On 13 December 2016, an award given by the China International Economic and Trade Arbitration Commission (CIETAC Hong Kong) was enforced in mainland China for the first time.
Upheld by the Nanjing Intermediate People’s Court of Jiangsu Province, CIETAC Award No. 0003 is an important milestone for the Chinese arbitration community because while CIETAC Hong Kong has been accepting cases from the mainland since 1 January 2015, this is the first case in which the parties have applied for enforcement before a mainland court.
In 2015, American design company – Ennead Architects International LLP (The claimant) – commenced arbitral proceedings against Chinese property developer – Fuli Nanjing Dichan Kaifa Youxian Gongsi (The respondent). The claimant submitted its request for arbitration to CIETAC Hong Kong seeking payment of the design fees and unpaid interest arising out of the property design contracts concluded between the parties.
The tribunal found in favour of the claimant and ordered the respondent to pay both the design fees and interest as provided by the contracts as well as to bear the costs of arbitration.
The respondent paid the design fees and the costs of arbitration, after which it had entered into a settlement agreement with the claimant for the payment of the interest.
Under the contract, the claimant was entitled to interest amounting to a total of RMB 851,438.59, but it had agreed to accept RMB 600,000 provided that the respondent made full payment by 31 May 2016. The respondent failed to make the payment by the agreed deadline and therefore, the claimant was entitled to pursue the full amount.
In this respect, the claimant brought enforcement proceedings before the Nanjing Court in response to which the respondent admitted its failure to make the payment.
In terms of enforcement framework, Hong Kong and mainland China rely on the 1999 Arrangement Concerning Mutual Enforcement of Arbitral Awards (“Arrangement”).
According to this Arrangement, where a party fails to comply with an arbitral award made in Hong Kong, the other party may apply to the relevant Court in mainland China to enforce the award. The relevant court will be either the one at the place of domicile of the respondent or the one where respondent’s property is located.
Article 7 of the Arrangement stipulates the circumstances under which the mainland court could refuse the application for enforcement of a Hong Kong arbitral award. Mirroring Article V of the New York Convention, Article 7 provides for refusal grounds ranging from arbitrability to public policy.
Given that the Arrangement has some limitations, parties seeking to enforce awards under it should consider whether the award is institutional or ad hoc, and where the relevant assets are located.
Furthermore, any potential grounds for refusing enforcement should be addressed before beginning the enforcement process in either jurisdiction.
The present scenario
The Nanjing Court made express reference to the 1999 Arrangement, commenting that under the grounds listed in Article 7 the enforcing court could deny enforcement.
In this case however, there was no need to rely on Article 7, as the respondent voluntarily complied with the orders made. Therefore, the Court sought to enforce payment of the outstanding interest in accordance with Articles 1 and 7.
The decision of the Nanjing Court affirms that mainland Courts recognise the validity of an award rendered under CIETAC Hong Kong and are, consequently, willing to enforce it.
This is a positive step, which will enable parties and their representatives to have access to a wider choice of institutions to administer arbitrations seated in Hong Kong.
Sabina Adascalitei LLB, LLM, MCIArb
Research and Academic Affairs Coordinator