FAQ: Enforcement of a Foreign Arbitral Award in China

The Question:

How to enforce a foreign arbitral Award in China under the New York Convention?

The Answer:

We suggest Clients consider a step by step approach:

Step one: To issue an attorney letter, demanding the respondent to honour the award. A letter from a local attorney is recommended, for “local pressure”;

Step two: To file proceedings with a competent Chinese court for the recognition of the foreign arbitral award, with the ultimate target of obtaining a Ruling for Recognition of the Award;

Step three: To file proceedings for enforcement of the Ruling for Recognition Award after step two has succeeded, with the ultimate target of obtaining a Ruling of Enforcement;

Step four: To physically enforce the above Ruling of Enforcement via the court;

Step five: To file liquidation proceedings against the respondent if step four above has failed.

Remarks:

1. In all the steps mentioned above, it is recommended to try to negotiate with the respondent, thus it might not be necessary for the Client to go through all the above steps;

2. In rare situations, step two and step three might can be combined together, that is to say, the Client is to file for a recognition and enforcement award proceeding in one roll, and the court issues a Ruling of Recognition and Enforcement of the Award.

The Question:

What is the time estimate for enforcing a foreign arbitral award in China?

The Answer

It is difficult to give an accurate time estimate, as every case is unique and the amount of paperwork required to be generated varies. A rough indicator:

Step one: To issue an attorney letter, demanding the respondent to honour the award - this time budget is controlled by the Client;

Step two: To file proceedings with a competent Chinese court for the recognition of the foreign arbitral award–it usually takes the court 1-3 months to register the proceeding and issue a Ruling recognizing the award;

Step three: To file proceedings for enforcement of the Award after step two has succeeded – it usually takes the court 1-7 days to register a Ruling of Enforcement;

Step four: To physically enforce the Ruling of Enforcement Award via the court – this is subject to court enforcement efficiency and respondent assets status. If an award cannot be successfully enforced within 6 months, usually it means a difficult enforcement case;

Step five: To file for liquidation proceeding against the respondent if step four above fails - The time requested varies from court to court. Clients need to budget 6 months

for the court to issue a Ruling of Registration of Bankruptcy case and one year to finally wind-up the opponent company.

The Question

What court fees are involved?

The Answer:

The court fee for recognizing a foreign arbitral award is RMB 400.

There is also a court fee for enforcing the Ruling of Enforcement - The court will charge from enforcement proceeding as per following “tariff”:

1. For pleaded enforcement amount not exceeding RMB10K, court fee: RMB502. For the part exceeding RMB10K but lower than RMB500K, court fee: 1.5% of it; 3. For the part exceeding RMB500K but lower than RMB5M, court fee: 1% of it; 4. For the part exceeding RMB5M but lower than RMB10M, court fee: 0.5% of it; 5. For the part exceeding RMB10M, court fee: 0.1% of it shall be paid.

However, the court will not ask the applicant to pay in advance, but will only charge the above from the proceedings actually enforced from the opponent company. Furthermore, it is for the opponent company to bear the enforcement fees in the end

The Question

If the Chinese court declares a foreign arbitral Award to be enforceable in China, what are the possible enforcement actions by the court?

The A nswer:

The court will enforce against assets of the respondent, which include but are not limited to:1. Bank accounts;2. Land and property;3. Vessels, Cars, Trucks, Bunkers, machineries, etc;4. Account Receivables5. Bonds, shares and stocks6. Office equipment

Other possible actions the court could take:

1. Request the respondent to declare assets and initiate punitive actions in case of any misrepresentation;

2. Put the respondent company into a blacklist of banks, blocking the respondent from raising any further bank loans.

The Question

What are the usual challenges for foreign parties in enforcing a foreign arbitral award in China?

The Answer

1. The foreign applicant is unable to prove the respondent has been properly served in the arbitration proceeding, esp. at the triggering of the arbitration proceeding stage;

2. The Chinese court may require hearings before deciding whether or not to direct recognition of a foreign arbitration award, this might take more time than anticipated

3. The opponent company has no assets to be enforced against.

The Question

What is required in order to prove the respondent has been properly served in the arbitration proceedings? 

The Answer:

1. Try to serve in accordance with the arbitration clause or arbitration tribunal rules;2. Try to serve via multiple ways, ie. via email, fax, courier;3. In our experiences, a notary public may be considered to certify what has been

consigned via to the respondent. For example, he may certify that an email giving

notice of the appointment of the arbitrator by the applicant has been consigned via the courier’s pouch. In high profile claims, we also arrange re-serve the arbitration proceeding papers under the supervision of a local Chinese notary public.

The Question:

If there is a default arbitral award made by a sole arbitrator where the respondent did not participate in the arbitration proceeding, is it enforceable in China?

The Answer

Yes as long as the arbitral award has been made under the arbitration rules and there is no other grounds for the Chinese court to decline it.

The Question:

What is the time limit to apply to the Chinese courts for recognition and enforcement of a foreign award?

The Answer

2 years, which counts from the last day for performance of the award as stated in the award, or where no deadline for performance is stated, from the date when the award becomes effective. 

The Question

Why China is tends to enforce Awards?

The Answer

1. In China, if the local court wishes to decline a jurisdiction relating to foreign arbitration awards , the local court usually needs to report internally for the Supreme Court to “sign-off” - the lower court will try to avoid the internal procedural “bother” if it doesn't have a “good case” ;

2. Under the courts internal reporting system, if a lower court intends to refuse enforcing an arbitral award, it has to report to High Court for “sign-off”, and if the High Court agrees not to enforce the Award, it has to report to the Supreme Court for “sign-off” - the lower court will try to avoid the internal procedural “bother” if it doesn't have a “good case” ;

3. The Chinese court tends not to examine the applicable laws and merits of the arbitration, except for the usual procedural examination and other examinations such as public policy

under the New York Convention; put it in other words, the legitimate grounds for the Chinese court to deny recognition of arbitral award are modestly limited.