SPC Interpretations on Arbitral Judicial Review Cases

On 26 December 2017, The Supreme People's Court of PRC (SPC) has issued a pair of judicial interpretations titled the Provisions on Issues relating to the Reporting and Review of Cases Involving Judicial Review of Arbitration (the Reporting and Review Provisions) and the Provisions on Several Issues relating to the Trial of Cases Involving Judicial Review of Arbitration (the Trial Provisions), together referred to as the Provisions in this text. The aim of the Provisions is to clarify the procedures for the Chinese courts when hearing and reporting cases involving the judicial review of arbitration. The Provisions took effect on 1 January 2018. The Provisions serve as the next addition to the PRC Arbitration Law (which was implemented over 20 years ago) since the SPC’s Interpretation on the PRC Arbitration Law in 2006 and could have seriously influence many different types of arbitration in China. Below we summarize the most important new features.

1. Unifying the reporting system for judicial review for both domestic and foreign-related arbitration cases
Previously there was a reporting and review system specifically for foreign and foreign-related arbitration cases. Namely, if a court does not recognize the validity of a foreign related arbitration agreement, revokes or does not enforce a foreign-related arbitration award or refuses to recognize and enforce a foreign arbitration decision (called the Negative Decision), the case must be submitted to the Higher People’s Court (on provincial level) for review. If the Higher People’s Court agrees with the Negative Decision, the case shall be submitted to the SPC (on national level) for final decision.

Now the Reporting and Review Provisions also extend the application of such system to the judicial review of non-foreign related arbitrations, i.e. purely domestic arbitration without any foreign element, though in a slightly modified and less far reaching way. In the case of a Negative Decision the competent Higher People’s Court generally has the right to make the decision when it comes to a judicial review of non-foreign-related arbitration. Only under two circumstances the case shall be decided by the SPC:1) the domiciles of the parties are located in different provinces, 2) the court refuses to enforce or revokes an arbitration decision for the reason that public interests are infringed.

2. Related foreign arbitration award can be applied for recognition in China even though the person and property subject to enforcement are not located in China
According to the PRC Arbitration Law, when filing an application for recognition and enforcement of a foreign arbitration award at a Chinese court, the application shall be made at the Intermediate People’s Court of the place where the person subject to enforcement or their property is located. In practice however, in cases where neither the person subject to enforcement nor its property is located in China, this leads to the impossibility of recognition of such awards. This occurs especially often when such award plays a major role in the outcome of a domestic pending case.

To fix this loophole, the Trial Provisions clarify that for applications for recognition of a foreign arbitration award, where neither the person subject to enforcement nor its property is located in China and if this foreign arbitration award is related to a case tried by a People’s Court, that court shall have jurisdiction. If the foreign arbitration decision is related to a case decided by a domestic arbitration institution, the Intermediate People’s Court at the place where the relevant arbitration institution is located shall have jurisdiction.

3. Applicable law for deciding the validity of an arbitration agreement
The Trial Provisions clarify the following aspects concerning the applicable law for deciding the validity of an arbitration agreement:

1. The agreed applicable law for the contract is not necessarily the applicable law for deciding on the validity of the arbitration agreement; parties who intend to choose a particular law to govern the validity of an arbitration agreement must ensure that this is expressly stated in the agreement.

2. Introduction of the principle in favorem validitatis; if the law of the place where the arbitration institution is located and the law of the seat are different on the validity of an arbitration agreement, the law that find the arbitration agreement effective shall apply.
    
3. When a court reviews a case on recognizing and enforcing an foreign arbitration award by referring to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), and the defending party to the application claims that the arbitration agreement is not valid, the court shall decide the validity in accordance with the relevant provisions of the New York Convention. Meaning that the law agreed upon by the parties shall prevail. If no law is chosen by the parties, the law at the location of arbitration shall apply.

4. Documents required for recognizing and enforcing a foreign arbitration decision
In practice, upon applying for recognizing and enforcing foreign arbitration decision, some courts require that the submitted documents must be notarized and legalized, which is time consuming. The Trial Provisions abolish the requirement of such a notarization and legalization process. This will greatly simplify the procedure, and cut time and costs of the arbitration.