Supreme Court Prior Reporting Procedure in Foreign Arbitral Annulment Proceedings
Intermediate courts cannot set aside foreign-related awards without written Supreme People Court concurrence, creating a mandatory multi-tiered judicial review stay.
Non-Foreign Element Arbitration
Meaning
Dispute resolution proceedings between two domestic entities without any connection to a foreign jurisdiction follow specific rules regarding the choice of forum. Non-foreign element arbitration refers to cases where the parties, the subject matter, and the legal facts are all situated within the same country. In the Chinese legal system, the distinction between foreign related and domestic cases is significant for the validity of the arbitration agreement.
The boundary of the term is the presence of any factor that would link the case to another country, such as a foreign party, a foreign object of the dispute, or a legal event occurring abroad. For a long time, the Supreme People’s Court maintained that two domestic companies could not choose an offshore arbitration center like the ICC or SIAC for a domestic dispute. This was based on the idea that domestic disputes should be resolved by domestic courts or domestic arbitration commissions.
This rule prevents the bypassing of the local judicial system in purely internal matters.
Jurisdictional Limit
Restrictions on the freedom of contract for domestic parties ensure that the local arbitration industry is protected and regulated. The non-foreign element arbitration rule means that if two Chinese companies sign a contract to be performed in China, they must use a local arbitration body. Any clause in their contract that points to an overseas tribunal will be found invalid by a Chinese court.
This has been a major point of contention for wholly foreign owned enterprises, which are legally Chinese entities despite their foreign ownership. If two such enterprises have a dispute, they are treated as domestic parties and must follow the domestic rules. The only exception is if the dispute involves goods or rights that are located outside the country.
This jurisdictional limit is strictly enforced to maintain the sovereignty of the domestic legal system over internal commercial affairs.
Legal Framework
Statutory provisions in the Arbitration Law and various judicial interpretations provide the structure for resolving domestic disputes. Non-foreign element arbitration is governed by the same basic principles as other cases, such as the finality of the award and the requirement for a written agreement. However, the grounds for setting aside an award are often broader for domestic cases than for foreign related ones.
Courts can look into the merits of a domestic award in more detail, including whether there was a lack of evidence or a misapplication of the law. This provides a higher level of judicial oversight for domestic proceedings. The domestic arbitration commissions, such as CIETAC or the Beijing Arbitration Commission, have developed specific sets of rules to handle these cases efficiently.
These rules emphasize the speed of the process and the expertise of the arbitrators in local industry practices.
Award Enforcement
Converting a successful tribunal decision into a tangible recovery of assets depends on the cooperation of the local courts. In non-foreign element arbitration, the winning party must apply to the intermediate people’s court in the place where the losing party is located or where the property is situated. The court will review the award to ensure it meets the procedural requirements of the law.
Because the case has no foreign element, the court does not have to worry about international treaties like the New York Convention. Instead, it follows the domestic Civil Procedure Law. If the court finds a procedural error or a violation of public interest, it can refuse to enforce the award.
This domestic enforcement process is generally straightforward but can be complicated by local protectionism if the losing party is a major employer in the region. The finality of the award is a key advantage, as it cannot be appealed to a higher court once the enforcement order is issued.