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The Influence of the Seat of Arbitration on the Jurisdiction and Execution of Arbitration Awards in International Commercial Arbitration - From the Perspective of China’s Legislation and Judicial Practice

Release time：2024-02-21 10:05:01

Introduction

The nationality of an arbitration award is the foundation for determining its legal effect, and directly impacts issues such as the effectiveness, annulment, recognition, and enforcement of the arbitration award. In international commercial arbitration, the seat of arbitration is often used as the standard to determine the nationality of the arbitration award. However, since the current Arbitration Law of China has not introduced the concept of “seat of arbitration”, how to determine the nationality of international arbitration awards has become a focal point of discussion in recent years.

 

I. Criteria for Determining the Nationality of Arbitration Awards

 

Article 1, Paragraph 1 of the New York Convention stipulates “This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State 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 their recognition and enforcement are sought.” This effectively distinguishes the nationality of foreign arbitration awards by the “territorial standard”1 and the “procedural theory”2. According to the reciprocal reservation statement made by China when joining the New York Convention, China applies the Convention to the recognition and enforcement of arbitration awards made in the territory of another Contracting State, which means that China actually excludes the enforcement of “non-domestic awards”, i.e., the procedural law standard.

If the arbitration award is a Chinese award or a Chinese foreign-related arbitration award, it can be enforced by a court in accordance with Article 248 3 and Article 291 4 of the Civil Procedure Law (Revised in 2023). If the arbitration award is a Hong Kong or Macao award, it shall be reviewed in accordance with the relevant provisions of the arrangements for mutual recognition and enforcement of arbitration awards in the two places. If the arbitration award is a foreign award, it shall be reviewed in accordance with the New York Convention and others. Therefore, the determination of the nationality of an arbitration award is crucial to its enforcement.

The international mainstream standard for determining nationality is based on the seat of arbitration, but China has no explicit provisions on the nationality of awards, and the Arbitration Law lacks the concept of “seat of arbitration”, referring more often to the “location of the arbitration institution”. In practice, individual cases are handled through replies by the Supreme Court. From these replies, it can be seen that China’s determination of the nationality of arbitration awards has evolved from confirming the nationality of the award based on the “location of the arbitration institution” to gradually shifting towards the “seat of arbitration” standard in recent years.

 

II. Case Analysis: Understanding and Application of “seat of Arbitration”

(1) Confirmation of the validity of the arbitration agreement which stipulates “arbitration by a foreign arbitration institution in mainland China”

1. Longlide Case [(2013) Min Si Ta Zi No. 13]

Anhui Longlide Packaging and Printing Co., Ltd. (hereinafter referred to as “Longlide Company”) signed a Sales Contract with BP Agnati S.R.L (hereinafter referred to as "Agnati Company") and Jiangsu Sumec International Technology Trade Co., Ltd. on October 28, 2010. Clause 10.1 of the contract stipulates: “Any dispute arising out of or in connection with this contract shall be finally settled by arbitration by one or more arbitrators appointed in accordance with the rules of the ICC International Court of Arbitration. The jurisdiction shall be Shanghai, China, and the arbitration shall be conducted in English.”

 

The case was later brought to the Hefei Intermediate People’s Court due to disputes. The court held that the arbitration agreement stipulated that the ICC International Court of Arbitration was the arbitration institution, and it also clearly stipulated that the arbitration jurisdiction was Shanghai, China. However, whether foreign arbitration institutions such as the ICC International Court of Arbitration can engage in arbitration activities within China is not explicitly stipulated in China’s Arbitration Law. But since the arbitration is chosen to be conducted in mainland China, the arbitration should be considered as domestic arbitration in the legal sense, not a “non-domestic award” stipulated by the New York Convention. Article 10 of the Arbitration Law stipulates that the establishment of an arbitration commission shall be registered with the judicial administrative department of the province, autonomous region, or municipality directly under the Central Government. It can be seen that arbitration in China is a professional service that needs to be franchised by administrative organs, and the Chinese government has not opened up China’s arbitration market to foreign countries. Therefore, foreign arbitration institutions cannot conduct arbitration in China according to law. Therefore, the court held that the ICC International Court of Arbitration is not an arbitration institution in accordance with China’s Arbitration Law, and the arbitration agreement to submit disputes to it for arbitration is not a valid arbitration clause.

 

Later, the Anhui Higher People’s Court submitted the case to the Supreme People’s Court for instructions. The Supreme Court replied in the “Reply to the Request for Confirmation of the Effectiveness of the Arbitration Agreement between the Applicant Longlide Company and the Respondent Agnati Company” [March 25, 2013 ((2013) Min Si Ta Zi No. 13)] as follows “This case is to confirm the effectiveness of the foreign-related arbitration agreement. The parties agreed in the contract that disputes arising from the contract would be arbitrated by the International Chamber of Commerce Arbitration Court, and also agreed that PLACE OF JURISDICTION SHALL BE SHANGHAI, CHINA. From the context of the arbitration agreement, the statement 'the jurisdiction shall be Shanghai, China should be understood as the seat of arbitration is in Shanghai. In this case, the parties did not agree on the law applicable to the confirmation of the arbitration agreement. According to Article 16 of the "Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Arbitration Law of the People’s Republic of China", the law of the seat of arbitration, i.e., the law of the People’s Republic of China, should be applied to confirm the effectiveness of the arbitration agreement. Article 16 of the Arbitration Law of the People’s Republic of China stipulates that an arbitration agreement shall contain the following contents: (1) an expression of willingness to request arbitration; (2) arbitration matters; (3) the selected arbitration commission. The arbitration agreement in the case has an expression of willingness to request arbitration, stipulates arbitration matters, and selects a specific arbitration institution, and should be determined as valid. Agree with the majority opinion of your court that the arbitration agreement is valid."

 

2. Da Cheng Industrial Case (i.e., BNA VS. BNB Case) [Case No.: (2020) Hu 01 Min Te 83]

On August 7, 2012, Da Cheng Industrial Gas Co., Ltd. (hereinafter referred to as “Da Cheng Co., Ltd.”) and Praxair (China) Investment Co., Ltd. (hereinafter referred to as “Praxair Co., Ltd.”) signed a Purchase Agreement Clause 14.2 stipulates “With respect to any and all disputes arising out of or relating to this Agreement, the Parties shall initially attempt in good faith to resolve all disputes amicably between themselves. If such negotiations fail, it is agreed by both parties that such disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules. The arbitration shall be final and binding on both Parties.” Later, Da Cheng Co., Ltd., Praxair Co., Ltd., and Da Cheng (Guangzhou) Gas Co., Ltd. (hereinafter referred to as "Da Cheng Guangzhou Co., Ltd.") signed a Supplementary Agreement (I), in which Da Cheng Co., Ltd. transferred its rights and obligations under the Purchase Agreement to Da Cheng Guangzhou Co., Ltd.

 

Later, due to disputes, Da Cheng Co., Ltd. and Da Cheng Guangzhou Co., Ltd. jointly applied for arbitration to SIAC. The case was arbitrated by SIAC, heard by the Singapore High Court and the Singapore Supreme Court Court of Appeal, and finally determined that arbitration in Shanghai, i.e., agreeing Shanghai as the seat of arbitration, Chinese courts have jurisdiction over the effectiveness of the agreement.

 

On June 29, 2020, the Shanghai First Intermediate People’s Court ruled as follows: The arbitration agreement in this case has an expression of willingness to request arbitration, stipulates arbitration matters, and selects a specific arbitration institution, SIAC, and should be determined as valid. Regarding the respondent's view that China's Arbitration Law does not allow foreign arbitration institutions to arbitrate domestically, firstly, arbitration is one of the ways for parties to voluntarily resolve disputes. In terms of the substance of voluntary dispute resolution by the parties, it does not involve the issue of whether China's arbitration market is open. Foreign arbitration institutions arbitrate in China mainly refers to the situation where foreign arbitration institutions set the seat of arbitration in China according to their arbitration rules. The arbitration conducted in this way is institutional arbitration, not ad hoc arbitration that China has reserved in the New York Convention. Secondly, the judicial interpretations issued by the Supreme People’s Court of China have legal effect. The "Regulations of the Supreme People’s Court on Judicial Interpretation Work" stipulates: The forms of judicial interpretation include the replies of the Supreme People's Court. In the “Reply to the Request for Confirmation of the Effectiveness of the Arbitration Agreement between the Applicant Anhui Longlide Co., Ltd. and the Respondent BP Agnati S.R.L” [(2013) Min Si Ta Zi No. 13], the Supreme People’s Court held that the arbitration clause in the case complied with the provisions of Article 16 of the Chinese Arbitration Law on the effectiveness of the arbitration agreement and should be determined as valid. The reply confirmed that if a foreign-related contract stipulates that disputes will be arbitrated by a foreign arbitration institution domestically, if the agreement complies with the provisions of Article 16 of China's Arbitration Law, it will be valid. Once again, the respondent's view that foreign arbitration institutions are not allowed to manage arbitration with the seat of arbitration in China lacks explicit prohibitive legal provisions in China, and is contrary to the development trend of international commercial arbitration. Finally, for specific cases, the judiciary cannot refuse to judge on the grounds that the legislation is unclear. China's Arbitration Law was lacking in internationalization at the beginning of its legislation, and it can be understood as making some special provisions for foreign-related arbitration while regulating domestic arbitration.

Obviously, at that time, China’s arbitration legislation was not comprehensive and was disconnected from international commercial arbitration. However, legislation and judiciary should be complementary to each other. The problem of the Respondent’s understanding of the “arbitration commission” referred to in China’s Arbitration Law is a problem that needs to be resolved and improved at the legislative level. The respondent's problem that China’s Arbitration Law has not resolved at the legislative level whether foreign arbitration institutions can arbitrate in China cannot change the valid meaning of the aforementioned judicial interpretation of the Supreme People’s Court at the judicial level. The Respondent’s relevant defense opinion only emphasizes the shortcomings of China’s arbitration legislation, but ignores the legal effect of the relevant judicial interpretation and the progress made by China's judiciary in conforming to the development trend of international commercial arbitration and making up for the shortcomings of arbitration legislation.

In summary, it should be confirmed that the arbitration agreement formed between the Applicant Da Cheng Industrial Gas Co., Ltd., the Applicant Da Cheng (Guangzhou) Gas Co., Ltd., and the Respondent Praxair (China) Investment Co., Ltd. according to Clause 14.2 of the “Liquid and Gas Product Purchase Agreement” and the “Liquid and Gas Product Purchase Agreement Supplementary Agreement (I)” is valid. If a dispute arises between the parties, it should be submitted to the Singapore International Arbitration Centre for arbitration in Shanghai, China, according to its arbitration rules.

 

(2) Clarification that arbitration awards made by foreign arbitration institutions in mainland China can be regarded as “China-related foreign arbitration awards”

1. Brentwood Case [Case No.: (2015) Sui Zhong Fa Min Si Chu Zi No. 62]

Guangzhou Zhengqi Trade Co., Ltd. (hereinafter referred to as Zhengqi Company) and Brentwood Industries, Inc. (hereinafter referred to as Brentwood) signed a Contract and Supplementary Agreement in Guangzhou, agreeing to submit contract disputes to the International Chamber of Commerce Arbitration Commission for arbitration in accordance with international practice in Guangzhou, where the “Phase IV Project of Liede Sewage Treatment Plant” is located. Later, due to disputes in the performance of the contract, Brentwood applied for arbitration to the Secretariat of the ICC International Court of Arbitration, and the sole arbitrator made a Final Award in Guangzhou.

 

Later, the applicant Brentwood applied to the Guangzhou Intermediate People’s Court of Guangdong Province for recognition and enforcement. The court held that: (1) The aforementioned arbitration clause has been confirmed as valid by the (2011) Sui Zhong Fa Zhong Yi Zi No. 11 civil ruling; (2) The International Court of Arbitration of the International Chamber of Commerce, according to the application of Brentwood Company, made the arbitration award in the case in Guangzhou, China, the seat of arbitration, by the arbitration tribunal composed of sole arbitrator Ms. Jane Willems. Based on this fact, the arbitration award in the case is an arbitration award made by a foreign arbitration institution in mainland China and can be regarded as a China-related foreign arbitration award. If the respondent of the arbitration award in the case does not perform the arbitration award, Brentwood Company may apply to the intermediate people's court of the Respondent’s domicile or the place where the property is located for execution in accordance with the provisions of Article 273 of the Civil Procedure Law of the People’s Republic of China. Brentwood now claims to apply for recognition and enforcement of the arbitration award in accordance with the provisions of the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards” or the “Arrangement on Mutual Recognition and Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region”. The legal basis for its application in this case is obviously wrong. After the court has repeatedly explained it, it refuses to correct it. It should bear the corresponding legal consequences caused by this. In view of this, this case should not be treated as a case of recognition and enforcement of foreign arbitration awards and should be terminated for review according to law. After the case is terminated for review, Brentwood may apply for execution according to law.

 

2. IDE Case [Case No.: Inter-regional Judicial Assistance (2016) Su 01 Ren Gang 1]

In the case of inter-regional judicial assistance (2016) Su 01 Ren Gang 1 accepted by the Nanjing Intermediate People’s Court of Jiangsu Province, the parties agreed “If any dispute arises in the course of the performance of this engineering design contract, Party A and Party B shall negotiate and resolve it in time. If the negotiation fails, it shall be submitted to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in accordance with the prevailing rules of the Commission at the time of application for arbitration. The seat of arbitration is the Hong Kong Special Administrative Region. The arbitration award is final and binding on both parties.”

 

The two parties applied for arbitration to the Hong Kong Arbitration Center of the CIETAC (hereinafter referred to as the CIETAC Hong Kong Center) due to disputes. The CIETAC Hong Kong Center ruled that the Respondent should pay the Applicant the design fees and interest owed under the two contracts. Later, because the Respondent did not pay the interest, the applicant applied to the Nanjing Intermediate People’s Court of Jiangsu Province for execution.

 

The Nanjing Intermediate People’s Court of Jiangsu Province reviewed and found that Fuli Nanjing Company had no objection to the arbitration award in the case and had already performed the principal part of the design fee determined by the award, but did not pay the overdue interest part of the arbitration award. The arbitration award in the case does not violate the public interest of the mainland. The court, in accordance with Article 1 and Article 7 of the “Arrangement on Mutual Recognition and Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region” (Arrangement) issued by the Supreme People’s Court, made a civil ruling of (2016) Su 01 Ren Gang 1 on December 13, 2016, executing the arbitration award No. 0003 of the CIETAC Hong Kong Center (2015) China Trade Arbitration Hong Kong Arbitration No. 0003, item 3.

 

III. The Change in China’s Legislation on the Provision of “Seat of Arbitration”

 

It is worth affirming that Article 297, paragraph 2 of the “Civil Procedure Law of the People's Republic of China” (implemented on January 1, 2024) states “Arbitral awards made outside the territory of the People's Republic of China that have legal effect and need to be recognized and enforced by the people's court, the parties may directly apply to the intermediate people's court of the Respondent's domicile or the place where the property is located. If the Respondent's domicile or property is not in the territory of the People's Republic of China, the parties may apply to the intermediate people's court of the Applicant's domicile or the place that has an appropriate connection with the dispute of the award. The people's court shall handle it in accordance with the international treaties concluded or acceded to by the People's Republic of China, or in accordance with the principle of reciprocity." And Article 290 of the “Civil Procedure Law (2021 Amendment)” states "For the awards of foreign arbitration institutions that need to be recognized and enforced by the PRC's courts, the parties should apply directly to the intermediate people's court where the Respondent's domicile or property is located, and the people's court shall handle it in accordance with the international treaties concluded or acceded to by the PRC, or in accordance with the principle of reciprocity." It can be seen that the above legislative adjustment to “** arbitral awards made outside the territory of the People’s Republic of China is in line with the development of judicial practice.

As for the nature of arbitration awards made by foreign arbitration institutions within China, the Civil Procedure Law has not made a similar determination in this revision, but the previous “Summary of the National Court’s Foreign-related Commercial and Maritime Trial Work Symposium (2022)” Article 100 stipulates: "[Execution of awards made by foreign arbitration institutions in mainland China] Arbitration awards made by foreign arbitration institutions in mainland China as the seat of arbitration should be regarded as foreign-related arbitration awards of mainland China. If a party applies to the intermediate people's court of the seat of arbitration to revoke the arbitration award, the people's court shall review it according to Article 70 of the Arbitration Law; if a party applies for enforcement, it shall be reviewed according to Article 281 of the Civil Procedure Law5."

 

Conclusion

The choice of the seat of arbitration is crucial for the application of the law of the arbitration agreement and the determination of the nationality of the award. In international commercial arbitration, the parties need to clearly stipulate the seat of arbitration and understand the meaning of the seat of arbitration in terms of geography and law. Improper selection of the seat of arbitration may lead to the invalidity of the arbitration agreement, affecting the effectiveness of the arbitration award and the result of enforcement. Therefore, in international commercial arbitration, it is key to correctly understand and apply the seat of arbitration.

 


Annotations:

1. The first half of Article 1, Paragraph 1 points out that when an arbitration award is made outside the territory of the country where recognition and enforcement is sought, the award can still be applied in that country, i.e., it allows an arbitration award made within one contracting state to be recognized and enforced within another contracting state. This standard uses the place where the arbitration award is made (the seat of arbitration) as the basis for division, treating the country where the arbitration award is made as the nationality of the arbitration award.

2. The second half of Article 1, Paragraph 1 means that if the country where recognition and enforcement of the arbitration award is sought does not consider it as a domestic award, the award is still applicable under the "New York Convention", i.e., the convention also applies to "arbitration awards that the country requested to recognize and enforce does not consider as domestic awards". This includes an arbitration award made in one contracting state, but according to its domestic law, the contracting state does not consider the award as a domestic award, at this time, the territory is not the key factor for division. Generally speaking, contracting states consider the following awards as non-domestic awards: the first type is awards made according to the arbitration law of another country; the second type is awards with foreign elements, i.e., awards made within the territory of the country where the court applying for recognition and enforcement is located, but containing foreign elements; the third type is nationality-less awards.

3. Article 248 of the "Civil Procedure Law" stipulates: If one party does not perform the award of a lawfully established arbitration institution, the other party may apply to the people's court with jurisdiction for execution. The people's court that receives the application shall execute it. If the respondent provides evidence to prove that the arbitration award falls into one of the following circumstances, and the people's court verifies it through a collegial panel, it shall rule not to execute: (1) there is no arbitration clause in the contract between the parties or no written arbitration agreement has been reached afterwards; (2) the matter of the award does not fall within the scope of the arbitration agreement or the arbitration institution has no right to arbitrate; (3) the composition of the arbitration tribunal or the arbitration procedure violates the statutory procedure; (4) the evidence based on the award is forged; (5) the other party has concealed evidence from the arbitration institution that could affect a fair award; (6) the arbitrator has committed acts of corruption, bribery, favoritism, and miscarriage of justice in arbitrating the case. If the people's court determines that the execution of the award is against the public interest of society, it shall rule not to execute. The ruling shall be served on both parties and the arbitration institution. If the arbitration award is ruled by the people's court not to be executed, the parties may reapply for arbitration according to the written arbitration agreement reached by both parties, or they may sue in the people's court.

4. For the award made by the China-related foreign arbitration institution, if the respondent provides evidence to prove that the arbitration award falls into one of the following circumstances, and the people's court verifies it through a collegial panel, it shall rule not to execute: (1) there is no arbitration clause in the contract between the parties or no written arbitration agreement has been reached afterwards; (2) the respondent has not received notice of the appointment of an arbitrator or the arbitration procedure, or has not been able to state his opinion due to other reasons not attributable to the respondent; (3) the composition of the arbitration tribunal or the arbitration procedure does not comply with the arbitration rules; (4) the matter of the award does not fall within the scope of the arbitration agreement or the arbitration institution has no right to arbitrate. If the people's court determines that the execution of the award is against the public interest of society, it shall rule not to execute.

5. Article 281 of the "Civil Procedure Law 2021 Amendment" stipulates: For the award made by the China-related foreign arbitration institution, if the respondent provides evidence to prove that the arbitration award falls into one of the following circumstances, and the people's court verifies it through a collegial panel, it shall rule not to execute:

(1) there is no arbitration clause in the contract between the parties or no written arbitration agreement has been reached afterwards;

(2) the respondent has not received notice of the appointment of an arbitrator or the arbitration procedure, or has not been able to state his opinion due to other reasons not attributable to the respondent;

(3) the composition of the arbitration tribunal or the arbitration procedure does not comply with the arbitration rules;

(4) the matter of the award does not fall within the scope of the arbitration agreement or the arbitration institution has no right to arbitrate.

If the people's court determines that the execution of the award is against the public interest of society, it shall rule not to execute.

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