China Law Vision : China Insurance & Anti-Trust Lawyer : Dr. Zhan Hao : Grandall Legal Group : Anti-Monopoly & Competition Law : China Law Vision Blog

Article 1 of the New York Convention states:

“This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.”

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The question of whether a Chinese case with purely domestic elements is capable of being arbitrated in foreign forum has been pondered by many foreign and Chinese lawyers. The results have led to confusion. Recently a major International law firm posed the question before Dr. Zhan Hao, we have summarized Dr. Zhan Hao’s reply below.

In short, if parties opt to arbitrate in a foreign forum, for example, Hong Kong; and opt to use English Law or the law of another foreign jurisdiction; the likelihood of the award being enforced is strong. However, the position is unclear under Chinese law as there are no specific regulations addressing the adjudication of a purely domestic dispute by a foreign arbitral institution. We will now consider the question in further detail.
 

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In China and according to the Organic Law of the People’s Courts, judicial powers are exercised by the courts at four levels:

(i) Basic People’s Court: Courts at the county or district level. Tribunals may also be established in accordance with local practice;

(ii) Intermediate People’s Court: Prefecture level courts;

(iii) Higher People’s Court: Provincial level courts.

(iv) The Supreme People’s Court: the highest court in the judicial system located in Beijing. The court is directly responsible to the NPC and its Standing Committee. The court supervises the administration of justice by the People’s Courts at various levels. Additionally, the court provides interpretations of law which play an important role in the application of law and which act as guidelines for trials in China.
 

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With the rapid growth of the Chinese economy, international business between foreign companies and Chinese companies is commonplace. The presence of dispute is inevitable. Should a commercial dispute arise concerning international trade in China, there is enormous potential for complex legal problems to arise. For example, the party may suffer a large loss; and questions arise as to where in China the lawsuit should be brought and whether a judgment is binding. Parties need to know whether their rights will be protected. Arbitration presents itself as a practical alternative to the traditional mode of courts.

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The People's Republic of China acceded to the New York Convention on April 22nd,1987,declaring it would reserve the rights of "reciprocity reservation" and "commercial reservation"
 

The "reciprocity reservation" means China will apply the Convention only for the recognition and enforcement of awards.
 

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1) Effective Resolution of Domestic and International Disputes

I can attest to CIETAC’s ability to effectively resolve domestic as well as complex international disputes. CIETAC has a long history, with its first arbitration rules being promulgated in 1956 with the last revisions effective as of May 1, 2005. It provides rules similar to those of many other international arbitral institutions and carefully records qualified domestic and international arbitrators. International arbitrators may be selected as language does not pose a problem, thus the types of commercial disputes which go before CIETAC are not limited. In addition, the cost of resolving disputes at CIETAC is likely to be less than in Hong Kong and many other arbitral forums.
 

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With foreign investors testing ingenious ways in which to circumvent the regulatory burdens and scrutiny associated with a foreign owned Chinese insurance company, an interesting question has come to light; is it possible for an insurance policy between a domestic insurer and a Chinese manufacture to have a foreign element. The foundation of this question is rooted in the uncertainty surrounding the enforcement and validity of an arbitration clause designating a foreign jurisdiction for a case which is purely domestic (China).

Article 304 of the Opinions of the Supreme People’s Court on Some Issues Concerning the Application of the Civil Procedure Law of the People’s Republic of China (Opinions of the Supreme Court on the Application of the Civil Procedure Law) states:
 

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The question of whether a foreign judgment is capable of being enforced in China should be taken into account by all foreign investors who see China as a potential ground for expansion and development. The following should provide some clarity:

Article 126 of the Contract Law of the People's Republic of China states:

"Parties to a contract with a foreign element may choose the law to apply to the handling of disputes, unless otherwise provided by law. If parties to a contract with a foreign element have not made a choice, the law of the State with the closest connection applies"
 

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Recently, China’s Supreme Court issued a Judicial Explanation relating to the enforcement of the Company Law of the PRC. The focus of this Explanation is legal responsibility when company liquidation occurs.

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Article 1 of the New York Convention states "this Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought."

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