Arbitrage awards

between

The following article is reproduce with tanks to the TT club, from their own internet site.

China's accession to the World Trade Organisation will mark a big event not

only on the Mainland but also for Hong Kong. It was generally perceived

that after the accession the cross border trade between the Mainland and

Hong Kong would rise. For the cross border trade to be successful, one of

the crucial factors will be the convenience and certainty for the parties

to enforce their legal rights.

After 1 July 1997, the People's Republic of China (PRC) has resumed

sovereignty over Hong Kong and the unprecedented concept of 'one country

two systems' was introduced. The PRC therefore ceased to be a foreign

state to Hong Kong. One of the ramifications was that the laws and

regulations governing relationships between states would not apply to Hong

Kong and the Mainland. As a result, legal vacuum may exist and this

problem must be addressed.

One of the examples is the enforcement of the Mainland arbitration awards

in Hong Kong and vice versa.

Prior to the Handover, an arbitration award obtained in the Mainland could

be enforced through the machinery provided under the New York Convention.

Both the PRC and Hong Kong (as a territory of the United Kingdom) were

parties to the Convention.

The Convention governs relationship between two different states. Article

l(1) of the New York Convention stipulates that:

'This Convention shall apply to the recognition and enforcement of

arbitrage awards made in the territory of a State other than the State

where the recognition and enforcement of such awards are sought '.

Therefore, the awards need to be 'international' in nature in order for the

New York Convention to apply.

After July 1997, an arbitration award obtained in Hong Kong could not be

enforced as a Convention award, at least on a theoretical basis, because

Hong Kong ceased to be a foreign state to the Mainland (and vice versa).

As far as Hong Kong is concerned, the only alternative left would be to

enforce a Mainland award by a common law action in Hong Kong. This is,

however, far from satisfactory. The party seeking to enforce the awards

needs to start a fresh legal action in Hong Kong by issuing a writ of

summons and to seek damages in the usual way for the breach of contract

i.e. non-compliance with the award. This procedure will take a longer time

and will be more costly.

The political reality was that both Hong Kong and the Mainland would

continue to apply the New York Convention. There was, however, an urgent

cry for a legal regime to resolve these uncertainties.

The uncertainties were finally resolved by an arrangement made between Hong

Kong and the Mainland governments on 21 June 1999. The effect of this

arrangement is that the arbitration awards made in Hong Kong are to be

enforced in the Mainland as if the New York Convention would apply, and

vice versa. Such arrangement was brought into legal effect, in Hong Kong,

by the Arbitration (Amendment) Ordinance 2000, and, in the Mainland, the

Explanatory Document of the PRC Supreme Court No. 3 of 2000 issued on 24

January 2000.

To enforce a Mainland Award, the party seeking such enforcement must

produce (section 40 of the Arbitration Ordinance):

the duly authenticated original award or a duly certified copy of it;

the original arbitration agreement or a duly certified copy of it; and

if the award or agreement is in a language or languages other than either

or both of the official languages, a translation of it in either of the

official languages certified by an official or sworn translator or by a

diplomatic or consular agent.

A 'Mainland Award' is defined as 'an arbitrage award made on the Mainland

by a recognised Mainland arbitrage authority in accordance with the

Arbitration Law of the PRC.'

The following are the grounds for refusing to enforce a Mainland Award:

A party to the arbitration agreement was under some legal incapacity;

The arbitration agreement was invalid;

One party was not given proper notice of the appointment of the arbitrator

or the arbitration proceedings or was otherwise unable to present its case;

The award deals with a matter beyond the scope of the reference;

The tribunal was not properly constituted;

The award has not yet become binding on the parties; or

The underlying dispute would not have been determined by arbitration by the

courts of Hong Kong or would have been contrary to Hong Kong public policy.

In the Mainland, the grounds for refusing to enforce a Hong Kong award are

the same except that the Mainland can refuse to enforce an award because of

'social public interest'. Also, time limits for enforcement of an

arbitration award is six months for personal claims and one year for a

company and/or legal entity. No such time limit was imposed in Hong Kong.

This new arrangement has provided continuity and certainty to both Hong

Kong and the Mainland. Certainty is one of the essential elements for the

existence of an effective legal system and is also one of the virtues of

the rules of law.

Contributor: Catherine Wong, Solicitor, Sinclair Roche & Temperley - Hong

Kong