Abstract: The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, is one of the most important and comprehensive international treaties on the recognition and enforcement of foreign arbitral awards. It has greatly facilitated the cross-border enforcement of foreign arbitral awards. However, divergence in the interpretation of and standards applicable under the Convention by the contracting parties has also led to some uncertainty in the cross-border enforcement of foreign awards, particularly in cases where a party is in default. In this article, the authors will share some practical insights on the recognition and enforcement of London arbitral awards in China based on their rich experience as practitioners handling such cases.
1. Case Brief
On 2 August 2021, Shipowner Company A (a foreign company) and Charterer Company B (a domestic company) concluded a voyage charterparty which stipulated that "any disputes shall be resolved by arbitration in London under English law." On 16 March 2019, the vessel in question arrived at the discharge port, albeit having been delayed allegedly because of various defaults by Company B. Company A commenced an arbitration against Company B to claim for demurrage.
The London arbitration in this case proceeded as an ad hoc arbitration handled by London lawyers on behalf of Company A. The lawyers sent notices of the commencement and constitution of the arbitration to Company B by email and by post, but Company B did not participate. The arbitral tribunal rendered a default award, ordering Company B to pay demurrage and to bear the costs of the arbitration and the English lawyers' fees.
Unlike with the arbitration proceedings, Company B engaged with the attempt by Company A to have the arbitral award recognized and enforced in the Chinese Courts. In particular, Company B claimed that it had not received any email or mail notification about the arbitration, and had been completely unaware of it. Company B also contended that the arbitral award had violated various provisions of the New York Convention. Company B had evidence to prove that its original business personnel had resigned and its premises had moved before the commencement of the arbitration, which reasonably established that it had not received the mail notification. As this case concerned a default award in an ad hoc arbitration, the Chinese Court adopted an extremely cautious standard to determine the success or failure of the email delivery in question, requiring Company A to at least prove that Company B had received the email or that the email had been sent successfully. Because of the high standard of proof imposed, and the difficulty and expense of procuring electronic records after the fact in the absence of contemporaneous electronic records, this led to a deadlock in the case. Ultimately, the case was settled, with Company A receiving a settlement sum representing most of the demurrage claimed.
2. Procedure for Recognition and Enforcement of an Arbitral Award in the Chinese Jurisdiction
The key consideration in the recognition and enforcement of foreign arbitral awards in domestic courts turns on whether the arbitral award meets the requirements of the New York Convention. In practice, the focus is on whether the foreign arbitral award meets the formal requirements set out in Article 4 of the Convention, as well as the further requirements set out in Article 5. The five bases for refusing recognition and enforcement in the first paragraph of Article 5 will only be relied on by the court if the respondent specifically raises an objection.1 Conversely, the two grounds for refusal in the second paragraph of Article 5 will be actively policed by domestic courts.2
In cases concerning recognition and enforcement, the key issue between the parties is usually whether the foreign arbitral award meets the requirements of Article 5(1). The most common disputes turn on whether the respondent had received adequate notice of the arbitral proceedings; and whether the composition of the arbitral tribunal and the arbitral proceedings are themselves in accordance with the arbitration agreement or the law of the curial seat.
In the present case, the arbitration agreement stipulated that "any dispute shall be resolved by arbitration in London in accordance with English law". According to section 2 of the Arbitration Act 1996 of the United Kingdom3 although the parties did not agree on the specific rules applicable to the arbitration, the procedure to be applied, including as relates to the appointment of arbitrators, or the requirements as to notification and service, the arbitration procedure and the composition of the arbitral tribunal would nonetheless be governed by the Arbitration Act 1996, based on the agreed seat of the arbitration. Therefore, at the stage of applying for recognition and enforcement in the Chinese jurisdiction, as long as the applicant can provide evidence to prove that the entire arbitration procedure complies with the provisions of the UK Arbitration Act 1996, the court will consider that the resultant award meets the requirements of the New York Convention and further grant recognition and enforcement of the said award.
3. Reasons for Deadlock
One of the reasons deadlock might arise is because domestic (Chinese) courts tend to be more cautious in relation to recognizing and enforcing arbitral awards, especially where the award is granted in default. In this case, given the applicant’s defence denying the receipt of any arbitration notice, the court was also further concerned that Company A may not have strictly complied with the applicable notification procedures, thereby effectively preventing Company B from participating in the arbitration and presenting its case. To ameliorate such concerns, the court in the case under consideration required Company A to provide further evidence to prove that it had properly notified Company B.
Pursuant to Section 76 of the UK Arbitration Act 1996, the applicant may use any effective means to serve notices on the respondent. Therefore, it was acceptable to serve notices by email only. Similarly, in a Chinese case ([2006]民四他字第34号), the PRC Supreme People’s Court held that “the applicant in the case served the respondent by email via a third party under the provisions of the Arbitration Act 1996. This method of service is not prohibited in China. If the applicant can prove that the respondent has received the notice, the service shall be deemed to be effective.” This means that China does not prohibit the use of email for service. However, the Supreme People’s Court has also set a higher standard for determining whether email service is successful: the applicant must provide evidence that the respondent has confirmed receipt of the email, or provide other evidence that can prove that the respondent has received the email. In the hearing of this case, the court held that the email correspondence provided by Company A’s London lawyers was not sufficient to prove that the applicant had properly notified the respondent. The applicant needed to provide further evidence to prove that the other party had successfully received the email, or at least that the email has been sent successfully.
A second reason for why deadlock might arise is that there are significant differences in judicial practice between different jurisdictions. London lawyers are, perhaps unsurprisingly, experienced at handling English-seated arbitration cases governed by English law, but may not be familiar with the requirements for the subsequent recognition and enforcement of any resultant award in other countries or regions. According to our communication with several sets of practitioners based in London, having to specifically prove that an email was actually delivered to the other party's email address is not commonly required. Therefore, they may not have specific contingency plans to avoid such risks and meet the requisite evidentiary threshold. In the case under discussion, this evidentiary gap caused great obstacles to the recognition and enforcement of the award in China, and is a salutary reminder as to the importance of familiarity with local approaches to enforcement and recognition.
4. Concluding Comments
First, although email can be used to serve notices in London-seated arbitration, it is advisable to send a hard copy by mail and preserve all relevant records should recognition and enforcement in China be a potential consideration. Ideally, one might wish to specify the agreed notice delivery methods, addresses, and email addresses in the arbitration agreement. In the event of refusal of receipt by mail where recognition and enforcement in China may become an issue, it may be prudent to instruct Chinese lawyers to consider further offline delivery. The service record can be preserved by any of the following methods: procuring a signed delivery receipt, recording or filming the delivery process, or posting the arbitration notice at the business premises. Ensuring that preservation of the service record is maintained will provide certainty as to the delivery, and is likely to make it easier to convince the court that proper notice has been given.
Second, before the arbitration begins, it is important to communicate with lawyers in the country or region where the foreign arbitration award will be recognized and enforced. This will help to mitigate any unforeseen consequences which might arise from differences in judicial practice between different jurisdictions. It might also be advisable to instruct Chinese lawyers in circumstances where recognition and enforcement in China are potential developments to handle both the arbitration proceedings and the subsequent recognition and enforcement proceedings, both in order to reduce legal costs and to increase the certainty of the award being recognized and enforced.
[1] Article 5 of the 1958 New York Convention:
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
[2] Article 5 of the 1958 New York Convention
2. 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:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
[3] “Arbitration Act 1996
2 Scope of application of provisions.
(1) The provisions of this Part apply where the seat of the arbitration is in England and
Wales or Northern Ireland.
……”