Post-handover recognition and enforcement of arbitral awards between Mainland China and Hong Kong SAR: 1999 agreement vs. New York Convention
Claver-Carone, Mauricio J
On July 1, 1997, in a reversion of sovereignty from the United Kingdom, Hong Kong became a Special Administrative Region of Mainland China.1 Despite a complete transfer of sovereignty, Hong Kong’s position as one of the world’s busiest transport centers, seventhlargest trading entity, and third largest financial center guaranteed it a high degree of autonomy from Mainland China.2 Under the concept of “one country, two systems,” Hong Kong retains a semiautonomous legal system and its separate status as a member of the World Trade Organization and as a signatory to international conventions and agreements.3 However, analysts have raised questions regarding the post-1997 classification of trade and transactions: will parties to Hong Kong-Mainland China transactions continue to be classified as “foreign” or “domestic?”4
“New York Convention”) that has first shed light on this interesting query. Both Hong Kong and Mainland China are parties to the New York Convention, since 1977 and 1987 respectively.5 From 1987 until 1997, Hong Kong and Mainland China mutually recognized and enforced each other’s arbitral awards under the New York Convention’s simple procedures for foreign arbitral awards.6 Due to the mutual application of this internationally accepted enforcement mechanism, the maturity of its legal professionals, its geography, its climate, its language versatility, and even its cuisine, Hong Kong became a popular arbitration venue for transactions involving Mainland China.7
ued mutual enforcement under the second sentence of article I of the New York Convention, which allows enforcement if Mainland China considered Hong Kong awards as “not domestic.”10
On June 21, 1999, Hong Kong and Mainland China attempted to settle many of these concerns by signing an agreement (“1999 Agreement”) that established the current framework for the reciprocal enforcement of arbitral awards under terms similar to the New York Convention, while linguistically regarding these awards as “domestic.”11 The 1999 Agreement, and its subsequent application, faces the challenge of balancing a respect for Mainland China’s sovereign authority with the legitimate concerns of Hong Kong’s local and international business community.12 Unfortunately, the 1999 Agreement is subject to various inconsistencies, which puts Hong Kong awards in a less advantageous position than under previous New York Convention practice, and indicates Mainland China’s increasingly protectionist attitude toward its own arbitration institutions. The result might be a further diminishment of Hong Kong’s status as a venue for China-related arbitration disputes, not only vis-at-vis third-country venues, but also in relation to Mainland China’s arbitration institutions.
current arbitration framework in Mainland China to the enforcement of Hong Kong and foreign awards. Part VI concludes by examining the relevant considerations in choosing arbitration in a foreign venue as the best form for a dispute resolution clause in a Mainland China– related contract.
II. INTERNATIONAL COMMERCIAL ARBITRATION IN MAINLAND CHINA
A. Institutional Framework of International Commercial Arbitration in Mainland China
Historically, arbitration institutions in Mainland China were divisible into those handling foreign-related disputes and those hearing purely domestic disputes.13 While these distinctions are no longer relevant in practice, the two foreign-related arbitration institutions officially recognized in Mainland China are the China International Economic and Trade Arbitration Commission (CIETAC) and the Chinese Maritime Arbitration Commission.14 The promotion of CIETAC and its predecessor institutions has been the paramount objective in the development of arbitration legislation and regulations in Mainland China. Today, CIETAC is one of the busiest arbitration institutions in the world.15
Despite the creation of FTAC in the 1950s, it was not until Deng Xiaoping’s “open door” economic reforms in 1978 that international arbitration became an active source of commercial dispute resolution in Mainland China.19 In accordance with these economic reforms, the State Council expanded the jurisdiction of the FrAC to cover various aspects of Mainland China’s economic relationship with foreign countries.20
On June 21, 1988, the State Council renamed the FTAC as CIETAC.21 In terms of foreign investment, CIETAC is by far the most important arbitration institution in Mainland China, as the PRC has entrusted it with the resolution of economic and trade disputes that are foreign or foreign-related.22 The PRC has empowered CIETAC with the 1989 CIETAC Rules, a new set of arbitration rules replacing the FIAC Rules. The State Council has since updated the CIETAC Rules in 1994, 1995, and 1998.23 As a result of these updates, today CIETAC applies the 1995 and 1998 CIETAC Rules in arbitrations.
B. Legislative Framework for the Enforcement of Foreign Awards in Mainland China
work. Prior to 1982, parties could only enforce foreign-related arbitral awards in Mainland China through voluntary compliance or a bilateral trade agreement.24 Voluntary compliance simply sought the good will of the losing party. In the event this failed, Mainland China adopted a generally accepted international trade practice by including arbitration clauses in bilateral trade agreements.25 To provide a comprehensive solution to this dilemma, Mainland China enacted a series of laws that provided increasing power to tribunals to recognize and enforce foreign arbitral awards. These laws include the 1982 Civil Procedure Law, the 1991 Civil Procedure Law, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and the Arbitration Law of 1994.26 Together, these laws provide an extensive legislative framework for the recognition and enforcement of foreign arbitral awards in Mainland China.
1. 1982 Civil Procedure Law
The Civil Procedure Law (for Trial Implementation) of 1982 (“1982 Civil Procedure Law”) was the first national legislation that provided a basis for the enforcement of domestic and foreign arbitral awards.27 As such, it was very restrictive in its scope and application.
executed domestic awards from officially sanctioned institutions without review.29
Although the 1982 Civil Procedure Law provided a legal basis for enforcement of foreign arbitral awards, it was subject to impractical complications. The 1982 Civil Procedure Law only permitted the enforcement of “judgments or rulings” by foreign courts.30 A party seeking to have a foreign arbitral award enforced must have it converted into a foreign court judgment.31 However, the need to obtain a final court judgment undermines the entire purpose of utilizing arbitration in the first place. Due to these complications, no courts in Mainland China enforced foreign arbitral awards before the PRC’s accession to the New York Convention.32
2. 1958 New York Convention
non-contracting party State (“non-Convention awards”).40 This provision put non-Convention awards at a severe disadvantage, due to the inadequacy of the 1982 Civil Procedure Law.
3. 1991 Civil Procedure Law
The adoption of the 1991 Civil Procedure Law mitigated the severity of the 1982 Civil Procedure Law concerning non-Convention awards. On April 9, 1991, the President of the PRC promulgated the new Civil Procedure Law of the People’s Republic of China (“1991 Civil Procedure Law”).41 This new law completely replaced the original 1982 version and contained various new provisions on the enforcement of arbitral awards. The most significant of these provisions is article 269, which revised the impractical basis for the enforcement of foreign arbitral awards under the 1982 Civil Procedure Law.42 The new article 269 codified into law the authority of the Intermediate People’s Court to refuse enforcement of foreign arbitral awards on grounds listed in the New York Convention.43
enforcement of foreign arbitral awards in Mainland China continues to be through bilateral treaty provisions or reciprocal recognition under the New York Convention.48
4. 1994 Arbitration Law
Prior to August 1994, in Mainland China there existed fourteen laws, eighty administrative regulations and nearly two hundred local regulations that contained clauses on arbitration.49 Many of these laws and regulations were contradictory in nature.50 Apparently, the government of Mainland China recognized the urgent need for a comprehensive and uniform arbitration law governing both domestic and international arbitration. Therefore, on August 31, 1994, Mainland China adopted the Arbitration Law of the People’s Republic of China (“1994 Arbitration Law”).51 While recognizing different treatment for domestic and international arbitration, the 1994 Arbitration Law codified these two types of arbitration into a single law.52
establish foreign-related arbitration commissions in addition to local commissions.56 Based on the language of the law, it was left unclear whether local arbitration commissions also had jurisdiction over foreign– related disputes.57 The “1996 Notice on Several Issues that Need to be Clarified in Order to Implement the Arbitration Law of the People’s Republic of China” (“1996 Notice”) resolved this ambiguity by recognizing the ability of local arbitration commissions to adjudicate foreign– related disputes, but only with the voluntary consent of both parties.58
The 1996 Notice reveals another complex dilemma in the legislative framework of arbitration in Mainland China: the recognition and enforcement of foreign arbitral awards. In 1995, the Supreme People’s Court issued the “Notice on Court’s Handling of Issues in Relation to Matters of Foreign-Related Arbitration and Foreign Arbitration” (“1995 Notice”),59 which forbids any Intermediate People’s Court from refusing to enforce an arbitral award by a foreign institution or a foreign– related arbitral award by an authorized Chinese institution without the consent of the Supreme People’s Court.60 Although the language of the 1995 Notice may seem broad, note that the only Chinese institution authorized to adjudicate a foreign-related award is CIETAC.61 Therefore, the 1995 Notice applies only to foreign awards issued by third– country arbitration institutions and to foreign-related arbitrations undertaken by CIETAC; it does not protect foreign-related arbitrations undertaken by one of the more than 140 local arbitration commissions.62
1994 Arbitration Law provides special provisions for foreign-related arbitration, but it is properly read in conjunction with article 260 of the 1991 Civil Procedure Law.63 Furthermore, regarding the recognition and enforcement of foreign arbitral awards, the 1994 Arbitration Law is not of primary importance because its main focus is the invocation of relevant provisions of the 1991 Civil Procedure Law.64 Therefore, the terms of accession to the New York Convention and the relevant provisions of the 1991 Civil Procedure Law, as incorporated into the 1994 Arbitration Law, govern the recognition and enforcement of foreign arbitral awards in Mainland China.65
III. INTERNATIONAL COMMERCIAL ARBITRATION IN HONG KONG SAR
A. Institutional Framework of International Commercial Arbitration in Hong Kong
In Hong Kong, as in the PRC, there is a distinction between international and domestic arbitrations.66 However, unlike Mainland China, this distinction only affects the type of rules applied to the arbitration, and not the choice of institution in which to engage in the arbitration.
tional arbitrations.70 For international arbitrations, the HKIAC adopted the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL Rules”), but for domestic arbitrations, the HKIAC applies a set of domestic arbitration rules.71 However, disputing parties are also free to adopt their own ad hoc rules.72
HKIAC’s institutional or ad hoc rules operate within Hong Kong’s legislative framework for arbitration. Today, arbitration legislation in Hong Kong features two ordinances: one for international arbitration and the other for domestic arbitration.73 This division is far more simple and liberal than the legislative regime for arbitration in Mainland China.74 Nevertheless, particularly regarding the recognition and enforcement of foreign arbitral awards, there is problematic friction between the legislative frameworks of Mainland China and Hong Kong.
B. Legislative Framework for the Enforcement of Foreign Arbitral Awards in Hong Kong
1. Early Enforcement of Domestic Arbitral Awards
Before 1982, arbitral awards rendered within Hong Kong were subject to legal review by the local courts.75 Hong Kong’s principles of arbitration derived from the United Kingdom. As a result, domestic commercial arbitration in Hong Kong was subject to the British common-law “special case” or “case-stated” procedure.76 Through this procedure, parties could compel arbitrators to submit a point of law to the courts for judicial determination.77 This special case procedure remained viable until 1982.
2. 1958 New York Convention
awards under the terms of the New York Convention.78 In 1977, the United Kingdom acceded to the New York Convention on behalf of Hong Kong.79 Like Mainland China, the ascension was subject to a reciprocity reservation.80 Under this reservation, Hong Kong agreed to apply the New York Convention on a reciprocal basis to awards “made in the territory of other contracting states.”81 After the reversion of Hong Kong to PRC sovereignty in 1997, Hong Kong remained a party to the New York Convention through Mainland China’s ratification.82 Henceforth, Hong Kong awards remain enforceable in other Convention States and awards rendered in other Convention States remain enforceable in Hong Kong.83
3. 1982 Arbitration Ordinance
appeal questions of law to the local courts by means of a mutually agreed to clause in the arbitration agreement.89
The 1982 Arbitration Ordinance was the first attempt by Hong Kong, in order to follow international practice, to distinguish between international and domestic arbitrations.90 Despite this effort, the same 1982 Arbitration Ordinance governed both types of arbitration. It was not until 1990, as a result of the efforts of Hong Kong’s Law Reform Commission, that Hong Kong established truly separate legislative regimes for international and domestic arbitrations.91
4. 1990 Arbitration Ordinance
Under the Arbitration Ordinance of 1990, the government of Hong Kong adopted the UNCITRAL Rules, previously employed by HKIAC, as the law applicable to all international arbitrations.92 Today, the 1990 Arbitration Ordinance governs international arbitrations, but the 1982 Arbitration Ordinance continues to apply to domestic arbitrations.93 However, to allow contractual flexibility and to accommodate the international business community, both Arbitration Ordinances remain interchangeable through the contracting parties’ choice of law provision.94 Parties to a domestic arbitration can mutually agree to use the UNCITRAL Rules, while parties to an international arbitration can mutually agree to follow the domestic arbitration system of the 1982 Arbitration Ordinance.95 Therefore, in practice, parties choose which set of rules to apply to their arbitration, with the statutory distinction used only as default.
IV. MUTUAL ENFORCEMENT OF FOREIGN AWARDS: HONG KONG AND MAINLAND CHINA
widespread ratification of the New York Convention.96 Given the close economic ties of Hong Kong and Mainland China, even prior to the 1997 reversion, and the growing assets held in Hong Kong by Mainland Chinese companies, disputing parties perceived Hong Kong as the premier international arbitration venue for Mainland China-related disputes.97 Furthermore, since both Hong Kong and Mainland China were independent parties to the New York Convention, pre-1997 arbitral awards had been mutually enforceable under each territory’s respective reciprocity reservation.
Nevertheless, immediately following the 1997 reversion, the international business community began to question the true neutrality of Hong Kong as a venue for arbitral disputes related to Mainland China.98 In particular, the concerns regarded the composition of Hong Kong’s new legislative body, the amount of influence Mainland China exerted over Hong Kong’s affairs, and the independence of Hong Kong’s post-1997 judiciary.99 Eventually, Hong Kong’s stable legal environment and the high degree of party autonomy reserved by the UNCITRAL Rules began to dissipate some of these initial concerns.100 However, international arbitration practitioners continued to raise concerns about potential ambiguities that affect the enforceability of post-1997 Hong Kong awards in Mainland China and, of apparent lesser importance, the enforceability of Mainland China awards in Hong Kong.101
A. Post-1997 Status of the New York Convention: Hong Kong and Mainland China
main enforceable in other Convention States.104 However, according to international arbitration practitioners, the primary problem was whether under the terms of the New York Convention Hong Kong awards would remain enforceable in Mainland China and Mainland Chinese awards would remain enforceable in Hong Kong.105
International arbitration practitioners felt that the language in article I of the New York Convention raised uncertainty as to the mutual recognition and enforcement of foreign arbitral awards between Hong Kong and Mainland China.106 According to the first sentence of article I, the New York Convention applies to arbitral awards “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.”107 Furthermore, the second sentence of article I states that the Convention applies to “arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.”108
longer fit snugly within the Convention’s framework.110 Moreover, following the transfer of sovereignty, it became politically awkward for Mainland China to treat Hong Kong awards as foreign.111 As a result, there was widespread concern that soon after the reversion Mainland Chinese courts would treat Hong Kong awards as domestic and therefore unenforceable under the terms of the New York Convention.112
While it was common belief that Mainland China would take the first step toward treating Hong Kong awards as domestic, the Hong Kong courts were the first to question the viability of the New York Convention’s future application. Perhaps Mainland China was cautious in this area because it did not wish to diminish Hong Kong’s reputation as a liberal international arbitration venue. Instead, it was Hong Kong’s Court of First Instance that initially conceded that Hong Kong and Mainland China ceased to be separate parties to the New York Convention, “vis-a-vis each other.”113
In Ng Fung Hong Ltd. v. ABC, Judge Findlay of Hong Kong’s Court of First Instance entertained a dispute arising from an ex-parte application for enforcement of a post-1997 arbitral award by Mainland China’s CIETAC in Hong Kong.114 The plaintiff, a Mainland Chinese corporation, argued for the enforceability of Mainland Chinese awards pursuant to Section 2GG of Hong Kong’s Arbitration Ordinance, while conceding the unenforceability of Mainland Chinese awards under the New York Convention.115 Failing to raise the legal merits of the enforceability of Mainland Chinese awards under the New York Convention, Judge Findlay simply opted to accept the concession, and to express his regret on the passing of this “convenient” mechanism for mutual recognition.116 Furthermore, concerning enforceability of Mainland Chinese awards under Hong Kong’s Arbitration Ordinance,Judge Findlay concluded that Mainland Chinese awards fit neither the prerequisite definitions of “domestic international agreements” nor “international arbitration agreements,” thereby leaving an action similar to common law breach of contract as the only option for enforceability.117
Appeal directly addressed and further elaborated on the issue of the enforceability of Mainland Chinese awards in Hong Kong. In Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd.,118 the plaintiff, Mainland Chinese company Hebei, sought enforcement in Hong Kong of a CIETAC arbitration award against the defendant, Hong Kongbased Polytek.119 Unlike the Ng Fung Hong case, which involved an ex-parte application for enforcement, in Hebei, Hong Kong’s Polytek argued against the enforcement of the Mainland Chinese award.120 Polytek argued that the award was not enforceable under the New York Convention because the Convention, which only applies to foreign arbitration awards,121 did not apply following the 1997 handover and the end of Hong Kong’s sovereignty.122 The Court of Appeal decided that since both the award and the original application for enforcement were made prior to July 1, 1997, the Mainland Chinese award was a Convention award, and therefore converted into a Hong Kong award.123
Outside of the holding of the case, the Court of Appeal elaborated on the status, if applicable, of Mainland Chinese awards for which post-1997 Hong Kong enforcement is sought. The three-judge panel in Hebei held that the intention of the New York Convention is to “facilitate the recognition and enforcement of arbitral awards made in a territory where there is one legal system in another territory with a separate (or even different) legal system.”124 Consequently, because under the “one country, two systems” concept Hong Kong has a separate and independent legal system from Mainland China, courts should give a “purposive meaning” to the term “domestic awards” within the second sentence in article I of the New York Convention.125 Therefore, the Hong Kong Court of Appeal did not consider Mainland Chinese awards as domestic awards in Hong Kong. The Court concluded that the New York Convention should continue to apply reciprocally after July 1, 1997.126
Appeal had opposing opinions of how to interpret post-1997 Mainland Chinese awards in Hong Kong under the New York Convention. However, both courts’ opinions conclude by converging on a single point. They both urged the relevant Hong Kong authorities to avoid any further uncertainty by entering into an agreement with Mainland Chinese authorities and considering amendments to the appropriate Arbitration Ordinance.127
B. 1999 Agreement on the Mutual Recognition and Enforcement of Arbitral Awards
On June 12, 1999, Hong Kong and Mainland China signed the 1999 Agreement providing for the reciprocal enforcement of arbitral awards128 and implemented the 1999 Agreement in their domestic laws.129 According to a press release issued by the government of Hong Kong, under the 1999 Agreement, the New York Convention still applies to enforcement of international arbitral awards in Hong Kong, but the Convention no longer applies to the enforcement of arbitral awards between Hong Kong and Mainland China.130 The press release asserted that the parties crafted the terms of the 1999 Agreement in accordance with the spirit of the New York Convention.131 Therefore, because arbitral awards between Hong Kong and Mainland China are no longer subject to international law, awards from either party are henceforth to be considered domestic.132
handover.134 Therefore, the 1999 Agreement permits awards made since July 1, 1997, to be reviewed under the new arrangement, and even allows for the re-application of awards refused during the interim period.135
The 1999 Agreement permits the High Court of Hong Kong to enforce Mainland Chinese awards made pursuant to the Arbitration Law of the People’s Republic of China.136 More specifically, it authorizes the enforcement of awards made in over 100 mainland arbitral commissions established under the auspices of the CIETAC and the China Maritime Arbitration Commission.137 Reciprocally, it allows Mainland China’s Intermediate People’s Court to enforce awards made in Hong Kong pursuant to Hong Kong’s Arbitration Ordinance.138
Procedurally, the 1999 Agreement describes the appropriate documents and translations needed for enforcement, which remain virtually unchanged from practice under the New York Convention. However, the 1999 Agreement features an interesting provision that precludes parties from simultaneously seeking enforcement in both Mainland China and Hong Kong.139 The provision states that if the award debtor resides or has property located in both Hong Kong and Mainland China, then the applicant can proceed in one location to recover the remaining amount owed only when the enforcement of the courts in the other location is insufficient to recover in totality.140
provides “public grounds” for denial of enforcement.144 Although these public grounds had already been controversial under the New York Convention, they now encounter a new dynamic under the 1999 Agreement.145
V. PROBLEMS AND ISSUES ARISING FROM THE 1999 AGREEMENT CONCERNING THE ENFORCEMENT OF ARBITRAL AWARDS
Foreign investors must be aware of the challenges presented by the 1999 Agreement when drafting their dispute resolution clauses and choosing their arbitration venue. Today, post-1997 courts enforce arbitral awards between Hong Kong and Mainland China under the 1999 Agreement. However, to the regret of proponents who called for the relevant authorities to resolve this “inconvenient” ambiguity and to the continued concern of international arbitration practitioners, the 1999 Agreement continues to pose challenges. Many of these concerns previously existed under the New York Convention, while others have resulted directly from the 1999 Agreement. The majority of these challenges simply accentuate, with practical consequences, the inconsistencies behind the new “domestic” classification of Hong Kong– Mainland China arbitral awards. The most flagrant of these concerns are the ambiguities surrounding Mainland China’s recognition of ad hoc awards, the grossly divergent Statute of Limitations provisions for the application of enforcement, the potential inapplicability of Mainland China’s beneficial 1995 Notice to Hong Kong awards, and the vagueness inherent in Mainland China’s definition of “public interest.” Unfortunately, these concerns render Hong Kong a less attractive venue for arbitrating Mainland China disputes than foreign locations or Mainland China itself.
A. Ad Hoc Awards
do not enforce, ad hoc148 awards made within Mainland China.
While the 1994 Arbitration Law precisely indicates that domestic ad hoc awards are not recognizable within Mainland China, the status of ad hoc awards made outside of Mainland China is unclear. Even more complicated remains the issue of whether ad hoc awards made within Mainland China, pursuant to foreign institutional rules, such as the rules of the International Chamber of Commerce or the UNCITRAL Rules, would be recognizable and enforceable.149
Indeed, Mainland Chinese courts could find foreign ad hoc awards applying Mainland Chinese law invalid under the terms of the New York Convention. Practitioners now widely accept that due to Mainland China’s accession to the New York Convention, ad hoc awards made in a Convention State are recognizable and enforceable within Mainland China.150 However, parties to a foreign ad hoc arbitration are free to agree that Mainland Chinese law governs their dispute.151 Under article V(1) (a) of the New York Convention, Mainland China can refuse to enforce an award if the arbitration agreement “is not valid under the law to which the parties have subjected it.”152 Since Mainland China’s 1994 Arbitration Law considers ad hoc arbitrations invalid, then Mainland Chinese courts could find foreign ad hoc awards unenforceable, despite its reciprocity obligation under the New York Convention.153
him that agreements calling for arbitration within Mainland China, under the auspices of the International Chamber of Commerce and the Singapore International Arbitration Centre, will be held valid and enforceable.156 As a result, while not officially documented, there is evidence that courts will consider ad hoc awards made within Mainland China, pursuant to foreign institutional rules alone, unenforceable. However, if the awards are sanctioned under the auspices of an authorized foreign arbitration institution, then they are no longer ad hoc and therefore enforceable.
In light of Mainland China’s efforts to modernize and liberalize its arbitration regime, including the Supreme People’s Court official recognition of 1999 as the “year of enforcement,” its recalcitrance against ad hoc awards is not very practical.157 The prevailing theory behind Mainland China’s resistance stems from CIETAC’s unwillingness to subject itself to further competition for foreign-related arbitrations.158 CIETAC’s dominance of Mainland China’s foreign-related arbitration market initially diminished as a result of the 1994 Arbitration Law and 1996 Notice, which sanctioned over 140 local institutions to also hear foreign-related arbitrations.159 Today, CIETAC continues to be a popular arbitration venue even though many of the over 140 local institutions have become economically unviable.160 Apparently, Mainland China believes that by recognizing ad hoc arbitrations domestically, it would not only economically destroy more local institutions, but also seriously damage CIETAC’s prestige, dominance, and income.161
adopt the rules for ad hoc arbitrations.163 Nevertheless, the HKIAC allows parties to arbitrate under any set of rules they choose to adopt, whether institutional or ad hoc, international or domestic.164 In the same manner as Mainland China, Hong Kong recognizes foreign ad hoc arbitrations from other contracting states to the New York Convention in accordance with its own reciprocity reservation as a Contracting State.165
Despite the fact that Mainland China and Hong Kong have mutually agreed that the New York Convention no longer applies between them, ad hoc awards between Hong Kong and Mainland China are recognizable in both jurisdictions. Hong Kong recognizes Mainland China ad hoc arbitrations, like it recognizes all other ad hoc arbitration without prejudice. Of course, Mainland China does not permit domestic ad hoc arbitrations, so Hong Kong is unlikely to have ever been presented with a Mainland Chinese ad hoc award to enforce.166
Under the 1999 Agreement, Mainland China’s recognition of foreign ad hoc awards from Convention States includes Hong Kong. Hong Kong continues to be a party to the New York Convention.167 However, the New York Convention no longer applies to the enforcement of arbitral awards between Mainland China and Hong Kong, which are instead subject to the 1999 Agreement.168 According to the 1999 Agreement, which supercedes the 1994 Arbitration Law’s prohibition on enforcement of domestic ad hoc arbitral awards, the People’s Courts of Mainland China must enforce arbitral awards made in Hong Kong pursuant to Hong Kong’s Arbitration Ordinance.169 Since Hong Kong’s Arbitration Ordinance recognizes ad hoc awards, then Mainland China is bound under the 1999 Agreement to recognize and enforce ad hoc awards made in Hong Kong.170
grounds for refusal of enforcement mirror those of the New York Convention, both Hong Kong and Mainland China are still bound to recognize each other’s arbitral awards, including those that are ad hoc, in the same manner as under the New York Convention.172 Thus, the concern raised by international practitioners and investors regarding ad hoc awards is not one of legal consequence.
It is politically significant that Mainland China is willing to subject itself to the inconsistency of not recognizing domestic ad hoc awards within Mainland China, yet recognize domestic ad hoc awards issued within another part of its sovereign, Hong Kong. There are two possible explanations for Mainland China’s inconsistent behavior. One explanation is that Mainland China, subject to the international investment community’s demand for greater contractual flexibility, seeks to eventually adjust its own domestic practice and accept ad hoc awards within its own regulatory framework.173 However, this position is doubtful due to strong opposition from CIETAC.174 Another notion is that this type of inconsistency is unimportant, particularly when compared to the potential awkwardness of Mainland China having to accept Hong Kong awards as “not domestic.”175 In other words, it is no more inconsistent than the overall concept of “one country, two systems.”
B. Statute of Limitations
Similar to ad hoc awards, the 1999 Agreement’s discrepant treatment of the statute of limitations, the time limit for requesting the enforcement of an award, is an example of sacrificing legal consistency for the sake of considering arbitral awards between Mainland China and Hong Kong as domestic.178 According to the 1999 Agreement, the statute of limitations for requesting the enforcement of an award will correspond to the domestic provisions of the venue of enforcement.179 Since the 1999 Agreement considers arbitral awards between Hong Kong and Mainland China as domestic, it appears that these provisions should be identical, or at least, consistent. To the dismay of many international investors and practitioners, the 1999 Agreement continues to foster a worrisome linguistic discrepancy that may scare investors and practitioners away from Hong Kong as an arbitration venue for Mainland China related disputes.
In Mainland China, the statute of limitations for corporations and other organizations to submit an application for enforcement of an arbitral award is six months.180 If one of the parties is a natural person, the time limit extends to one year.181 In contrast, Hong Kong’s statute of limitations is six years for all persons.182 Pursuant to international practice, the statutes of limitations in both entities begin to run after the deadline for voluntary compliance prescribed in the arbitral award.183
turbed this practice, it has highlighted the inconsistency of having a domestic arbitral award between Hong Kong and Mainland China enforced under two different domestic statutes of limitations. As explored in the previous section, this inconsistency will scare investors and practitioners away from Hong Kong and to Mainland China or foreign venues for Mainland China-related arbitration.185
C. 1995 Notice
A third concern of international practitioners and investors is the inapplicability of Mainland China’s 1995 Notice to Hong Kong awards.186 The 1995 Notice forbids any Intermediate People’s Court to deny recognition and enforcement of a foreign or foreign-related award without the ultimate approval of the Supreme People’s Court.187 The purpose of the 1995 Notice is to ease foreign investors’ fears of local protectionism by providing a more centralized refusal mechanism.188 Nonetheless, some practitioners argue that this mechanism is flawed because it does not effectively prevent local protectionism: instead of submitting the awards for higher-level review, many local courts simply stall and do not act on the award.189 Despite this detraction, the 1995 Notice is a significant advantage for arbitral awards coming under its rubric because it discourages local courts from denying enforcement of awards and subjects those courts that do deny enforcement to rigorous review.
foreign-related arbitrations until 1996, after the Supreme People’s Court formed the 1995 Notice.192
Today, the 1995 Notice no longer protects Hong Kong awards enforced in Mainland China. Prior to the 1997 handover, Hong Kong awards were “foreign” awards rendered by a “foreign arbitral organ” and therefore protected by the 1995 Notice.193 After the handover, however, Hong Kong awards are not considered foreign as they are no longer subject to the New York Convention and therefore no longer benefit from the protection of the 1995 Notice.194
The 1995 Notice has also boosted CIETAC’s business at the expense of Hong Kong arbitration institutions. Although the Supreme People’s Court issued the 1995 Notice to ease foreign investors’ fears of local protectionism, it appears to actually foster Mainland China’s current trend towards CIETAC protectionism. The 1995 Notice brings more business to CIETAC because among all Mainland Chinese arbitration institutions, only CIETAC arbitration awards benefit from the 1995 Notice’s enforcement protection mechanism.195 On the other hand, Hong Kong institutions, once advantaged as foreign arbitration institutions through the 1995 Notice protection in Mainland China, no longer receive such protection as domestic institutions. As a result, CIETAC awards promise parties more reliability than Hong Kong awards for enforcement in Mainland China. For this reason, parties in Mainland China-related disputes are more likely to arbitrate at CIETAC or a foreign venue, both of which receive 1995 Notice protections, over a Hong Kong venue.
D. Public Interest Exception
much more narrowly than Mainland Chinese courts. According to the New York Convention, “recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that the recognition or enforcement of the award would be contrary to the public policy of that country.”196 Both Hong Kong and Mainland China have adopted this standard. Under Hong Kong’s 1990 Arbitration Ordinance, which mirrors the UNCITRAL Rules,197 the High Court of Hong Kong may refuse enforcement of a foreign arbitral award if it finds that the award conflicts with the “public policy” of Hong Kong.198 In Mainland China, the 1994 Arbitration Law directs the Intermediate People’s Courts to vacate any arbitral award that it determines to violate the “public interest.”199 The 1994 Arbitration Law incorporates language from the 1991 Civil Procedure Law, which permits the refusal of awards rendered by Mainland China’s foreign-related arbitral institutions, if enforcement violates the “social and public interests of the country.”200
As a result of the 1999 Agreement, after the handover, public policy or public interest grounds for refusing enforcement continue to exist. Under Hong Kong’s 1999 Arbitration (Amendment) Ordinance, which codified the 1999 Agreement, courts can refuse enforcement of a Mainland Chinese award if Hong Kong’s High Court finds it contrary to Hong Kong’s public policy.201 Similarly, under the 1999 Agreement, the Intermediate People’s Court of Mainland China may refuse to enforce a Hong Kong award if it finds that enforcement would be contrary to the public interests of Mainland China.202
stems from the general discrepancy that exists in the overarching concept of “one country, two systems.”204
In Hong Kong, the concept of public policy is a part of the common law tradition.205 Pursuant to this tradition, in Paklito Investment Ltd. v. Klockner East Asia Ltd. Hong Kong adopted the public policy standard set forth in the U.S. case Parsons & Whittemore v. RAKTA, which states that “[e]nforcement of foreign arbitral awards may be denied on [a public policy] basis only where enforcement would violate the forum State’s most basic notions of morality and justice.”206 Therefore, Hong Kong narrowly construes article V(2) (b) of the New York Convention, which established the public policy ground for denial of enforcement of arbitral awards.207 Moreover, Hong Kong courts have stipulated that they will not condemn any foreign arbitral decision as having violated “most notions of morality and justice” unless it is “clearly the case.”208 Thus, Hong Kong courts rarely employ and narrowly interpret the public policy grounds to refuse enforcement of an arbitral award.
issued by CIETAC.212 As a result, although Mainland China’s public policy standard remains vague,213 that standard is divergent between domestic and foreign or foreign-related awards.
Kong as a venue for Mainland China-related disputes.216
Foreign investors engaged in commerce between Hong Kong and Mainland China have two important choices to make in drafting their dispute resolution clauses or agreements. The first choice involves which method of dispute resolution to apply: to arbitrate or to litigate. The second choice involves the venue for the trial or arbitration. For contracts in which one of the parties is from or a substantial amount of the assets involved are located in Mainland China and, therefore, enforcement of some type can be anticipated in Mainland China, the dispute resolution clause should call for arbitration in a foreign venue, not in Hong Kong or Mainland China.
First, arbitration is the superior choice because of the difficulty of litigation in Mainland Chinese courts. If litigation is chosen, parties can either submit their dispute to a competent Mainland Chinese court, Hong Kong court, or a third-country’s court. Most practitioners do not trust Mainland China’s domestic courts with handling international commercial disputes because the judiciary lacks commercial expertise, the procedures are slow and complex, and there is a danger of local protectionism.217 Unlike Mainland China, Hong Kong courts are more sophisticated and capable of handling international commercial disputes.218 However, since no agreement exists for the mutual recognition of court judgments between Hong Kong and Mainland China, enforcement of Hong Kong judgments in Mainland China would be equivalent to obtaining an original Mainland Chinese court decision. The final option would be to pursue litigation in a third-country, but this involves complex jurisdictional problems and, once again, the party seeking enforcement would need a subsequent judgment in Mainland China.219 Because of the difficulties associated with litigation, arbitration is likely to remain the more popular choice for resolving Mainland China-related international commercial disputes.220
foreign venue. With Hong Kong’s reversion to Mainland Chinese sovereignty in 1997, the question of venue has taken on a new dimension. Basically, disputing parties have three options concerning venue: they can arbitrate their disputes domestically in Hong Kong, domestically in Mainland China, or in a foreign venue, such as the International Chamber of Commerce or the Singapore International Arbitration Centre.
Domestic arbitration in Hong Kong has become the least attractive of the three choices. This stems from the inconsistent treatment of Hong Kong arbitrated awards in Mainland China. Hong Kong awards no longer enjoy the same enforcement protections as foreign and CIETAC awards under the 1995 Notice in Mainland China.221 Due to the fact that Hong Kong arbitrations can feature ad hoc rules, a longer statute of limitations, and more narrowly interpreted public policy grounds for refusal of enforcement, as a result of the 1999 Agreement, Hong Kong has lost much of its luster as an arbitration venue for Mainland China-related disputes, as foreign investors and practitioners become wary of future inconsistent enforcement of Hong Kong arbitral awards in Mainland China.222 Therefore, because arbitral awards lack 1995 Notice protections in Mainland Chinese courts and linguistic inconsistencies make the future enforcement of Hong Kong arbitral awards in Mainland China uncertain, today Hong Kong is the least attractive venue for Mainland China-related disputes.
Of course, CIETAC awards are subject to a variety of enforcement protection mechanisms within Mainland China, including the protection against denial of enforcement under the 1995 Notice, but foreign arbitral awards also enjoy these protections.226 Overall, domestic arbitration in Mainland China is only marginally more attractive than arbitration in Hong Kong for Mainland China-related disputes.
Choosing to arbitrate in a foreign venue is the best option for arbitrating Mainland China-related disputes. Arbitrating in foreign venues allows parties to engage in arbitration under ad hoc or institutional rules, while still having the awards recognized in Mainland China through the New York Convention.227 Additionally, similar to CIETAC awards, foreign awards receive enforcement protection under the 1995 Notice and are immune from most public policy grounds refusals of enforcement.228 Thus, of the three options, foreign venues are the most attractive option for Mainland China-related arbitration because the awards receive the highest level of protection in Mainland China and will be enforceable even if arbitrated under ad hoc rules.
MAURICIO J. CLAVER-CARONE*
* LL.M., 2001, Georgetown University Law Center; J.D., 2000, Catholic University of America. Mauricio J. Claver-Carone is now on the faculty of Catholic University’s law school in Washington, D.C.
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