In the realm of arbitration, the principle of res judicata serves, among its many important purposes, to safeguard the finality and enforceability of arbitral awards. Res judicata has also been firmly established in the PRC Arbitral Law, but recent judicial decisions evidence its flexibility and intricacies.
Article 9 of the PRC Arbitration Law stipulates that “[a]n arbitral award shall be final.” The res judicata effect of a commercial award encompasses both positive and negative aspects. The positive effect of res judicata means that the tribunal’s decisions in the operative part of an award are binding between the parties in subsequent proceedings (as reflected in Article 57 of the PRC Arbitration Law). Conversely, the negative effect precludes the parties from initiating further (and duplicative) proceedings on an identical dispute (as reflected in Article 9 of the PRC Arbitration Law).
As with the statutory provisions governing arbitration in most jurisdictions, the PRC Arbitration Law provides limited express guidance on application of res judicata. Consequently, several critical issues in this area have been left to practice and caselaw. These issues include, inter alia, the necessary requirements before the doctrine of res judicata can be invoked in relation to an award, and the exceptions to deny the effect of res judicata arising out of a prior award.
The case of Sinopec International Petroleum Exploration and Production vs UNITOP Limited (“SIPC v. UNITOP”) provides significant insights into the PRC Supreme People’s Court (“SPC”)’s position on res judicata between different commercial arbitral tribunals.
UNITOP, a British Virgin Islands company, commenced an arbitration at the CIETAC against SIPC, a state-owned entity, over an dispute arising out of an agency agreement. UNITOP was unsuccessful in the first arbitration in 2013 but initiated a second arbitration in 2015. The second tribunal found for UNITOP. However, in 2020, the 4th Intermediate People’s Court of Beijing (“Beijing 4th Court”) set aside the second award in the course of judicial set-aside proceedings, holding that the second tribunal’s exercise of authority violated the principle of res judicata. In its reasoning, the Beijing court cited the SPC’s opinions - under PRC law, a court setting aside such an award is required to report level by level up to the SPC and obtain the SPC’s approval.
The SPC’s opinions referred to in SIPC v. UNITOP can be summarized as two key points. First, the SPC emphasized that for res judicata to apply, the disputes must be identical, necessitating the application of the triple identity test (identity of the parties, subject matter, and claims). Notably, the SPC underscored that under PRC arbitration law, new facts emerging after a prior award do not provide a basis for not applying the doctrine of res judicata. This is in contrast with the ordinary law of civil procedure as applies in litigation, where new facts can negate the application of res judicata. This distinction proved decisive in addressing the second arbitral tribunal’s attempt to place reliance on Article 248 of the PRC Civil Procedure Law, which provides that if new facts emerge, a party is entitled to file a second suit over the same dispute. Put simply, Article 248 did not apply in arbitration.
Second, the SPC concluded that the legal ground to set aside an award violating res judicata was an absence of jurisdiction, i.e., that “the arbitral institution has no authority to arbitrate.” The SPC viewing res judicata as a jurisdictional matter is important because it necessarily implies that a tribunal’s decision on this issue is subject to national courts’ oversight and can be overturned.
Commentators have criticized the SPC’s opinions as cited in SIPC v. UNITOP, particularly in relation to its treatment of Article 248 of the civil procedural law. The SPC’s rationale was that Article 248 applies solely to civil proceedings and not to arbitration proceedings. However, tribunals typically have the discretion to determine applicable law, provided there is no violation of fairness, the parties’ agreements, and mandatory law. As the PRC Arbitration Law lacks specifics on res judicata, it is common for tribunals to refer to the civil procedural law for details as to the precise operation of res judicata. In a few seminars discussing SIPC v. UNITOP (one of which was held by CIETAC after the release of the setting-aside judgement), few disagreed that the disapplication of Article 248 of the civil procedure law in that case was squarely incorrect.
Moreover, the SPC’s categorization of res judicata as a jurisdictional issue raises concerns. The SPC has insisted that curial review of an award during set-aside proceedings should be limited to procedural issues. Indeed, in SIPC v. UNITOP, the issue of res judicata was treated as a squarely procedural one. Yet, res judicata appears to be more substantive in nature. In SIPC v. UNITOP, the second tribunal found that new facts led to the satisfaction of a condition which triggered the defendant’s payment obligation. The second tribunal further held that the new facts were sufficient to negate any res judicata effects arising out of the first award. Conversely, the curial review found that new facts did not lead to the satisfaction of the payment condition and were insufficient to preclude the operation of res judicata. The Court’s conclusions could therefore be seen as prying into the facts of the case and making a substantive decision different from the tribunal’s.
Notably, the SPC’s opinions as cited in SIPC v. UNITOP have not been uniformly adhered to by the PRC courts. Observations of judicial practice in the Beijing 4th Court reveal that, in at least two published cases post-dating SIPC v. UNITOP, the court has concluded that the new facts can indeed preclude the res judicata effect of prior awards. For instance, in Colombian Outdoor Media Advertising (Beijing) Co., LTD vs. Beijing Bus Media Co., LTD (2022), the Beijing 4th Court saw no error in the tribunal’s reliance on Article 248 of the civil procedural law. The court affirmed the tribunal’s decision that new facts denied the res judicata effect of the first award, and further said that “if there are new facts the two cases do not fall into the same dispute and the parties may commence a new arbitration based on new facts.”
The Beijing 4th Court in some published cases has also respected the competence of arbitral tribunals in deciding res judicata issues. This is again notwithstanding the position in SIPC v. UNITOP. In a case in 2024 (Case No. (2024) Jing 04 Civil Special 20), the court held that “[t]he determination of repeated arbitration, new evidence, or new facts falls within the scope of the tribunal’s power. In other words, the tribunal has the authority to determine, based on the arbitration requests and evidence submitted by the parties, whether the rights and obligations involved in the arbitration case are those already determined by a prior effective arbitration award, and (has the authority) to not accept or hear cases of repeated arbitration.” If a tribunal has the right to not accept or hear cases of repeated arbitration, the converse side of the coin is that a tribunal has the right to accept or hear case where there is no repeated arbitration. The Beijing 4th Court implies that exercise of such right should be respected by national courts.
Although the PRC is not a common law jurisdiction, where case law is necessarily of binding effect, the Beijing 4th Court’s treatment of the SPC’s stance in SIPC v. UNITOP is notable. While the judicial divergence may not conclusively demonstrate that the decision in SIPC v. UNITOP was necessarily erroneous, it certainly highlights the flexibility and intricacies of res judicata issues. The unique reporting requirement in the course of curial oversight in the PRC makes such a judicial divergence possible. In SIPC v. UNITOP, the award was set aside, triggering the Beijing court’s obligation to report its set-aside decisions to the SPC. However, this reporting requirement does not extend to instances where the court confirms a tribunal’s decision, even if such confirmation conflicts with the SPC’s stance. In all cases observed above, the Beijing court dismissed the set-aside application, and did so independently, without seeking or receiving approval from the SPC.
In sum, the SIPC v. UNITOP case serves as a critical reference point for understanding how the Chinese Courts interpret and apply res judicata in arbitration. However, attention must be paid to the judicial divergence regarding the application of Article 248 of the civil procedure law in arbitration and the competence of arbitral tribunals in deciding res judicata issues. Future developments in PRC arbitration law and judicial practice may further clarify the application of res judicata. In the interim, it will be important for practitioners and parties involved in arbitration to be aware of the nuances and potential pitfalls in this area.