One article to understand the recognition and enforcement of foreign arbitral awards in China: rules, review boundaries and practical operations

Note: In areas with high transaction volumes such as cross-border trade, investment, engineering, and shipping, a reality that has attracted increasing attention is that in cross-border disputes, companies are often worried not about not winning, but about not being able to get money after winning.

From the perspective of realizing cross-border claims, arbitration has a clearer legal path at the enforcement level than litigation. The recognition and enforcement of foreign court judgments in China faces institutional obstacles such as a relatively insufficient treaty basis, a relatively strict determination of the principle of reciprocity, and a complex review process. As for foreign arbitral awards, relying on the global enforcement system established by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter referred to as the "New York Convention"), China has a relatively clear, stable and predictable path for recognition and enforcement.

Taking the awards issued by international mainstream arbitration institutions such as the Singapore International Arbitration Center (SIAC), the International Court of Arbitration of the Chamber of Commerce (ICC), and the Singapore Maritime Arbitration Court (SCMA) as examples, as long as there are no major flaws in the arbitration agreement, service of process, finality of the award, and application materials, there is usually a relatively clear rule path for applying for recognition and enforcement in China.

This article is based on the New York Convention, combined with China's Civil Procedure Law and relevant judicial interpretations, and with reference to the judicial review practice of recognition and enforcement of foreign arbitral awards in China in recent years, to sort out the legal basis, review boundaries, common risks, operational procedures and key points of contract front-end design involved in applying for recognition and enforcement of foreign arbitral awards in China. For cross-border enterprises, arbitration does not mean that it is of course enforceable, but compared with foreign court judgments, it usually has a clearer and more predictable institutional path in China.

01 Why arbitration should be considered as a priority for cross-border dispute resolution

The choice of cross-border dispute resolution method directly affects whether the creditor's rights can ultimately be realized. There are fundamental differences in the recognition and enforcement paths of foreign arbitral awards and foreign court judgments in China:

From a comparison point of view, if a cross-border transaction hopes to achieve a successful settlement of claims in China, arbitration can be the preferred method of dispute resolution. However, it should be noted that the enforceability of arbitration is still premised on the validity of the arbitration agreement, compliance with the procedures, and finality of the award, and is not automatically enforceable.

02 Legal basis: Double-layered guarantee constituted by the New York Convention and Chinese law

Applications for recognition and enforcement of foreign arbitral awards in China are supported by international conventions and domestic laws.

1. International legal level: New York Convention

China joined the New York Convention in 1987 (there are more than 170 parties to it so far). The Convention has established three basic rules:

• Arbitral awards in contracting states shall, in principle, be recognized and enforced
• The court’s review is limited to the matters listed in Article 5 of the Convention and will not re-examine the substantive disputes.
• The reasons for refusing recognition and enforcement are exhaustive and the scope of application is limited and strict.

2. Domestic legal level: "Civil Procedure Law" and judicial interpretations

Jurisdictional court: Generally, it is under the jurisdiction of the Intermediate People's Court where the respondent is domiciled or where the property is located; if the respondent is domiciled and the property is located outside of mainland China, but the case is related to cases being heard by courts or arbitration institutions in mainland China, the jurisdiction must be determined based on judicial interpretations and specific case connection points. The application period of the court under jurisdiction of the court: 2 years, starting from the expiration date of the performance period determined in the ruling; if the ruling does not determine the performance period, it will start from the date when the ruling takes effect; if the performance is performed in installments, it will start from the expiration date of each performance period. Review procedure: The court forms a collegial panel to conduct the review, and there are strict restrictions on the appeal mechanism of the ruling results.

03 What conditions must be met to apply for recognition and enforcement of foreign arbitral awards in China?

To apply for recognition and enforcement of a foreign arbitral award in a Chinese court, the following five basic conditions need to be met at the same time, and the review threshold is much lower than that of a foreign court judgment:

• The award is made by a party to the New York Convention (Singapore, the United Kingdom, the United States, France, etc. are all compliant)
• The matter in dispute is a commercial dispute (contractual or non-contractual commercial legal relationship, including sales, investment, construction projects, transportation, equity transfer, technical services, etc.)
• The arbitration agreement is valid, in writing, and established in accordance with the law
• The award has taken effect and is final and binding
• The recognition and enforcement of the award does not violate China’s public policy

When the above conditions are met, in accordance with the New York Convention, Chinese courts can only refuse recognition and enforcement under the legal circumstances listed in Article 5 of the Convention.

04 Basic principles of judicial review: limited review, no re-examination of substantive disputes

In practice, some parties have a common misunderstanding - when applying for the recognition and enforcement of a foreign arbitral award, will the Chinese court reopen the hearing and review the fact finding and legal application of the case?

In principle, Chinese courts will not re-examine the arbitral tribunal’s factual findings, admission of evidence, and application of substantive law. Instead, they will conduct a limited review of the grounds for refusal of recognition and enforcement stipulated in Article 5 of the New York Convention, including issues such as the validity of the arbitration agreement, procedural notice, scope of the award, composition of the arbitral tribunal, finality of the award, arbitrability, and public policy.

The following are the seven grounds for refusal of recognition and enforcement listed in Article 5 of the New York Convention:

Items (1) to (5) below require the respondent to file a defense and provide evidence; items (6) and (7) can be reviewed by the court on its own initiative in accordance with its authority.

(1) The arbitration agreement is invalid, unestablished or invalid

If a party to the arbitration agreement is incapacitated according to the law applicable to him or according to the law agreed by the parties (if no agreement is made, the law of the place of award shall apply), the arbitration agreement shall be invalid, ineffective or invalid.

(2) The respondent did not receive legal notice or failed to state his opinion

The respondent did not receive proper notice of the appointment of the arbitrator or the arbitration proceedings, or failed to fully state its opinions for other reasons, which constituted a major procedural flaw.

(3) The award matters exceed the scope of the arbitration agreement (over-award)

Arbitration awards deal with disputes that are not stipulated in the arbitration agreement or are beyond the scope of the stipulation. If the over-awarded part can be separated from the matters within the scope of the arbitration agreement, the non-over-awarded part can still be recognized and enforced.

(4) The formation of the arbitral tribunal or the arbitration procedure violates the agreement or rules

The composition of the arbitral tribunal or the arbitration procedure is inconsistent with the agreement of the parties or, in the absence of an agreement, inconsistent with the law of the place of arbitration.

(5) The award has not yet taken effect, been revoked or suspended

The award is not yet binding on the parties or has been revoked or suspended by the competent authorities of the country where the award was made. (6) Disputes cannot be resolved through arbitration according to law

According to Chinese law, disputes are not arbitrable (such as marriage, inheritance, adoption, administrative disputes, some labor and personnel disputes, etc.).

(7) Recognition and enforcement of awards violates China’s public policy

This reason is extremely strict and can only be invoked when the recognition and enforcement of the award will fundamentally harm the basic principles of Chinese law, social public interests, national sovereignty or public order and good customs.

Judging from judicial practice, if the above-mentioned legal flaws do not exist in the procedure, the recognition and enforcement rate of foreign arbitral awards in China will be at a relatively high level. Chinese courts have long implemented an internal reporting mechanism for cases that intend to refuse recognition and enforcement of foreign arbitral awards. Refusal of recognition and enforcement is not easily decided by the accepting court.

05 Common rejection risks in practice: Most failures result from the following five types of problems

1. The validity of the arbitration agreement is flawed (the most common risk)

• Lack of written arbitration clause, or agreement on arbitration only verbally
• The arbitration clause is vague: "If there is a dispute, it shall be submitted to arbitration for resolution" (the arbitration institution is not clearly agreed upon)
• The name of the arbitration institution is incorrectly recorded or is not uniquely directional
• The person signing the contract is unqualified and the signature and seal are defective
• When one party claims that the arbitration clause is a standard clause and has not been concluded
• In the event of legal reminders or explanations, disputes over the validity of the arbitration agreement may arise. Especially when applying Chinese law to judge the validity of the arbitration agreement, reminders of the terms, signature traces and authorization certificates should be prepared in advance.

2. There are major flaws in the arbitration proceedings

• The respondent was not legally and effectively served, resulting in the respondent not being informed and unable to participate in the arbitration proceedings.
• The respondent was essentially deprived of the right to fully state his opinions
• Failure to provide reasonable time for proof or trial preparation time

Special reminder: In overseas arbitration proceedings, whether service is legal and compliant is the focus of review by Chinese courts. Service defects are one of the important reasons why applications are rejected in practice.

3. The award matters exceed the scope of the arbitration agreement (over-award)

• The arbitration agreement only stipulates to deal with disputes under the sales contract, but the award also deals with disputes under guarantees, equity transfers or other related contracts.
• The party involved in the award is not a party to the arbitration agreement

4. The composition or procedure of the arbitral tribunal seriously violates the agreement

• The method of constitution of the arbitral tribunal is obviously inconsistent with the arbitration clause or the applicable arbitration rules
• Violation of the basic provisions of the arbitration rules regarding the conduct of proceedings

5. Application materials do not meet the formal requirements

• The foreign language award or related documents are not accompanied by a formal Chinese translation issued by a qualified translation agency
• Documents generated overseas have not completed notarization, additional certification or authentication procedures as required by Chinese courts (Although Article 4 of the New York Convention does not mandate notarization and authentication, Chinese courts usually require key documents to complete corresponding procedures in practice, otherwise they may be returned for correction, delaying the review progress)

06 Application for recognition and enforcement of foreign arbitral awards in China: Operational steps

Step one: Prepare application materials

• Application for recognition and enforcement (states the basic information of the applicant and respondent, content of the award, application matters and factual reasons)
• The original award or a duly certified copy
• Original or certified copy of the arbitration agreement
• Corresponding documents that can prove that the arbitration procedure is legal and that the respondent has been properly notified
• Applicant's qualification certification materials and power of attorney (overseas entities need to complete notarization, additional certificate or certification procedures)
• Formal Chinese translations of all foreign language documents (should be issued by a qualified translation agency and stamped with the official seal)
• Subject qualification documents, power of attorney and other key documents formed overseas should be notarized, attached certificates or authenticated in advance according to the requirements of the place where the documents are formed and the requirements of the Chinese court.

Step 2: Submit an application to the court of competent jurisdiction

Formally submit the application materials to the Intermediate People's Court where the respondent is domiciled or where his property is located.

Step Three: Court Review

• Mainly based on written review, if necessary, the parties may be questioned
• The respondent may raise the defense of non-recognition and enforcement and provide evidence during the review period.
• For major, complex or controversial cases, the courts need to report to the Supreme People's Court for review
• The review cycle depends on the complexity of the case, material supplements and corrections, the respondent’s defense and whether the hierarchical reporting process is triggered. In practice, it may range from several months to longer.

Step 4: After obtaining the recognition and enforcement ruling, enter the enforcement procedure

After the court makes a recognition and enforcement ruling, the applicant may apply for enforcement measures in accordance with the law: sealing, freezing, detaining, transferring, and auctioning the property. Subject to the conditions stipulated in China's enforcement procedures, the court may also take enforcement measures in accordance with the law, such as restricting consumption and including people on the list of dishonest persons subject to enforcement; if measures involving restrictions on exit from the country are involved, separate judgments should be made based on the identity of the person subject to enforcement, the circumstances of the case, and the court's review requirements.

07 Practical advantages of enforcing Singapore arbitration awards in China

Singapore is a party to the New York Convention. Arbitration institutions such as SIAC and SCMA are frequently used in cross-border commercial disputes. The arbitration rules, service procedures and award documents are relatively mature. Therefore, when applying for recognition and enforcement of Singapore arbitral awards in China, they usually have a relatively clear rule basis. However, it needs to be emphasized that Chinese courts will not automatically enforce an award just because it comes from Singapore or a well-known arbitration institution. Whether the application can proceed smoothly still depends on whether the arbitration agreement is valid, whether the respondent has received proper notice, whether the arbitration procedure complies with the agreement and the law of the place of arbitration, whether the award has taken effect, and whether the applicant can lock in valid property in China.

For cross-border enterprises, a safer arrangement is not to simply write "submit to Singapore for arbitration", but to specify the arbitration institution, arbitration place, arbitration rules, arbitration language, number of arbitrators, applicable law and method of service at the contract stage, and to simultaneously make preparations for the investigation and preservation of property clues in China after a dispute occurs.

08 Pre-risk control at the contract level: starting from the dispute resolution clause

1. The arbitration clause must be standard, complete and unambiguous

It is recommended to clearly stipulate in the contract: arbitration institution, place of arbitration, arbitration rules, arbitration language, number of arbitrators and method of appointment, and applicable substantive law.

Recommended model clause (taking SIAC as an example): "Any dispute arising out of or related to this contract shall be submitted to the Singapore International Arbitration Center for arbitration in Singapore in accordance with the arbitration rules in effect at that time. The arbitral tribunal shall be composed of [one/three] arbitrators, and the arbitration language shall be [English/Chinese]."

2. Pay attention to the compliance of arbitration procedures throughout the process

It is recommended to leave traces of the entire process including the delivery address, notification method, time limit for producing evidence, and court hearing arrangements to ensure that the procedural records are complete and clear.

3. Apply for property preservation as soon as possible after the dispute occurs

Before the arbitration is initiated or during the process, promptly apply for preservation measures on property within China to prevent the respondent from transferring assets.

4. Don’t wait for the ruling to take effect before preparing for China enforcement matters

Before and after the ruling is made, the respondent’s property clues in China (real estate, bank accounts, equity, maturing claims, etc.) should be simultaneously investigated and locked to lay the foundation for subsequent execution.

5. Entrust a cross-border arbitration lawyer to coordinate the proceedings between the two places

Domestic and overseas arbitration and judicial procedures are closely connected, and any flaws in materials, procedures and evidence may cause the entire recognition and enforcement process to be blocked. It is recommended that a team of lawyers with experience in cross-border arbitration and enforcement coordinate the handling.

Conclusion

In the resolution of cross-border commercial disputes, the value of arbitration is not only reflected in the "results", but also in the predictability of the system for cross-border enforcement of the award.

Compared with foreign court judgments, foreign arbitral awards rely on the New York Convention system and usually have clearer review boundaries and procedural paths when applying for recognition and enforcement in China. But this does not mean that the arbitral award can be enforced ex officio. Whether the arbitration agreement is valid, whether the service procedure is compliant, whether the award exceeds the scope of arbitration, whether the application materials are complete, and whether the debtor has property available for execution in China will directly affect the final outcome of the payment.

For enterprises, a truly effective dispute resolution arrangement should be designed from the contract signing stage: clearly write the arbitration clause, leave a clear delivery path, and grasp the property clues in advance. Only in this way can a successful overseas arbitration case be more likely to be transformed from a paper award into a real payment.

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• This article is only an introduction to the risk knowledge of the cross-border arbitration system and award enforcement procedures, and does not constitute formal legal advice on any specific transaction or case.

This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.