Pro-enforcement Approach - Mainland China Highlights Typical Cases on Enforcing Hong Kong Arbitral Awards
Mainland China's Supreme People's Court (SPC) recently released a series of typical cases showcasing a favourable trend in enforcing Hong Kong arbitral awards.
In these cases, Mainland courts clearly adopted a pro-enforcement approach by correctly applying the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong SAR and its Supplemental Arrangement (Arrangements), as well as the relevant Hong Kong law, particularly the Hong Kong Arbitration Ordinance (Cap. 609) (HKAO).
Key takeaways from these cases align with various well-established principles under Hong Kong law:-
- Mainland courts are willing to enforce arbitral awards even when the underlying arbitration clauses are incorporated by reference, unsigned or contain inaccuracies, provided the parties' intention to arbitrate in Hong Kong is clear.
- The arbitration agreement is legally independent from the underlying contract.
- If both parties consent to any deviation in the tribunal's composition and raise no objections during arbitration, such deviation will not be a ground to refuse enforcement of the arbitral award.
- Arbitrators have a broad discretion to conduct proceedings under the arbitration rules, such as accepting late submissions.
- The appointment of arbitrators shall be made in accordance with the agreed arbitration rules unless an alternative procedure is explicitly agreed upon by both parties.
- A judicious approach is employed in invoking the public interest exception, reserving it for cases with significant implications for public policy.
Is There an Arbitration Agreement?
Section 19 of the HKAO (adopting Option I of Article 7 of the UNCITRAL Model Law on International Commercial Arbitration) sets out a broad definition of an "arbitration agreement", by virtue of which the Mainland courts were able to ascertain the existence of an arbitration clause which may not be immediately apparent.
In the case of West Rock1, the applicant entered into a Supply Agreement with the 1st respondent in 2005. In 2008, they subsequently signed an Amendment Agreement with the 2nd respondent, confirming that new terms added in the Amendment Agreement should be incorporated into the Supply Agreement, while unamended terms were to be addressed as provided in the Supply Agreement.
Due to breaches by the respondents, West Rock initiated arbitration at the Hong Kong International Arbitration Centre (HKIAC) and obtained a favourable award. West Rock then sought recognition and enforcement of the award in the Intermediate People's Court of Fujian Nanping.
The respondents opposed, arguing inter alia that the 2nd respondent was not a party to the arbitration – as it only signed the Amendment Agreement, which did not contain an arbitration clause.
The Nanping court examined this issue under the Arrangements. According to Article 7(1), in the absence of an agreement, the applicable law governing the validity of the arbitration clause should be the law of the seat of arbitration, which was Hong Kong law in this case.
The court found that although the 2nd respondent did not sign the Supply Agreement, the Amendment Agreement incorporated clauses from the Supply Agreement. Section 19 of the HKAO allows arbitration clauses to be incorporated into other documents without signatures.
The reference to the Supply Agreement in the Amendment Agreement – and the clause stating that changes made by the Amendment Agreement were part of the Supply Agreement – both indicated the parties' intent to resolve disputes in accordance with the arbitration clause in the Supply Agreement.
The Nanping court therefore concluded an arbitration clause had been agreed between the parties and ordered to recognise and enforce the award.
Similarly, in the case of Yihai v. Lianshun2, the parties negotiated a contract for the sale and purchase of goods by electronic means. After reaching a preliminary agreement, the applicant sent draft contracts to the respondent, who commented on them but did not object to the arbitration clauses contained therein. The applicant then amended the drafts and sent them back to the respondent for further review. However, the contracts were never signed. Later, the respondent refused to take delivery of the goods, claiming the contracts were not signed.
The applicant referred the dispute to the HKIAC and secured an award in its favour. The applicant then applied to the Intermediate People's Court of Zhejiang Hangzhou for enforcement of the award – where the respondent argued there was no valid arbitration agreement between them.
But the Hangzhou court found that the parties exchanged contract texts with arbitration clauses during negotiation and the respondent did not object to these clauses. The court held that even though the contracts were not signed, the arbitration clause was valid based on the principle of independence of the validity of the arbitration agreement.
The arbitration clauses met the requirements of Hong Kong law3 and were legally effective. Whether the parties had formed a legally valid contract did not affect the validity of the arbitration clauses.
Validating Allegedly Defective Arbitration Clauses
Respondents often look for defects in arbitration clauses that may impede the enforcement of arbitral awards. Such alleged deficiencies range from vague references to arbitral institutions to the confusion of multiple institution names. But they do not always lead to successful challenges.
In the case of Liu v. Long4, the parties signed loan agreements providing that disputes would be arbitrated by the "Hong Kong International Economic and Trade Arbitration Commission", as it was mistakenly named. When Long defaulted, Liu commenced successful arbitration proceedings at the China International Economic and Trade Arbitration Commission Hong Kong Arbitration Centre (CIETAC Hong Kong); and subsequently applied to the Intermediate People's Court of Guangdong Shenzhen for recognition and enforcement of the award.
Long contested the application, arguing the arbitration clause was invalid due to the incorrect arbitration institution name. He provided a legal opinion from a Hong Kong barrister advising that the HKIAC was the correct institution to administer the proceedings.
The Shenzhen court then consulted another Hong Kong barrister who suggested the court should consider the parties' true intention despite defects in the arbitration clause.
Ultimately, the Shenzhen court applied Hong Kong law to validate the arbitration clause. Despite incorrect identification of the arbitration institution, the court found the parties' intention to arbitrate in Hong Kong was clear. Further, among arbitral institutions with a presence in Hong Kong, only CIETAC Hong Kong closely matched the specified name in the clause. Thus, the court recognised and enforced the award.
Another typical case in this regard, Tianjin Desheng5, pertained to the validity of an International Chamber of Commerce (ICC) arbitration clause.
The applicant and respondent entered into a management contract which stipulated that any disputes arising from the contract should be submitted to the ICC for arbitration in Hong Kong.
The applicant challenged the validity of the arbitration clause, claiming the ICC lacked arbitration functions and did not exist as an arbitration institution.6
As the agreed seat of arbitration was Hong Kong, the No.1 Intermediate People's Court of Tianjin applied the HKAO in determining the validity of the arbitration clause in question. Under the HKAO, the validity of an arbitration clause depends on the parties' intention to arbitrate – rather than specifics about the arbitration institutions. The court eventually ruled the arbitration clause valid and dismissed the applicant's challenge against the arbitration clause.
Upholding Arbitration Rules While Respecting Party Autonomy and General Powers of the Arbitral Tribunal
Arbitration rules play a critical role in shaping the framework and conduct of arbitration proceedings, providing guidelines and procedures for all parties involved to ensure fairness and transparency. These rules serve as a comprehensive manual for the tribunal, outlining their authority and decision-making standards, while facilitating an efficient resolution of disputes.
Two cases illustrate how Mainland courts clarified arbitration rules and recognised Hong Kong arbitral awards:
In the case of Sichuan Jiuda7, the arbitration clause required a tribunal of three arbitrators, but the applicant only obtained an award from a sole arbitrator appointed by the HKIAC. The main issue was thus whether appointing a sole arbitrator violated Article 7(4) of the Arrangements, which required the tribunal's composition to match the parties' agreement.
The court found that both parties had agreed to proceed with a sole arbitrator during arbitration and that the respondent did not object under the Arbitration Rules. Thus, the appointment was valid and did not violate the Arrangements.
In another case of German SE Company8, three applicants and the respondent agreed that disputes under procurement agreements were to be arbitrated by the ICC International Court of Arbitration (ICC Court) in Hong Kong.
The arbitral tribunal awarded damages to one of the applicants for breach of contract by the respondent. The applicants then sought enforcement from the No.4 Intermediate People's Court of Beijing, where the respondent contested that (1) there was delay by the applicants in submitting the Procedural Timetable, and (2) the presiding arbitrator was improperly appointed.
The Beijing court held that the ICC arbitration rules allowed arbitrators to accept late submissions as they saw fit.
Further, the presiding arbitrator was nominated by the co-arbitrators and confirmed by the secretary general of the ICC Court in accordance with ICC Rules. The respondent failed to demonstrate that both parties had agreed to an alternative procedure for appointing the third arbitrator despite the ICC Rules.
Judicious Approach to Public Interest Exception
In the German SE Company case above, the respondent also raised public safety concerns over the subject matter of the contract – which pertained to excessive electromagnetic radiation – and on this basis submitted that enforcing the award would go against the public interest of Mainland China.
The Beijing court disagreed and maintained that the disputes were between two private entities and the arbitration outcome would not impact public security.
This case underscores that Mainland courts rarely refuse to recognise or enforce arbitral awards on the grounds of public interest.
Under what circumstances might a Mainland court decline to enforce an award on such grounds? Insights can be gleaned from these other typical cases published by the SPC:-
- An arbitral award involving the return of principal and interest from a loan agreement on converting virtual currency into RMB,9 or a money lending arrangement for gambling, was considered against the public interest of Mainland China and hence unenforceable.10
- If an arbitral award was based on a key factual finding that substantially conflicted with a prior civil judgment made by a Mainland court, it was deemed contrary to the public interest and not enforceable. In the Ah Mou Company case11 the SPC held that even if the main body of the arbitral award did not directly conflict with the court's findings, the central and decisive findings of the arbitral tribunal did. Recognising and enforcing such an award would undermine judicial authority and make court judgments less effective. The SPC therefore invoked Article 7 of the Arrangements and did not recognise the Hong Kong arbitral award in question.
Looking Forward
The series of typical cases underscores the unwavering stance of Mainland courts in supporting Hong Kong arbitral awards. These court rulings are well received and adhere to global norms, contributing to the stability and trustworthiness of enforcing Hong Kong arbitral awards in Mainland China.
Consequently, they bolster the assurance of international stakeholders in selecting Hong Kong as their arbitration venue.
We anticipate that this positive trajectory will persist and solidify with Mainland China aligning its arbitration practice more closely with international benchmarks.
1 (2018) Min 07 Ren Gang No.1
2 (2021) Zhe 01 Ren Gang No.1
3 Section 19 of the HKAO.
4 (2022) Yue 03 Min Chu No.7444.
5 (2021) Jin 01 Min Te No.1.
6 For the avoidance of doubt, the ICC International Court of Arbitration does have a presence in Hong Kong.
7 (2020) Chuan 03 Ren Gang No.1.
8 (2021) Jing 04Ren Gang No.3.
9 (2023) Zui Gao Fa Ming Ta No. 85.
10 (2023) Zui Gao Fa Ming Ta No. 93.
11 (2023) Zui Gao Fa Ming Ta No. 19.
