Following the Full Federal Court of Australia’s refusal to set aside an arbitral award in favour of Castel in July this year, Castel has sought to enforce the award against TCL in China.
Castel’s enforcement proceedings have not resulted in a payment to date, with TCL seeking to have the enforcement of the award 'reviewed pursuant to Chinese judicial procedure.'
The matter reveals the potential issues companies face in enforcing arbitral awards, even in countries that are signatories to the New York Convention.
In July 2014, the Full Federal Court of Australia handed down its reasons for dismissing TCL Air Conditioner (Zhongshan) Co Ltd’s (TCL’s) appeal from the Court’s decision in Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2), in which the Federal Court refused to set aside an arbitral award in favour of Castel for $3.2 million (plus $700,000 in costs) on the basis of an alleged failure by the arbitrators to accord TCL procedural fairness. We discuss this decision in our previous article.
Following the Full Federal Court’s decision, Castel has sought to enforce the award against TCL’s assets in China, in accordance with the terms of the New York Convention. However, Castel has not yet obtained payment, with TCL’s spokesman commenting that TCL is 'exercising its legal rights under Chinese law to have the enforcement of the award reviewed pursuant to the Chinese judicial procedure.' This has involved TCL seeking a ruling that the international arbitration clause in the Castel-TCL agreement, under which Castel’s arbitral award was made, was invalid. While a Castel spokeswoman commented that TCL’s claim 'has been dismissed by the Chinese courts,' Castel’s enforcement proceedings nonetheless remain before the Zhongshan Intermediate People’s Court. This is so, despite the Guangdong Provincial Higher People’s Court (which is responsible for the province in which Zhongshan is located) having issued a document in which it said it had sought the instructions of the Supreme People’s Court in Beijing, and that the compensation awards should be recognised and enforced by the Zhongshan Court.
The matter reveals the issues involved in enforcing arbitral awards. Where parties do not voluntarily comply with arbitral awards, it is necessary to enforce them. Historically, parties have faced difficulties in enforcing arbitral awards in China, despite China having been a signatory to the New York Convention since 1987 – the process has been protracted and difficult because of the parochial nature of local courts. However, China has taken steps in recent years to improve the process for enforcement of arbitral awards.
Despite not having been successful in obtaining a payment to date, Castel’s founder, Michael Kwong, has commented that Castel continues to do business with other companies in China, and considers TCL’s non-compliance with the Australian judgments to date to be a throwback to earlier times where instances of companies seeking to evade enforcement of arbitral awards were more common, rather than a growing trend.
For further information, please contact Leon Chung, Partner, or your usual Herbert Smith Freehills contact.
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