International Arbitration Newsletter Feb. 2024

Date and time :2024-03-04


Arrangement on the Recognition and Enforcement of Judgments in Civil and Commercial Matters Between MainIand and Hong Kong Fully Implemented

On January 29, 2024, the Arrangement of the Supreme People's Court on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the mainIand and of the Hong Kong Special Administrative Region (hereinafter referred to as the "Arrangement of Civil and Commercial Judgments") was formally implemented.

Under the Arrangement of Civil and Commercial Judgments, in principle, cases of a civil and commercial nature can be recognised and enforced in both places, with exceptions set out in the form of a "negative list" .

For Hong Kong judgments that can be recognised and enforced in the mainIand, the types of judgments stipulated in the Arrangement of Civil and Commercial Judgments are "judgments, orders, decrees and certificates of assessment of costs", but "injunctions" and "interim relief orders" are expressly excluded.

In addition, the content of judgments recognised and enforced in both jurisdictions includes not only monetary awards (punitive damages are generally excluded, except in intellectual property and unfair competition cases), but also non-monetary awards.

Guangdong High People's Court Released First Batch of Typical Cases on Judicial Review of Arbitration

On 27 February 2024, the Guangdong High People's Court issued the first batch of typical cases on judicial review of arbitration, covering recognition of foreign arbitral awards, assistance in property preservation in inter-regional arbitration, confirmation of the validity of arbitration agreements, and revocation or non-enforcement of arbitral awards, etc., which involved cutting-edge and hot issues such as determination of the validity of arbitration clauses in electronic form contracts, remediation of arbitration procedural defects, and punishment of false arbitration.

Arbitration is an important part of China's diversified dispute resolution mechanism, and is also an internationally accepted dispute resolution method. In recent years, China has always respected the autonomy of the parties in choosing arbitration, insisted on supporting and regulating the high-quality development of arbitration, and endeavoured to build an "arbitration-friendly" judicial environment to provide judicial services and guarantees for the creation of a market-oriented and law-based international business environment.

 German Ministry of Justice Published a Draft for Comments on the Revised Arbitration Act

The German Federal Ministry of Justice has published on its official website a draft for the revision of the German Arbitration Act (i.e., the German Code of Civil Procedure Zivilprozessordnung - ZPO Volume 10). This is the first revision of the Act in 25 years. The purpose of the revision is to update the German Arbitration Act in order to bring it in line with modern advances in the field of international arbitration and to make Germany an attractive centre for the resolution of arbitration disputes.

Provisions for conducting video hearings and signing arbitral awards electronically have been added.

For commercial transactions, the requirement that the arbitration agreement must be concluded in writing has been amended, i.e. arbitration agreements for commercial transactions are allowed to be concluded in all possible ways.

In arbitration involving multiple parties, in order to give equal treatment to all parties, the court is authorised to appoint an arbitrator for both parties if the joint appointment of the arbitrator by the multiple parties fails. Courts are also allowed to review awards where the arbitral tribunal lacks jurisdiction over itself.

Publication of the arbitral award is permitted if the parties agree, and arbitrators serving in proceedings with more than one arbitrator are expressly allowed to express dissenting opinions. If the parties do not object to the publication of the award, they shall be deemed to have consented to such publication. In this way, transparency of commercial arbitral awards would be enhanced and further development of the law would be promoted.

With the consent of the parties, certain arbitration-related proceedings in commercial courts may be conducted exclusively in English and an English-language arbitral award may be submitted in enforcement proceedings without the need to provide a German translation.

Ji’an Intermediate People's Court of Jiangxi Province:

Where it is Agreed that One Party Selects the Arbitration Institution and it is not Possible to Prove Agreement on the Selection of the Arbitration Institution, the Court Ruled that the Arbitral Award would not be Enforced 

Legal Basis:

Interpretation of the Supreme People's Court on Certain Issues relating to Application of the Arbitration Law of the People's Republic of China

Article 5

Where an arbitration agreement provides for two or more arbitration agencies, the parties may negotiate to choose one of them for arbitration; where the parties are unable to agree on the choice of an arbitration agency, the arbitration agreement shall be deemed invalid.

Case Description:

On 29 November 2022, Home Credit Consumer Finance Co., Ltd. (hereinafter referred to as the "Home Credit Company") applied to the Beihai Arbitration Commission for arbitration. Article 11 of the Consumer Credit Contract signed between Home Credit Company and Mr. Long stipulated that "any dispute arising out of or in connection with this contract shall be resolved by negotiation; in the event that the negotiation fails, the parties agree that Home Credit Company shall designate one of the following arbitration institutions to conduct arbitration in accordance with the arbitration rules currently in force: (i) Guangzhou Arbitration Commission of China; (ii) the Beihai Arbitration Commission". On 2 February 2023, the Beihai Arbitration Commission made an arbitration award (2022) Beihai Zhong Zi No. Z26073 (hereinafter referred to as the "Arbitration Award"), which ruled that Mr. Long should pay back the loan principal and interest to Home Credit Company.

On 14 August 2023, because Mr. Long failed to perform the obligations determined by the Arbitration Award, Home Credit Company applied to Ji'an Intermediate People's Court of Jiangxi Province (hereinafter referred to as the "Court") for compulsory enforcement.

Court’s View:

The issue in this case was whether the Beihai Arbitration Commission had jurisdiction. The arbitration institution agreed by Home Credit Company and Mr. Long in the Consumer Credit Contract was China Guangzhou Arbitration Commission or Beihai Arbitration Commission, the materials submitted by Home Credit Company could not prove that Home Credit Company and Mr. Long reached an agreement on the choice of the arbitration institution and Mr. Long failed to submit a written defence to the Beihai Arbitration Commission during the arbitration proceedings. Therefore, the court based on the existing evidence, it is difficult to find that the parties reached an agreement on the choice of arbitration of the Beihai Arbitration Commission, the Beihai Arbitration Commission has no right to accept the arbitration application of Home Credit Company

Therefore, in accordance with Article 244 of the Civil Procedure Law of the People's Republic of China, Article 4 of the Arbitration Law of the People's Republic of China, and Article 5 of Interpretation of the Supreme People's Court on Certain Issues relating to Application of the Arbitration Law of the People's Republic of China, the JI'an Intermediate People's Court of Jiangxi Province ruled the Beihai Arbitration Commission's (2022) Beihai Zhong Zi No. Z26073 Arbitration Award would not be enforced.

Hong Kong Court of First Instance:Ordering the Remand of an Arbitration Award on Public Policy Grounds

Case Description:

Both Plaintiff Company G (hereinafter referred to as the "Plaintiff") and Defendant Company N (hereinafter referred to as the "Defendant") are companies incorporated in the British Virgin Islands. On 5 October 2020, the Plaintiffs entered into a Securities Purchase Agreement (hereinafter referred to as the "SPA") with the Defendants for a placement known as "PIPE" (a private investment in public equity), which is governed by the laws of Hong Kong and agreed on a dispute resolution clause for arbitration before the Hong Kong Arbitration Centre. Pursuant to the SPA, Defendant was to allot 16,051,219 shares to Plaintiff in exchange for the price of US $146,868,653 (hereinafter referred to as the "Consideration Monies"). A shareholder of the Defendant commenced proceedings in the BVI Commercial Court (hereinafter referred to as the "BVI Court") to seek a declaration that the placement to Plaintiff was void and should be set aside, on the ground that in breach of section 121 of the BVI Business Companies Act , the placement was not made in the interests of Defendant and the directors had not exercised their powers for a proper purpose. On 3 March 2021, the BVI Court found that the Plaintiff was an indirect wholly-owned subsidiary of K, and that four of the Defendant's directors were controlled by K.The purpose of the four directors in approving the PIPE was to give K de facto control of the Defendant and to to defeat the other shareholders' request for a shareholders' meeting. The PIPE was executed for an improper purpose under BVI law and the BVI court therefore ruled that the PIPE placement was invalid.

After the judgments in the BVI Court, G commenced the Arbitration on 12 March 2021 in Hong Kong, to seek restitution of the Consideration Monies it had paid for the placement under the SPA. The Defendant defended that the placement was illegal and relied on the virtue of illegality (which prohibits a claimant from bringing a claim arising out of its own unlawful conduct) and unclean hands to defend the Plaintiff's personal and proprietary claims respectively.

In the Partial Award, the arbitrator applied Tinsley v. Milligan [1994] 1 AC 340 in finding that the placement was illegal and in dismissing G’s personal restitutionary claim, and further dismissed G’s proprietary restitutionary claim on the equitable doctrine of unclean hands. Just a few days before the handing down of the Award, the Hong Kong Court of Appeal held that it was the "range of factors" test in Patel v. Mirza [2017] AC 467 that represented the principle of unlawfulness under Hong Kong law, rather than the "reliance on " test in Tinsley (which had been adopted in Hong Kong until then).

The Plaintiff applied to the Court of First Instance of Hong Kong (hereinafter referred to as the "Court") to set aside the Award. The Plaintiff's application was based on the grounds that the Award were in conflict with Hong Kong's public policy on the principle of illegality. The plaintiff made it clear in its application that it is not open to it to challenge the Award on the ground that the arbitrator had erred in law in applying Tinsley instead of Patel.

Court’s View:

The Court is entitled to review the decision of the arbitrator to deny relief to Plaintiff on the basis of public policy. In this regard, the court gives the following reasons:

1. Although any error of law caused by the arbitrators did not entitle the Plaintiff to set aside the awards, the Court had the power and duty to consider whether the awards were contrary to the public policy of Hong Kong.

2. The court cited Betamax v. State Trading Corp [2021] UKPC 14 for the proposition that questions of public policy should be determined by the courts.

3. Where the court decides whether there is a conflict between public policy and the award solely on the basis of the arbitrator's findings of law and fact, which are not subject to review, the finality of the award is not affected.

4.  Where a party seeks to set aside an award or refuse to enforce an award on the ground that the award or its enforcement is contrary to the public policy of Hong Kong, the court shall consider the relevant grounds in the light of the public policy of Hong Kong as recognised by it at the time.

5. On the facts of the case, the plaintiff had sufficiently arguable grounds to set aside the awards on public policy grounds. However, instead of giving a final view as to whether the awards were contrary to Hong Kong's public policy, the judge ordered that the setting aside proceedings be stayed for three months and that the case be remitted to the arbitrator so that he could consider the Patel case and decide whether the awards would be affected by it.

In conclusion, tthe Hong Kong Court of First Instance ruled that the case should be re-heard by the arbitrator who had made the partial award.