Result of the “3 nos policy” when Chinese companies arbitrate abroad

f6ac33117179fe35848072c3a7ed0c69With more and more Chinese companies doing business abroad or with overseas companies, more and more Chinese companies have agreed to arbitrate outside of China.  According to a recent blogpost in one of the best known Chinese arbitration blogs (written by Lin Yifei, formerly on the staff of the Shenzhen Court of International Arbitration), some Chinese companies adopt the “three nos policy” when a foreign party initiates arbitration proceedings abroad: no participation in the foreign arbitration proceedings, no cooperation with the foreign arbitration proceedings, and no enforcement of the foreign award.

The thinking is: foreign arbitration is troublesome, so it’s best to focus on making the offshore award worthless, or (alternatively) we’re going to lose the case anyway, so it just means an additional enforcement procedure.

Do the Chinese courts support this approach?

A ruling from the Suzhou Intermediate Court in 2014 in the case of Brambill Limited (Brambill) v. Zhangjiagang Huafeng Heavy-duty Equipment Manufacturing Co., Ltd (Zhangjiagang Huafeng) set out in the blogpost provides an answer. “Three nos” companies should expect that Chinese courts will enforce offshore arbitral awards.

In 2014, Brambill filed an enforcement action in the Suzhou Intermediate Court to enforce an ICC (Hong Kong) award, under the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR  The dispute related to  a sales contract, in which Zhangjiagang Huafeng failed to make delivery.  In June, 2010, Brambill Limited filed a request for arbitration.  Although Zhangjiagang Huafeng was served with Brambill’s pleadings, informed of its right to file an answer, appoint an arbitrator, give views on the location and language of the arbitration, the Chinese company failed to respond. The case was heard in Hong Kong and arbitral tribunal members in the ICC case were: my former colleague Peter Thorp (chair), Professor Shen Sibao (Executive Director of the Shenzhen Court of International Arbitration and former Dean of the law school of the University of International Business in Beijing), and Mr. Hee Theng Fong.

In June, 2012, the tribunal issued its award, which was served on Zhangjiagang Huafeng.  The Chinese company did not apply to set aside the award within six months, but opposed enforcement on the grounds that the arbitration clause was unclear. The Suzhou court ruled that Zhangjiagang Huafeng should have raised the issue of the invalidity of the arbitration agreement during the arbitral proceedings or applied to set aside the ICC award in Hong Kong within six months of issuance. According to the Suzhou court, there were no public policy reasons to refuse enforcement of the ICC award, and so the Suzhou court ruled to enforce the award, and required the Chinese company should pay Brambill’s enforcement fees.

(In honor of Hong Kong’s Arbitration Week 2015)

One thought on “Result of the “3 nos policy” when Chinese companies arbitrate abroad”

  1. Hope you will follow this matter up the appeal chain and report on the results. Would like to know whether foreign (i.e. non-Chinese) forum selection clauses in contracts, which result in foreign court judgments, are given equal, and uniform, recognition in Chinese courts.

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