Affairs Office of the State Council through the Hong Kong and Macau Affairs Office the State Council) and the People’s Courts of the Mainland agree to enforce the awards made in the HKSAR pursuant to the Arbitration Ordinance of the HKSAR”.

Second, issue of commercial reservation. As the Arrangement reflects the main content of the New York Convention, therefore, when an arbitral award made in Hong Kong seeks to be enforced in Mainland China, the commercial reservation of Chinese government which has been made while acceding to the New York Convention shall continue to apply; in other words, the scope of arbitration enforcement shall be limited on those disputes which arising from contractual and non-contractual commercial legal relationship as be identified in the law of the People’s Republic of China.

Third, application for the enforcement of arbitration award. When a mainland party applies for the enforcement of an arbitration award in Hong Kong or vice versa, the relevant court shall accept the application as long as it satisfies Articles 3 and 4 of the Arrangement. Article 3 of the Arrangement makes it clear that, to apply for the enforcement of an arbitration award, the applicant shall provide the following documents: (1) An application for enforcement. To apply to the courts of mainland China for enforcement, the application for enforcement must be in Chinese; and to apply to the courts of Hong Kong SAR for enforcement, the application for enforcement may be in Chinese or English. (2) The arbitration award. (3) The arbitration agreement, which is generally in consistence with Article 4 of the New York Convention.

Fourth, rejection of enforcement of arbitration awards. The circumstances of rejection of enforcement listed in Article 7 of the Arrangement are basically related to procedural issues. The first issue is that the arbitration agreement is invalid, and a party to the arbitration agreement are under some incapacity. The second and fourth issues are serious breaches of the arbitration rules, restricting or depriving the parties of their rights under the arbitration rules; The third issue is that the arbitral award exceeds the scope of the party’s request; The fifth issue is that the award has not been effective or has been set aside or suspended. These provisions are basically the same as the Article 5 of the New York Convention. It can thus be seen that the Arrangement only requires a procedural review. In addition, the Arrangement provides “public order” clauses, but after the return of Hong Kong, the relationship between Hong Kong and Mainland has undergone a fundamental change, and mutual assistance within one country should be more comprehensive and effective than that between countries. Therefore, the public order clause will be strictly limited. The Arrangement adopts a flexible and practical attitude to the enforcement of arbitration awards made in Mainland China or Hong Kong and does not contain any additional requirement on review of arbitration awards excerpt for those requirements prescribed in Article 5 of the New York Convention. This will facilitate the protection of the rights of parties from Mainland China and Hong Kong, so as to maintain Hong Kong’s prosperity and stability and promote the economic development of both Hong Kong and Mainland China.

In the two decades thereafter, both Hong Kong and Mainland China has enforced the arbitration awards mainly in accordance with the Arrangement, and the data related to the SCIA are very conspicuous.

According to the statistics released by the judiciary of Hong Kong, the enforcement of the SCIA’s arbitration awards in Hong Kong during the period of 2011 to 2015 is as follows: 

As indicated in the above table, from 2012 to 2015, the SCIA occupies 31.4% among the total number of enforced arbitral awards of mainland China, ranking the highest among all the arbitration institutions of mainland China. According to the latest statistics of 2017, SCIA accounts for 41.2% of the total number of enforced arbitral awards of mainland China, 31.8% of the total number of enforced arbitral awards of all arbitration institutions, ranking the highest among all arbitration institutions all over the world. Actually, the SCIA does not have any arbitral award that has been rejected by the Hong Kong courts in accordance with the Arrangement on Mutual Enforcement.

Part III Prospect of Future Interaction between the New York Convention and China’s International Arbitration

--Restart from the innovation of the SCIA’s Arbitration Rules

Over the past 35 years, the SCIA has accumulated rich experience in the resolution of domestic and foreign economic and trade disputes and the total number of countries and/or regions where the parties came from has reached 116 by now. In 2016, the Guidelines for the Administration of Arbitration under the UNCITRAL Arbitration Rules (hereinafter the “Guidelines”) was adopted.

One innovation of the Guidelines can be seen in Article 3: “Where the parties have agreed on the place of arbitration, the parties’ agreement shall prevail. Where the parties have not agreed on the place of arbitration, unless otherwise determined by the arbitral tribunal, the place of arbitration shall be Hong Kong.” This arrangement not only respects the autonomy of the parties, but also encourages the parties to choose Hong Kong as the place of arbitration, which is consistent with the market demand in the background of international cooperation arising from the “Belt and Road” strategy. As we all know, China has become the largest trading power in the world, the outbound investment is booming as more and more enterprises go out, and inbound investment also grows steadily. Accordingly, the international commercial disputes and investment controversies will also grow considerably. As an arbitration institution located in Shenzhen, the leading city of the Great Bay of Guangdong-Hong Kong-Macau and the bridgehead at the Maritime Silk Road, the SCIA takes the lead in China in formulating the Guidelines for the Administration of Arbitration under the UNCITRAL Arbitration Rules to accommodate the rules generally accepted in the international practice. It is expected that more and more international commercial disputes will be resolved in Shenzhen SEZ through arbitration by choosing Hong Kong or a foreign country as the seat of arbitration. Therefore, we expect there will be a lot of interaction between the New York Convention and China’s international arbitration in the future.

Yet, during the SCIA’s innovative exploration of the international arbitration, we also face some significant issues that are cutting-edge and unclear. The focus of these new issues is the seat of arbitration and mainly involves the following six aspects:

First, when the parties choose arbitration by the SCIA with the seat of arbitration being Hong Kong, can the parties apply to the courts of Mainland China or Hong Kong for interim measures?

This involves the governing law of the arbitration procedure. If the law of Mainland China is taken as the governing law, the court of Hong Kong will grant the interim measures in accordance with Article 45 of the Arbitration Ordinance; and the parties do not have any impediment to apply for interim measures prior to or during the arbitration procedure in mainland China pursuant to the Arbitration Law and/or the Civil Procedure Law of the People’s Republic of China.

If the law of Hong Kong is taken as the governing law, the court of Hong Kong will surely grant the interim measures in accordance with Article 45 of the Arbitration Ordinance. But in mainland China, the foreign party is unable to apply for interim measure pursuant to the Arbitration Law and/or the Civil Procedure Law of the People’s Republic of China.

Therefore, the SCIA recommends that, to promote the development of the Guangdong-Hong Kong-Macau Greater Bay Area, the mainland legislative and judicial authorities should take more active and flexible attitude to ensure the application for interim measures for arbitrations involving mainland China and Hong Kong.

Second, when the parties choose arbitration by the SCIA with the seat of arbitration being Hong Kong, can the parties apply to the courts of Mainland China or Hong Kong for enforcement of the arbitration awards?

This involves the nationality of an arbitral award. If it is deemed as an arbitration award of Hong Kong, it will be enforced in Hong Kong in accordance with the Arbitration Ordinance; while in Mainland China, it shall be enforced in accordance with the Arrangement.

If it is deemed as an arbitration award of Mainland China, it will be enforced in Hong Kong in accordance with the Arrangement on Mutual Enforcement, while in Mainland China, it shall be enforced in accordance with the Civil Procedure Law of the People’s Republic of China.

Third, when the parties choose arbitration by the SCIA with the seat of arbitration being Hong Kong, can the parties apply to the courts of Mainland China or Hong Kong for setting aside the arbitration awards?

It also involves the nationality of an arbitration award. If it is deemed as an arbitration award of Hong Kong, the court of Hong Kong shall have jurisdiction over the setting aside of the arbitration award. If it is deemed as an arbitration award of mainland China, then the mainland court shall have jurisdiction over the setting aside of the arbitration award.

As regards the second and the third points, the SCIA recommends the legislative and judicial interpretation to decide the nationality of arbitration awards according to the seat of arbitration, so that it is consistent with the spirit of New York Convention.

Fourth, when the parties choose to apply the UNCITRAL Rules with arbitrators appointed by the SCIA, i.e. the SCIA acts as the appointing authority only, and the seat of arbitration is Hong Kong, can the parties apply to the courts of Mainland China or Hong Kong for interim measures?

This issue involves the governing law of the ad hoc arbitration procedure. If we decide the nationality of arbitration awards according to the seat of arbitration, it shall be governed by the law of Hong Kong, and the parties to an ad hoc arbitration do not have any impediment to apply for interim measures in Hong Kong, but they will face the difficulty in Mainland China just as described in the first point.

If it is governed by the law of Mainland China, the parties do not have any impediment to apply for interim measures; but as the law of Mainland China does not recognize ad hoc arbitration in principle, how should the application for interim measures be handled under this kind of arbitration? Although the Supreme People’s Court has issued the Opinion on the Judicial Measures for Safeguarding the Construction of the Free Trade Trial Zones that allows ad hoc arbitration in the free trade zones, it is still very limited.

Therefore, the SCIA recommends that the legislative and judicial authorities of Mainland China may adopt more active, flexible and stable attitude to support the arbitration institutions of Guangdong Free Trade Zone to explore ad hoc arbitration in the Guangdong-Hong Kong-Macau Greater Bay Area.

Fifth, when the parties choose to apply the UNCITRAL Rules with arbitrators appointed by the SCIA, i.e. the SCIA acts as the appointing authority only, and the seat of arbitration is Hong Kong, can the parties apply to the courts of Mainland China or Hong Kong for enforcement?

This involves the nationality of an ad hoc arbitration. If it is deemed as an arbitral award of Hong Kong, it will be enforced in Hong Kong in accordance with the Arbitration Ordinance; while in Mainland China, it shall be enforced in accordance with the Arrangement.

If it is deemed as an arbitration award of the free trade zone of mainland China, it will be enforced in accordance with the Civil Procedure Law of the People’s Republic of China in mainland China; while in Hong Kong, it shall be enforced in accordance with the Arrangement, but the Arrangement recognizes arbitration awards by arbitration institutions if they are made in Mainland China, how should this issue be resolved?

Therefore, the SCIA recommends that we should decide the nationality of arbitration awards according to the seat of arbitration, which is consistent with the New York Convention and allows Hong Kong courts to enforce ad hoc arbitration awards made in Mainland China.

Sixth, when the parties choose to apply the UNCITRAL Rules with arbitrators appointed by the SCIA, i.e. the SCIA acts as the appointing authority only, and the seat of arbitration is Hong Kong, can the parties apply to the courts of Mainland China or Hong Kong for setting aside the arbitration awards?

It also involves the nationality of an ad hoc arbitration. If it is deemed as an arbitration award of Hong Kong, the court of Hong Kong will have jurisdiction to set aside the arbitration award. If it is deemed as an arbitration award of Mainland China, then the mainland court will have jurisdiction to set aside the arbitration award.

Once again, the SCIA recommends the legislative and judicial interpretation to decide the nationality of arbitration awards according to the seat of arbitration, so that it is consistent with the New York Convention.

Lastly, when the parties choose arbitration by the SCIA or choose the SCIA as the appointing authority only, if the seat of arbitration is another state to the New York Convention, the interim measures, enforcement or setting aside of arbitration awards will also encounter similar issues as described above, but we will not discuss them in depth here. Yet, we believe that the New York Convention will provide us with a key to solve these issues.

Today, the SCIA and UNCITRAL commemorate the 60th anniversary of the New York Convention, the 40th anniversary of China’s Reform and Opening-up, and the 35th anniversary of the Shenzhen SEZ’s international arbitration together with you in Shenzhen to jointly explore the frontier issues of international dispute resolution rules. Let us work together.

That concludes my speech. Thank you!