Abiding by Obligations of Enforcing the Arbitral Award as Prescribed in the New York Convention and Creating a Quality Legal Environment in Pilot Free Trade Zones
--Siemens International Trade (Shanghai) Co., Ltd. v. Shanghai Golden Landmark Co., Ltd. (Case concerning application for recognition and enforcement of a foreign arbitral award)

[Basic Facts]
On September 23, 2005, Shanghai Golden Landmark Co., Ltd. (hereinafter referred to as “Golden Landmark Company”) and Siemens International Trade (Shanghai) Co., Ltd. (hereinafter referred to as “Siemens Company”) concluded a contract on supply of goods by means of invitation for bids. It was stipulated in the contract that Siemens Company should deliver equipment to the construction site before February 15, 2006 and if there was any dispute between the parties, they should submit it to the Singapore International Arbitration Centre for arbitral settlement. During the performance of the contract, the parties had a dispute. Golden Landmark Company initiated arbitration in the Singapore International Arbitration Centre and requested termination of the contract and suspension of payment for goods. In the arbitration procedure, Siemens Company initiated a counterclaim and requested full payment for goods, interest, and compensation for other losses. In November 2011, the Singapore International Arbitration Centre issued an arbitral award, in which the arbitration claims of Golden Landmark Company were dismissed and the arbitration counterclaim of Siemens Company was supported. Golden Landmark Company made a partial payment and it still owed the payment for goods and the interest thereof under the arbitral award, amounting to CNY5,133,872.3. In accordance with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (namely, the New York Convention), Siemens Company instituted a claim in the No. 1 Intermediate People's Court of Shanghai Municipality for recognition and enforcement of the arbitral award issued by the Singapore International Arbitration Centre. Golden Landmark Company contended that: The arbitral award should not be recognized and enforced on the ground that both parties were Chinese legal persons and the place where the contract was performed was also within the territory of China. The civil relationship involved had no foreign-related factors. The agreement between both parties on submitting any dispute to a foreign arbitration institution was invalid. If the arbitral award involved was recognized and enforced, it would violate the public policy of China.

[Adjudication]
Upon level-by-level reports to the Supreme People's Court and obtaining a reply from the Supreme People's Court, the No. 1 Intermediate People's Court of Shanghai Municipality ruled to recognize and enforce the arbitral award involved in accordance with the provisions of the New York Convention. With respect to validity of the arbitration clause that any dispute in this case should be submitted to a foreign arbitration institution for arbitration, the key was to determine whether the contractual relationship in dispute involved any foreign-related factors. If there was any foreign-related factor, the arbitration clause was valid, vise versa. In view of the actual situations of subjects involved in the contract in this case and characteristics of performance of the contract, in accordance with the provisions of item 5 of Article 1 the Interpretation (I) of the Supreme People's Court on Several Issues concerning the Application of the Law of the People's Republic of China on Application of Law for Foreign-Related Civil Relationship, it may be determined that the contractual relationship in dispute was a foreign-related civil legal relationship on the following grounds: First, although both Siemens Company and Golden Landmark Company were Chinese legal persons and the place of registration for both of them was China (Shanghai) Pilot Free Trade Zone, both of them were exclusively foreign-owned enterprises in nature, and both of them were closely related to foreign investors. Second, the characteristics of performance of the contract in this case involved foreign-related factors, the equipment involved was first delivered from a foreign country to the pilot free trade zone for bonded supervision and then the formalities for customs clearance and tax payment were handled at appropriate time according to the needs of performance of the contract. The equipment involved was circulated from the pilot free trade zone to the outside place. At this point, the formalities for import of the goods have been completed. Therefore, the circulation of the subject matter of the contract had some characteristics of international sales of goods. The arbitration clause involved was valid. In addition, there was no conflict between the content of the arbitral award involved and the public policy of China. For this reason, recognition and enforcement of the arbitral award involved did not violate the public policy of China. In the meantime, the ruling also specified that Golden Landmark Company actually participated in all arbitration procedure, claimed that the arbitration clause was valid, and partially performed obligations as determined in the arbitral award after the issuance of such arbitral award. Under such circumstance, the application of Golden Landmark Company for refusing recognition and enforcement of the arbitral award involved on the ground that the arbitration clause was invalid violated the acknowledged legal principles of estoppel, good faith, and justice and reasonableness. Therefore, the claim of Golden Landmark Company should not be supported.

[Significance]
Free trade zones are basic platforms, key nodes, and strategic support for promoting the construction of the “Belt and Road” in China. Integrating with international established practice, giving support to the development of pilot free trade zones, and establishing sound mechanisms for international arbitration and settlement of other non-litigation disputes are conducive to strengthening the international credibility and influence of the Chinese rule of law. Under the background where pilot free trade zones promote the investment and trade facilitation reform, the ruling of this case attached necessary attention to determination of foreign-related factors in contract dispute between exclusively foreign-owned enterprises in the pilot free trade zone, confirmed that the arbitration clause was valid, and explicitly applied “estoppel.” It has practiced the concept of the New York Convention of “in favor of enforcement of the arbitral award” and reflected China's basic standpoint of abiding by obligations as prescribed in international treaties. In the meantime, this case has, from point to surface, promoted the breakthrough reform where enterprises within a pilot free trade zone selected foreign arbitration, which is a successful example of reproducible and propagable judicial experience in pilot free trade zones. In January 2017, the Supreme People's Court issued the Opinions on Providing Judicial Safeguard for the Construction of Pilot Free Trade Zones. The Opinions provided that where exclusively foreign-owned enterprises registered in the pilot free trade zone agreed on extraterritorial arbitration of any commercial disputes, the people's court should not determine that the relevant arbitration agreement was invalid only on the ground that the dispute involved no foreign-related factors; the Opinions also provided that where one party or both parties were foreign-funded enterprises registered in the pilot free trade zone and they agreed on extraterritorial arbitration of commercial disputes, if one party submitted the dispute for extraterritorial arbitration and claimed invalidity of the arbitration agreement after the issuance of the relevant arbitral award or if the other party raised no objection to the arbitration agreement in the arbitration procedure, but it claimed that the arbitration agreement should be invalid after the issuance of the relevant arbitral award on the ground that no foreign-related factors were involved, the people's court should not support such claim. The Opinions of the Supreme People's Court are conducive to building a more stable and predictable business environment ruled by law for the construction of the “Belt and Road.”