China’s release in early June of a Typical Case (the “June 2022 Typical Case”) showcasing how courts in Shanghai recognized and enforced a foreign arbitral award by a special reading of the factual situation involved may help instill more confidence in foreign parties amid China’s efforts to revive its economy.  How was this breakthrough ruling made?  What are the implications of this ruling, given that it is now presented by the Supreme People’s Court of China as a Typical Case and that, a few years ago, another Typical Case featuring another creative approach taken by Shanghai courts has produced important results (see below)?

The June 2022 Typical Case

The June 2022 Typical Case summarizes a ruling rendered in July 2020 by the Shanghai Maritime Court to handle a jurisdictional issue arising from a case involving a company registered in the British Virgin Islands (the “BVI Company”) and a company registered in the Republic of the Marshall Islands (the “MI Company”).  The two companies were engaged in a dispute over a charterparty, and an arbitral institution in London handling the dispute issued an arbitral award against the MI Company.  The BVI Company applied to the Shanghai Maritime Court for the recognition and enforcement of the award, but the MI Company challenged the court’s jurisdiction on the grounds that the company did not have any principal business office or property in China. 

The Shanghai Maritime Court decided that it did have jurisdiction over the case (and the decision was, on appeal, upheld by the High People’s Court of Shanghai Municipality).  The Shanghai Maritime Court then proceeded to issue a ruling in February 2021 to recognize and enforce the arbitral award.  The enforcement was successful, as the MI Company did comply with the terms of the award.

How did the Shanghai Maritime Court decide that it had jurisdiction over the case?  The decision was primarily based on a provision of the Law of the People’s Republic of China on Special Procedures for Maritime Litigation.  The provision requires that any party applying for the recognition and enforcement in China of a “foreign maritime arbitral award” must file the application with the maritime court of the place “where the property subject to enforcement is located” or “where the person subject to enforcement is domiciled”.

Contrary to the MI Company’s claim, the Shanghai Maritime Court found the company to have a principal business office in Shanghai (thereby, having its domicile there) by comprehensively considering the following factors:

• Both the written confirmation of the charter involved in the case and the arbitral award recorded that the MI Company operated in Shanghai, China; and

• The correspondences exchanged between the parties during the period of the charterparty referenced the MI Company and its affiliated company as the same company and that the business address of the affiliated company was the same as the address of the MI Company recorded on the written confirmation of the charter (i.e., all indicated the same address in Shanghai, China).

Implications for Cases with an Offshore Company Attempting to Escape China’s Jurisdiction

Presented as a Typical Case released by the Supreme People’s Court, the above-mentioned ruling of the Shanghai Maritime Court now has “referential value” that is just below that of Guiding Cases, which are de facto binding in China (see SINOTALKS.COM In Brief No. 10).  According to China’s “Search for Similar Cases” system, Chinese judges are instructed to search for similar cases (essentially in this order: Guiding Cases, Typical Cases, and other types of cases specifically provided on a list) and apply the principles therein to pending cases.  For details about the nature of Typical Cases, see SINOTALKS.COM In Brief No. 4.

The principle of the June 2022 Typical Case is best presented in its “Typical Significance” section, which includes the following content:

This case is a typical case in which a maritime court accurately applied the New York Convention and supported the recognition and enforcement of a foreign arbitral award in China.  This case focuses on the connection between domestic law and the international convention.  Through adjudication, [this case] has clarified that when the place of registration of a foreign offshore company is different from the place of [its] principal business office, the place of the principal business office should be used as the domicile.  In the review of this case, [the court] adhered to the spirit of “facilitating the enforcement of awards” in the Convention to determine [its] jurisdiction through an accurate identification of the place where the respondent’s business office is located, providing Chinese and foreign parties with equal judicial protection […]. (emphasis added)

Inspired by the above principle of the June 2022 Typical Case and in adherence to the spirit of “facilitating the enforcement of awards” in the New York Convention, courts in China are likely to exercise their discretionary powers to consider various factors that could support a finding that the party against whom an arbitral award is sought to be enforced has a principal business office in China. 

An Emerging Trend

The June 2022 Typical Case is reminiscent of another Typical Case (Siemens International Trading (Shanghai) Co., Ltd. and Shanghai Golden Landmark Company Limited, A Case of an Application for the Recognition and Enforcement of a Foreign Arbitral Award)) released in May 2017.  This Typical Case demonstrates how Shanghai courts, with specific instructions from the Supreme People’s Court, creatively interpreted the factual situation involved to conclude that there were “foreign-related elements”, a prerequisite for the recognition and enforcement in China of the arbitral award at issue.  The underlying principles of the Typical Case have been incorporated into a judicial interpretation released by the Supreme People’s Court and courts across China are bound to follow judicial interpretations.

Are these two Typical Cases part of an emerging trend where China is becoming more ready to confirm its jurisdiction so that foreign arbitral awards can be recognized and enforced in the country?  The answer to this question appears to be an affirmative one, as reflected in a speech delivered by Vice President of the Supreme People’s Court TAO Kaiyuan at a major conference on arbitration held in Beijing in September 2021.  She pointed out that “recognition and enforcement of foreign arbitral awards are an important window through which a country’s judicial level is examined”.  To this end, she continued to highlight a few tasks that China will focus on, including:

• China will “[continue] adhering to the New York Convention’s [spirit] of ‘facilitating the enforcement of awards]’”; and

• The Supreme People’s Court will “enhance the stability and uniformity of arbitration judicial review standards by various means, including the release of Guiding Cases and Typical Cases.

How this trend will evolve is worthy of close attention in the near future.  The SINOTALKS.COM team will take this as one of our priority tasks and will keep our readers informed.

P.S. I want to thank Vincent Yiqun Chen, Research Assistant of SINOTALKS.COM, for providing research support during the preparation of this article.

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^† The citation of this article is: Dr. Mei Gechlik, China’s Economic Recovery, Shanghai, and International Commercial Arbitration, SINOTALKS.COM, In Brief No. 15, June 29, 2022, https://sinotalks.com/inbrief/shanghai-commercial-arbitration.

The original, English version of this article was edited by Nathan Harpainter.  The information and views set out in this article are the responsibility of the author and do not necessarily reflect the work or views of SINOTALKS.COM.