Turning a blind eye to internationally-awarded interim measures

According to Chapter IV A. Interim measures and preliminary orders of the Model Law, unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party and at any time prior to the issuance of the award by which the dispute is finally decided, order a party to:

a) Maintain or restore the status quo pending determination of the dispute;

b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;

c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or

d) Preserve evidence that may be relevant and material to the resolution of the dispute.

The arbitral tribunal may require the party requesting an interim measure to provide appropriate security in connection with the measure.

An interim measure issued by an arbitral tribunal shall be recognised as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the competent court, irrespective of the country in which it was issued. The only way the interim measure would not be enforced is if the court finds out that there are legal grounds for refusing the recognition or enforcement.

In terms of such legal grounds, the Model Law basically follows the practice of the New York Convention. Besides this, the recognition or enforcement of an interim measure may be refused when the arbitral tribunal's decision, with respect to the provision of security in connection with the interim measure issued by the arbitral tribunal, has not been complied with. The court may also refuse to enforce the interim measure if it is incompatible with the powers conferred upon the court, unless the court decides to reformulate the interim measure to the extent necessary to adapt it without modifying its substance.

On the other hand, a court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether its place is in the territory of this state, as it has in relation to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration.

Although the United National Commission on International Trade Law (Uncitral) has shown its positive attitude towards the recognition and enforcement of interim measures, according to the adoption status updated on its official website, the Model Law has not yet been adopted worldwide and the judicial practice varies a lot in different jurisdictions.

Judicial practice in mainland China

Presently, the application of recognition and enforcement of international arbitral awards in China is governed by the PRC Arbitration Law (中华人民共和国仲裁法), the relevant judicial interpretations issued by PRC Supreme Court, the New York Convention and relevant articles in the PRC Civil Procedure Law (中华人民共和国民事诉讼法).

Under the New York Convention, an award must “become binding on the parties” in order for it to be recognised and enforced. Thus, the first question to be solved is to find out whether “interim measures” would be considered “binding” in Chinese jurisdiction.

According to Article 55 of the PRC Arbitration Law, during the arbitration proceedings, where part of the facts has been proved clear, the arbitral tribunal may issue an interlocutory award in relation to that part. However, the content of such an interlocutory award is specified by neither PRC Arbitration Law nor Supreme Court interpretations. The Cietac Arbitration Rules (the Rules), the most articulated arbitration rules in Mainland China, provides that “an interim award or partial award may be made by the arbitral tribunal on any issue of the case at any time during the arbitration before the final award is made if considered necessary by the arbitral tribunal, or if the parties request and the arbitral tribunal accepts”.

Based on the common practice of arbitration tribunals, it is understood that the “interlocutory award” provided by PRC Arbitration Law is actually the “partial award” provided by the Rules. Besides, the “interim awards” provided by the Rules include many provisional remedies, such as maintaining or restoring the status quo, similar to “interim measures”. So, to some extent, the interim measures and the provisional remedies granted by the interim awards may be considered the same.

According to the common understanding of arbitral awards in mainland China, the partial awards basically cover substantive law issues while the interim awards are mainly concerned with procedural law issues. There are no mandatory laws providing any enforceability of the interim awards. It is clearly expressed in the Rules that “neither party's failure to perform the interim award will affect the continuation of the arbitration proceedings, nor will it prevent the arbitral tribunal from making a final award”. Based on the above, the enforcement of interim awards may be very uncertain by China's domestic court.

Another notable problem is the common practice that international arbitrators may issue an order rather than an award to grant interim measures. For instance, Article 23 of the Arbitration Rules of the International Chamber of Commerce provides that “……Any such measure shall take the form of an order, giving reasons, or of an Award, as the Arbitral Tribunal considers appropriate”.

Whether or not the interim measures issued by international arbitrators in the form of an order rather than an award will be recognised and enforced depends on the legal doctrines adopted by different countries. For instance, according to Article 36.470 of the Oregon International Commercial Arbitration and Conciliation Act, “any party to arbitration may request from the circuit court the enforcement of an order of an arbitral tribunal granting an interim measure of protection”. However, since there are no relevant provisions regarding such “arbitral order” in Mainland China, it is understood that it is not likely to be recognised.

Moreover, according to Article V of the New York Convention, the recognition and enforcement of an arbitral award may be refused if the court finds that the subject matter of the difference is not capable of settlement by arbitration under the law of the country where the recognition and enforcement is sought.

In mainland China, disputes over marriage, adoption, guardianship, child maintenance, inheritance and administrative disputes falling within the jurisdiction of the relevant administrative organs shall not be decided by arbitration. Apart from these substantive law issues, the PRC Arbitration Law also provides that the parties may submit the application of property preservation or evidence preservation to the arbitral tribunal during the arbitration proceedings, then the arbitration committee shall transfer such application to the competent court.

It is understood that the above-listed substantive law issues are obviously not arbitrable, but, should those procedural law issues also be characterised as “not capable of settlement by arbitration”? Even if the property preservation or evidence preservation was “not capable of settlement by arbitration”, how about the other interim measures such as injunctive relief or replevin? The current provisions are vague. Professor Zhao, Xiuwen from Renmin University, believes all interim measures are not enforceable since PRC Arbitration Law has not granted any such authority to the arbitral tribunals.

Since it is next to impossible for the award on interim measures issued by international arbitral tribunals to be recognised and enforced in mainland China, then the question is that: is it practical for international arbitral tribunals to transfer to, or could the parties directly submit the applications of interim measures (the applications) to China's domestic courts? The answer should be no.

First of all, there are no rules on transferring the applications to the courts in the arbitration rules of many international arbitration institutions. Moreover, it is stated by both the Model Law and many arbitration rules, such as the Arbitration Rules of International Chamber of Commerce, that it is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure. That is to say, the parties may submit the applications directly to competent courts and it is not necessary for the arbitral tribunals to be involved. When the parties choose to submit such applications to the arbitral tribunals, the tribunals shall enjoy the discretion.

Secondly, while PRC Arbitration Law requires China's domestic arbitral tribunals to transfer the applications of property preservation or evidence preservation to the courts, other jurisdictions may not have such requirements, thus the international tribunals may have no grounds to transfer the applications. For instance, the Swiss law provides that the arbitral tribunals may seek assistance from the court when the parties fail to perform the interim measures, but it does not require the tribunals to transfer the applications.

Even if the international arbitral tribunals intend to transfer the applications to China's domestic courts, the courts probably will not accept them. The underlying reason is that the courts must have some procedure basis to accept and hear the case. However, since the PRC Arbitration Law only governs domestic but not international arbitral tribunals, the “transfer rules” cannot be applied. Furthermore, there is a limited category of interim measures provided by PRC Civil Procedure Law; if the interim measures applied for exceeds such category, the courts will not have any legal basis to make the judgments.

On the other hand, although it is stated by both the Model Law and many arbitration rules that the parties may request an interim measure of protection from the court, the hurdles for doing this cannot be surpassed due to the existence of the arbitration agreement. So any pre-lawsuit applications or applications after the lawsuit gets initiated on interim measures will not be entertained because the parties cannot bring the case to court trial because of the arbitration agreement.

Based on the above, the interim measures issued by international arbitral tribunals could not be enforced in mainland China, and, it is also impossible for international arbitral tribunals to transfer or for the parties to directly submit the applications of interim measures to China's domestic courts. Therefore, it might be advisable for foreign investors to choose Chinese domestic arbitration commissions instead of international ones if the provisional orders of property preservation or evidence preservation are considered essentially necessary in foreseeable possible disputes.

Harry Liu and Li Yi, King & Wood, Shanghai