First CIETAC HK award enforced in mainland China

On 13 December 2016, the Nanjing Intermediate People's Court of Jiangsu Province (the "Nanjing Court") issued its decision in Ennead Architects International LLP v. Fuli Nanjing Dichan Kaifa Youxian Gongsi (2016) Su 01 RenGang No.1 (the "Decision"). The Decision marks the first time that a Chinese court has enforced a CIETAC Hong Kong Arbitration Center ("CIETAC Hong Kong") arbitral award in mainland China.

Background

In 2015, the claimant, Ennead Architects International LLP ("Ennead"), an American architectural design firm, commenced arbitration proceedings at CIETAC Hong Kong  against a Chinese property developer, Fuli Nanjing Dichan Kaifa Youxian Gongsi (R&F Real Estate Development Co., Ltd. Nanjing) ("R&F"), seeking design fees and unpaid interest pursuant to two property design contracts (the "Contracts").

The hearing took place in Hong Kong on 25 August 2015, and the tribunal issued its final award on 28 November 2015 (the "Award"). The Award found in favour of Ennead, and ordered R&F to pay immediately all of Ennead's design fees and interest owed under the Contracts, as well as to bear liability for all arbitration costs. In compliance with the Award, R&F paid Ennead its design fees and arbitration costs. However, in relation to the interest awarded, it entered into a settlement agreement with Ennead. Pursuant to the terms of the settlement agreement, Ennead agreed to accept the lower sum of RMB 600,000 in full and final settlement of interest due, but on the condition that R&F made payment by 31 May 2016; otherwise, and failing payment within this deadline, Ennead would be able to pursue R&F for the entire amount of the interest owed under the Award, a total of RMB 851,438.59.

R&F failed to make the required interest payment by 31 May 2016. Ennead accordingly brought enforcement proceedings against R&F before the Nanjing Court, seeking to enforce the outstanding interest element of the Award. In response, R&F informed the Nanjing Court that it did not object to the Award, and admitted that it had failed to pay the interest as required by the Award.

In its Decision, the Nanjing Court expressly referred to and relied on the 1999 Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong (the "Arrangement"), and commented that under Article 7 thereof, the enforcing court could deny enforcement where the defendant party adduced evidence of one of the grounds listed in Article 7  (which mirrors Article V of the New York Convention). However, in this case, the Nanjing Court noted R&F had not sought to invoke any of the grounds in Article 7. Instead, it had affirmed its agreement to the terms of the Award, and voluntarily complied with all the orders made, except the payment of interest. The Nanjing Court also found that enforcement of the Award would not contradict the public interests of mainland China, a residual ground for refusing enforcement under Article 7. On this basis, the Nanjing Court ruled to enforce the outstanding interest element of the Award pursuant to Articles 1 and 7 of the Arrangement.

Comment

The Decision marks the first time a CIETAC Hong Kong award has been enforced in mainland China. By establishing a Hong Kong branch in September 2012, CIETAC (which has historically been the arbitration institution of choice in Mainland China for Chinese enterprises) sought to boost its international presence and to allow greater flexibility by allowing China-related disputes with a nexus to Hong Kong to be seated in Hong Kong arbitration and resolved in Hong Kong.

Although the facts of this case are somewhat unusual, in that R&F did not resist enforcement of the Award under the terms of the Arrangement, the Decision nonetheless demonstrates that the Chinese courts recognise the validity of, and are prepared to enforce, awards rendered under the auspices of CIETAC Hong Kong. As a result, it enhances Hong Kong's world-class reputation for international commercial arbitration, and will be welcomed by arbitration practitioners and users considering different institutional options for arbitrations seated in Hong Kong.