Making an Award

What, if any, are the legal requirements of an arbitral award? Under the PRC Arbitration Law, an arbitral award must comply with the following requirements:

(a) The award shall be made in accordance with the opinion of the majority of the arbitrators. Where the arbitral tribunal cannot reach a majority opinion, the award shall be made in accordance with the opinion of the presiding arbitrator (Article 54 of the PRC Arbitration Law).

(b) The arbitration tribunal must state in the arbitral award the claims, the facts of the dispute, the reasons on which the award is based, the result of the award, the allocation of the arbitration costs, the date on which and the place at which the award is made. The facts of the dispute and the reasons may be omitted if parties so desire (Article 53 of the PRC Arbitration Law).

(c) The award must be signed by the arbitrators. Arbitrators who dissent may choose whether to sign the award or not (Article 54 of the PRC Arbitration Law).

(d) The arbitral award should be sealed by the relevant Arbitration Commission (Article 54 of the PRC Arbitration Law).

Appeal of an Award

On what bases, if any, are parties entitled to appeal an arbitral award? The PRC Arbitration Law does not contain any provision allowing a party to appeal an award. Apart from resisting enforcement, if a party is not satisfied with an award, he may apply to set it aside pursuant to Article 58 of the PRC Arbitration Law.

Enforcement of an Award

Has China signed and/or ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards? What is the relevant national legislation? China is a signatory state to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. The Convention came into force in China on 22 April 1987. The accession was subject to both “commerciality” and “reciprocity” reservations. China has given effect to the Convention by way of the following instruments:

(a) Decision of the Standing Committee of the National People’s Congress on China Joining the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1986).

(b) Supreme People’s Court Notice on the Implementation of China’s Accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1987).

What is the approach of the Courts in China towards the enforcement of arbitration awards in practice? Enforcement of arbitral awards is governed by the PRC Arbitration Law, the Civil Procedure Law, the Civil Code, as well as relevant Notices issued by the Supreme People’s Court. Parties are expected to comply with the arbitral award. However, if a party fails to comply with an award, the other party may apply to the Court for enforcement, subject to any application by the losing party for setting aside the award. Under the PRC Arbitration Law, an application to set aside an arbitral award must be made within six months after receipt of the award (Article 59 of the PRC Arbitration Law). This time limit applies to both domestic and foreign-related arbitration awards. However, the grounds for setting aside a domestic award and a foreign-related award are different.

Under Article 58, the grounds for setting aside domestic awards are:

(a) There is no arbitration agreement;

(b) Matters decided in the award exceed the scope of the arbitration agreement or are beyond the authority of the Arbitration Commission;

(c) The formation of the arbitration tribunal or the arbitration procedure did not conform to statutory procedure;

(d) Evidence on which the award is based was forged;

(e) The other party withheld evidence sufficient to affect the fairness of the award;

(f) During the course of the proceedings, one or more of the arbitrators demanded and/or accepted bribes, practiced graft or made an award that perverted the law; or,

(g) The award would be against the public interest.

Under Article 70 of the PRC Arbitration Law and Article 260 of the Civil Procedure Law, the grounds for setting aside foreign-related arbitral awards are:

(a) The parties have neither included an arbitration clause in their contract nor subsequently concluded a written arbitration agreement;

(b) The party against whom the application is made was not notified to appoint an arbitrator or to take part in the arbitration proceedings, or the said party was unable to present his case due to reasons for which he is not responsible;

(c) The formation of the arbitration tribunal or the arbitration procedure was not in conformity with the rules of arbitration;

(d) The matters decided in the award exceed the scope of the arbitration agreement or are beyond the authority of the arbitration institution; or,

(e) The award would be against the public interest.

A decision to set aside a foreign-related arbitral award must be reported to and approved by the Supreme People’s Court (see Notice of the Supreme People’s Court on Relevant Issues in the Setting Aside of Foreign-related Arbitral Awards by People’s Courts (Fa [1998] No. 40) issued on 23 April 1998). Pursuant to Article 61 of the PRC Arbitration Law, upon receipt of an application to set aside an award, the Court may (if it considers necessary) notify the arbitral tribunal to re-arbitrate the dispute. In that case, the setting aside proceedings shall be stayed. If the arbitration tribunal refuses to re-arbitrate the case, the Court shall then proceed with the application to set aside the award.

The attitude of the Court to enforcement of foreign-related arbitral awards is embodied in a notice issued by the Supreme Court on 28 August 1995 (see Notice of the Supreme People’s Court on Relevant Issues in Dealing with Foreign-related Awards and Foreign Awards (Fa [1995] No. 18) issued on 28 August 1995). Pursuant to such notice, if the first instance Court (the relevant Intermediate People’s Court) decides not to enforce a foreign-related award, it must refer that decision to the Court above it, and finally to the Supreme People’s Court for approval. The Supreme People’s Court has to agree to non-enforcement of foreign-related arbitral awards. Without the consent from the Supreme Court, no lower Court is entitled not to enforce a foreign-related award.

Confidentiality

Are arbitral proceedings sited in China confidential? What, if any, law governs confidentiality? Article 40 of the PRC Arbitration Law specifies that arbitration shall be conducted in camera unless the parties agree otherwise.

Article 37 of the CIETAC Arbitration Rules provide that in closed session arbitration hearings, all the participants in the arbitration, including the parties and their agents, the arbitrators, clerks, interpreters, experts and appraisers shall not disclose to outsiders the substantive and procedural matters of the case. In the CIETAC Code of Ethics for Arbitrators, it is provided that arbitrators shall strictly maintain the confidentiality of arbitration proceedings. They may not divulge to outsiders any circumstances regarding the substance and procedure of a case, including the case details, hearing proceedings, and the outcome of deliberations (Article 13 of the CIETAC Code of Ethics for Arbitrators).

Can information disclosed in arbitral proceedings be referred to and/or relied on in subsequent proceedings? There appears to be no express prohibition in this regard. Given that confidentiality is an important characteristic of arbitration, it is arguable that information obtained in arbitral proceedings should not be referred to and / or relied on in subsequent proceedings, especially if these involve different parties. Under the CIETAC Arbitration Rules, conciliation may be conducted by the arbitral tribunal in the course of the arbitration. In this case, Article 50 of the Rules provides that should conciliation fail, any statement, opinion, view or proposal that has been made, raised, put forward, acknowledged, accepted or rejected by either party or by the arbitration tribunal in the process of conciliation shall not be invoked as grounds for any claim, defense, and/or counterclaim in subsequent arbitration proceedings, judicial proceedings or any other proceedings.

Damages/Interest/Costs

Are there limits on the types of damages that are available in arbitration (e.g., punitive damages)? Generally speaking, under Chinese law, damages are meant to compensate actual or anticipated loss. Liquidated damages will be awarded if they are reasonable.

What, if any, interest is available? There are no express rules in this regard. In practice, an arbitration tribunal would grant interest as part of compensation for loss suffered if it considers this appropriate.

Are parties entitled to recover fees and/or costs and, if so, on what basis? What is the general practice with regard to shifting fees and costs between the parties? In practice, the rule “costs follow the event”, i.e., the losing party will pay costs (including arbitration fees) of the successful party, is generally followed although the tribunal retains discretion to apportion fees and costs depending on conduct of the parties and the outcome of the arbitration.

For CIETAC arbitrations, Article 59 of the CIETAC Rules provides that compensation for expenses reasonably incurred by the winning party in dealing with the case should not exceed 10% of the total amount awarded to the winning party. Whilst legal costs and expenses have to be specifically included in the claim, the arbitration tribunal has the discretion to order that the arbitration fee be borne fully or partly by either party (see Article 54 of the Arbitration Law and Article 58 of the CIETAC Arbitration Rules).

Is an award subject to tax? If so, in what circumstances and on what basis? Generally speaking, arbitral awards are not subject to PRC tax.

(Edited By: China West Lawyer)