On 24 October 2023, the Federal Court of Australia dismissed India’s application to set aside an investor’s application to recognise and enforce an award against India on the basis of sovereign immunity (CCDM Holdings, LLC v Republic of India (No 3)  FCA 1266).
Tag: New York Convention
In a recent application to enforce an arbitral award, the Federal Court of Australia rejected the award debtor’s arguments that it would be contrary to public policy to enforce the award, where allegations of procedural unfairness had already been determined in foreign courts. In doing so, the Court reaffirmed the high threshold required for an Australian court to refuse enforcing a foreign arbitral award on public policy grounds, and the importance of international harmony and concordance of approach.
On 17 January 2023, the Democratic Republic of Timor-Leste (Timor-Leste) became the 172nd state to accede the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention). This accession follows Timor-Leste’s approval of a new legal regime of Voluntary Arbitration, as approved by its National Parliament on 31 March 2021.
Suriname has become the 171st State party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention). On 10 November 2022, Suriname deposited its instrument of accession to the Convention with the UN Secretary General. The Convention will enter into force for Suriname on 8 February 2023.
As noted in our previous blog post here, in March 2021, Iraq passed the “Law on the Accession of the Republic of Iraq to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards“. Iraq’s accession to the New York Convention was subsequently ratified in May 2021 when that law was published in the Official Gazette.
Following deposit of its instrument of accession with the United Nations Secretary-General on 11 November 2021, the New York Convention will enter into force for Iraq on 9 February 2022. Iraq will become the 169th State Party to the New York Convention, following the accession of Belize in March 2021 as the 168th State Party.
As set out in our previous blog post, Iraq’s accession to the Convention is subject to the non-retroactivity, reciprocity and commercial disputes reservations. It is expected that Iraq’s accession is intended to facilitate investment in Iraq and further development of its economy as it continues its reconstruction.
For more information, please contact Amal Bouchenaki, Partner, and Stuart Paterson, Partner, or your usual Herbert Smith Freehills contact.
Iraq has become the latest state to ratify the Mauritius Convention on Transparency in Treaty-based Investor State Arbitration (the Mauritius Convention), having deposited its instruments of ratification at the UN Headquarters in New York and having previously signed the Mauritius Convention on 13 February 2017. The Mauritius Convention will come into force for Iraq on 20 February 2022.
On 23 December 2020, the Supreme People’s Court (“SPC”) of China released its bilingual 2019 Annual Report on Judicial Review of Arbitration Cases in China (the “Report”). It is the very first report issued by the SPC summarising the courts’ approach for judicial review of arbitration-related cases.
The Report aims to promote the SPC’s efforts over the course of last year in standardising judicial review approach in dealing with arbitration-related matters. In particular, it includes the SPC’s summary of its approach for judicial review of arbitration-related matters in 2019, such as on issues of validity of arbitration agreements, enforcement or revocation of domestic arbitral awards, as well as recognition and enforcement of offshore arbitral awards. Whilst the full content of the Report itself has not been made available online at the time of our blog, we set out below the key highlights based on the press release and information provided at the press conference of the SPC.
The SPC “reporting system”
The SPC “reporting system” applies to enforcement of arbitral awards in Mainland China.[i] Under the reporting system, lower courts are authorised to confirm validity of arbitration agreements, and order enforcement of onshore and offshore awards (or a Mainland Chinese foreign-related award). However, if a lower court is minded to deny validity of an arbitration agreement or to refuse enforcement of an arbitral award, it must refer the case to a higher court to confirm the decision.
For domestic awards, the higher court will conduct the final review without involving the SPC unless where (1) the parties are from different provinces in Mainland China; or (2) the refusal to enforce the award is based on an “infringement of public policy”.
For foreign-related arbitration cases, the higher court must refer the matter to the SPC for a final decision if it agrees that enforcement should be refused.
In 2018, the reporting system was further supplemented by the establishment of the First and Second International Commercial Courts.[ii] These courts are empowered to hear revocation and enforcement cases of foreign-related arbitral awards with disputed amounts exceeding RMB300 million or awards of significance released by five arbitration institutions.[iii]
According to the statistics provided by the SPC at the press conference, PRC courts heard a total of 11,029 cases concerning revocation of arbitral awards in 2019, only 5.8% of which the courts decided to set aside or partially set aside arbitral awards. Among the 201 cases reviewed by the SPC in 2019, 32% of lower courts’ decisions were overruled.
Recognition and enforcement of offshore arbitral awards
Recognition and enforcement of offshore arbitral awards in China is governed by the New York Convention as well as the Civil Procedure Law of China.
The SPC mentioned during the press conference that in 2019, a total of 32 applications were made to recognise and enforce offshore arbitral awards in China, among which 20 applications were successful and 1 application was denied because the award exceeded the scope of the arbitration agreement. The other applications were either withdrawn by the parties or dismissed due to lack of jurisdiction.
Interim injunctions in support of arbitration
The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the “Arrangement”) came into effect on 1 October 2019. Parties to Hong Kong-seated arbitrations administered by an eligible arbitration institution in Hong Kong have the right to apply for interim measures from Mainland Chinese courts.
According to the SPC, between 1 October 2019 and 31 October 2020, 32 applications for interim measures have been granted by Mainland Chinese courts in relation to Hong Kong arbitration, among which 29 cases concern property preservation measures, two cases concern evidence preservation and one case concerns action preservation.
Pro-arbitration principles in judicial review
SPC mentioned at the press conference that the Report summarises the criteria and principles that Mainland Chinese courts should take into account in their judicial review of arbitration-related cases.
Six general principles are emphasised:
- Courts shall respect parties’ agreement to arbitrate and interpret the arbitration agreements/clauses in favour of validity;
- The grounds for setting aside arbitral awards shall be strictly limited to those provided by law;
- Arbitration awards are in principle final and binding and the judicial review of arbitral awards shall only be limited to the extent of necessity;
- The public policy defence shall be interpreted stringently to avoid being abused;
- Courts shall accurately identify foreign governing laws, recognise and enforce foreign arbitral awards accordingly to law and create an “arbitration friendly” judicial environment; and
- Courts shall recognise and enforce Hong Kong, Macau and Taiwan arbitral awards according to law, and assist in interim measures in aid of Hong Kong arbitral proceedings in Mainland China.
According to the SPC, the Report also addresses recent development in arbitration practice, such as the formation of Belt and Road Mechanism for Resolution of International Commercial Disputes[iv] and China Pilot Free Trade Zone Arbitration Mechanism[v].
[ii] See Article 2 of Provisions of the Supreme People’s Court on Several Issues Regarding the Establishment of International Commercial Court (Fa Shi  No.11).
[iii] The five arbitration institutions are members of “One-stop” Diversified Settlement Mechanism for International Commercial Disputes in China, including China International Economic and Trade Arbitration Commission, Shanghai International Economic and Trade Arbitration Commission, Shenzhen Court of International Arbitration, Beijing Arbitration Commission, and China Maritime Arbitration Commission.
[iv] Opinions of the Supreme People’s Court on the Provision of Judicial Services and Guarantee by People’s Courts for the Belt and Road Initiative (Fa Fa  No.29) (Chinese text only).
[v] Opinions of Supreme People’s Court on the Provision of Judicial Services and Guarantee by People’s Courts for the Construction of China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area (Fa Fa  No. 31).
On 28 October 2020, Sierra Leone deposited its instrument of accession to the UN Secretary General, acceding to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“).
Sierra Leone will become the 166th state party to the Convention, following the recent accession of Ethiopia and Tonga earlier this year. Under Article XII (2), the Convention will come into force for Sierra Leone on 26 January 2021.
On 6 August 2020, Guangzhou Intermediate People’s Court made a civil ruling that an arbitral award made in Guangzhou by the ICC should be regarded as a Chinese arbitral award with a foreign element. It follows that the award should be enforced under Article 273 of the PRC Civil Procedure Law, rather than under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
(2015) Sui Zhong Min Chu Si Zi No. 62 or (2015)穗中法民四初字第62号
This case concerned a supply contract between Brentwood Industries (US) as the seller, Guangzhou Faanlong Machinery Engineering Co Ltd (PRC) as the buyer, and Guangzhou Zhengqi Trading Co Ltd (PRC) as the agent of the buyer. Article 16 of the contract provided that “any dispute arising from or in connection with this contract shall be settled through friendly negotiation. If no settlement can be reached through negotiation, it shall be submitted to ICC for arbitration in the place where the project is located in accordance with international convention and practice…” (emphasis added). Article 17 provided that “the applicable law of this contract is PRC law”. In this case, the project was located in Guangzhou, Mainland China.
On 16 December 2010, Brentwood brought a claim against Faanlong and others (Respondents) in the Court. The Court declined to hear the case, as there was an arbitration agreement between the parties. On 9 May 2011, Brentwood applied to the Court to invalidate the arbitration clause. Brentwood was not successful. Subsequent to the Court’s ruling confirming the validity of the arbitration clause, on 31 August 2012, Brentwood commenced ICC arbitration against the Respondents. The arbitration was administered by the ICC through its Secretariat Asia Office based in Hong Kong. On 17 March 2014, the sole arbitrator made a final award in favour of Brentwood. On 13 April 2015, Brentwood applied to the Court for recognition and enforcement of the award.
The Court’s ruling on enforcement
Brentwood argued that judicial practice in Mainland China is that the nationality of the arbitral award is determined by the place where the arbitration institution is located. Accordingly, as the award was made by the ICC, which is headquartered in Paris, it should be recognised and enforced in Mainland China in accordance with the New York Convention. Alternatively, if the Court considered that the award was made by the ICC Secretariat Asia Office based in Hong Kong, the award is a Hong Kong arbitral award and should be recognised and enforced in accordance with the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the Hong Kong Special Administrative Region (Mainland and Hong Kong Mutual Arrangement).
The Respondents argued that (1) the award was not “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought “ (Article 1 of the New York Convention), and thus should not be recognised and enforced under the New York Convention; (2) ICC was not an arbitration institution stipulated in the PRC Arbitration Law and it was not legal for it to administer arbitration in Mainland China; and (3) the validity of the arbitration clause and the enforceability of the arbitral award were two separate legal issues under different rules. The fact that the arbitration clause was held valid did not necessarily suggest that the award made pursuant to it was enforceable.
The Court ruled that the award, made in Guangzhou by the ICC, should be regarded as a foreign-related arbitral award made in Mainland China. Enforcement of the award should be brought under Article 273 of the PRC Civil Procedure Law. It rejected Brentwood’s arguments for recognition and enforcement under the New York Convention or the Mainland and Hong Kong Mutual Arrangement and directed Brentwood to re-apply for enforcement under the PRC Civil Procedure Law.
It is a long-standing question whether foreign arbitration institutions can administer arbitration seated in Mainland China under the current PRC Arbitration Law regime. The traditional view was no, because “arbitration commission” in the PRC Arbitration Law meant Chinese arbitration institutions only. However, with the increase in commercial dealings between Chinese and foreign parties, the strict interpretation of the law no longer sits well with the demands of commercial parties. China’s Supreme People’s Court has recently, in several cases and judicial interpretations, confirmed the validity of clauses providing for arbitrations administered by foreign institutions seated in Mainland China. This latest decision made by the Guangzhou Court took a further step, supporting that the arbitral award made in arbitration seated in Mainland China and administered by a foreign arbitration institution can be enforced under PRC Civil Procedure Law. However, as Mainland China is not a case law jurisdiction, this latest decision by Guangzhou Court, even though it should have been vetted by the Supreme People’s Court via the internal reporting system, is not a binding authority in Mainland China.
Viewed in light of the fact that foreign arbitral institutions are now permitted to operate in Beijing and extended free trade zones in Shanghai (see here), we are hopeful that there will be a final clarification in the near future on the question of whether foreign arbitral institutions can administer arbitration seated in Mainland China. Legal practitioners in Mainland China have been calling for an amendment to the existing PRC Arbitration Law to address this issue. If that happens, it would be a significant step towards China further opening up its legal services market to foreign players. Having said that, before that final missing piece of the puzzle is complete, we would recommend that parties avoid agreeing to an arbitration clause that provides for arbitration seated in Mainland China to be administered by a foreign arbitral institution.
If you have questions or would like discuss any aspect of this post, please contact Helen Tang, Stella Hu or Briana Young of Herbert Smith Freehills, Weina Ye of Kewei Law Firm, or your usual Herbert Smith Freehills contact.
On 24 August 2020 Ethiopia acceded to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“). Ethiopia will become the 165th state party to the Convention, following the recent accession of Tonga in June this year. Under Article XII (2), the Convention will come into force for Ethiopia on 22 November 2020.