The SPC Opinion
On 30 December 2016, the Chinese Supreme People’s Court (“SPC“) issued its Opinions on the Provision of Judicial Safeguards for the Construction of Pilot Free Trade Zones (“SPC Opinion“).
Article 9 of the SPC Opinion provides, among other things, that:
- if two (2) wholly foreign owned enterprises (“WFOEs“) that are registered within a pilot free trade zone enter into an agreement to submit disputes to arbitration seated outside mainland China, the courts will not hold such an arbitration agreement as invalid merely on the ground that the dispute concerned is not foreign-related.
- the courts will not uphold an objection to the recognition and/or enforcement of a foreign-seated arbitration award merely on the ground that there is no foreign-related element if the following three (3) conditions are met:
- at least one of the parties to the dispute is a foreign-invested company registered within a pilot free trade zone;
- the parties had entered into an arbitration agreement submitting their disputes to arbitrations seated outside mainland China;
- (a) the opposing party is the claimant who initiated the foreign-seated arbitration in the first place; or (b) the opposing party is the respondent who participated in the arbitration without challenging the validity of the arbitration clause in the course of the arbitration.
Siemens International Trade Co., Ltd. v Shanghai Golden Landmark Co., Ltd.
The SPC Opinion follows hot on the heels of the 2015 landmark case of Siemens International Trade Co., Ltd. v Shanghai Golden Landmark Co., Ltd. (“Golden Landmark“), in which the Shanghai No. 1 Intermediate People’s Court (the “Court“) upheld and enforced an SIAC award between two PRC-incorporated entities which were also WFOEs.
In Golden Landmark, the Court found the legal relationship between Siemens and Golden Landmark to be foreign-related because:
- The source of capital, ultimate ownership interest and business decisions of both companies were funded by and/or closely connected with foreign investors; and
- The performance of the contract bore foreign-related features and was akin to an international sale of goods.
While welcoming the approach taken by the Court in Golden Landmark, commentators have been quick to caution against overstating the importance of the case as the SPC is not bound to follow the decision.
Ennead Architects International LLP v Fuli Nanjing Dichan Kaifa Youxian Gongsi
In a separate development, the Nanjing Intermediate People’s Court of Jiangsu Province recently issued a decision to enforce, for the first time, a CIETAC Hong Kong arbitration award between an American architectural firm and a Chinese property developer in Ennead Architects International LLP v Fuli Nanjing Dichan Kaifa Youxian Gongsi. This again demonstrates in general a greater willingness on the part of the Chinese courts to recognise and enforce foreign awards, albeit closer to home to mainland China in this particular instance.
- Short of being a direct endorsement, the SPC Opinion does appear to be the SPC’s general nod of approval on the more open and inclusive approach taken by the Court in the Golden Landmark case towards foreign-seated arbitrations.
- Like the Golden Landmark case, the SPC Opinion will be warmly welcomed by foreign investors who will see these developments as a sign of the PRC’s increasing openness towards enforcing foreign-seated arbitration awards between entities that may be incorporated in the PRC but otherwise driven by foreign investors.
- This will serve to assuage the concerns foreign investors may previously have had about having limited legal recourse outside mainland China in the event of a dispute.
- The safeguards mooted by Article 9 of the SPC Opinion is a clear indicator that the SPC is moving towards an increasingly more inclusive / less interventionist approach, which has previously deterred many foreign enterprises from readily doing business in the PRC.