Faced with the challenge of being unable to recognize a Hong Kong arbitral award due to the respondent having no domicile or assets in the Mainland, Zhenghan Law Firm represented the applicant in advocating that Mainland courts should expand the application of judicial review rules for foreign-related arbitration. Ultimately, the Shanghai No. 1 Intermediate People’s Court (Shanghai International Commercial Court) provided a breakthrough recognition of the arbitral award made by the Hong Kong International Arbitration Centre (HKIAC), providing a useful reference for similar cross-border dispute cases.
I. Case Background
As a state-owned enterprise, the client invested in and held a Cayman company through an offshore structure, indirectly holding physical operating assets located in the Mainland. Due to a dispute between the client and another shareholder, Company Z, Company Z and others initiated arbitration at the Hong Kong International Arbitration Centre (HKIAC), alleging that the client breached the shareholders’ agreement.
During the Hong Kong arbitration stage, Zhenghan Law Firm, as part of the legal counsel team (in collaboration with Clifford Chance and a Hong Kong Senior Counsel), helped the client achieve a complete victory. The arbitral award dismissed all arbitration claims by the minority shareholder and ordered Company Z and others to bear arbitration costs amounting to tens of millions of US dollars.
II. Case Difficulties: Jurisdictional Dilemma in the Recognition of Hong Kong Arbitral Awards
Out of strategic considerations for the overall dispute, after obtaining the Hong Kong arbitral award, Zhenghan Law Firm applied to a Mainland court on behalf of the client for recognition of the award. However, since Company Z and others are offshore entities and have no enforceable assets in Mainland China, if Article 2 of the “Arrangement of the Supreme People’s Court on Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region” (hereinafter referred to as the “Arrangement”)—which stipulates jurisdiction by the Intermediate People’s Court of the place where the respondent is domiciled or where the property is located—were simply followed, the Mainland court would have no jurisdiction over this case.
In response to the aforementioned jurisdictional dilemma, Zhenghan Law Firm noted that Article 304 of the “Civil Procedure Law of the People’s Republic of China” amended in 2023 (hereinafter referred to as the “Civil Procedure Law”) expanded the jurisdictional courts for the recognition and enforcement of foreign arbitral awards. It added that if the place of the person against whom enforcement is sought or their property is not within the territory, an application may be made to the Intermediate People’s Court of the applicant’s domicile or a place with an appropriate connection to the award dispute. Based on this, it was proposed that expanded application should be granted:
1. Article 21 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Trial of Judicial Review of Arbitration Cases” clarifies that cases involving the review of arbitration in the Hong Kong SAR shall be handled by reference to the provisions for judicial review of foreign-related arbitration cases. Therefore, there is a legal basis for the expanded application of Article 304 of the “Civil Procedure Law” in this case.
2. The “Arrangement” was promulgated in 2000, and its early release means that the jurisdictional court provisions under the “Arrangement” have become disconnected from the latest judicial trends and the “Civil Procedure Law.” As pointed out in the Understanding and Application of Article 304 of the “Civil Procedure Law”: “In recent judicial practice, situations have arisen where neither the respondent’s domicile nor the property’s location is within our territory, and the applicant does not apply for the enforcement of a foreign arbitral award but only for its recognition. Additionally, some arbitral awards do not involve monetary payments, and while the domicile of the person against whom enforcement is sought or their property is not within our territory, the award involves the interests of Chinese citizens, legal persons, and unincorporated organizations, and China also has an obligation to recognize it in accordance with international treaties.” Therefore, judicial practice should promptly respond to the current more open and supportive attitude toward the recognition and enforcement of arbitral awards.
3. Although Company Z and others are offshore entities involved in an offshore holding structure, the dispute in question essentially points to the operation and governance of the Mainland operating entity. The clear findings made in the Hong Kong arbitral award play an important role in stabilizing the existing operation and management model of the Mainland operating entity and preventing potential internal disputes. Therefore, whether from the perspective of settling disputes and efficiently resolving cross-border conflicts, or from the perspective of maximizing the convenience of relief for the parties and maintaining the continuous and stable operation of the Mainland operating entity, the Mainland court should exercise jurisdiction and recognize the Hong Kong arbitral award.
Ultimately, based on Article 21 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Trial of Judicial Review of Arbitration Cases” and Article 549 of the “Interpretation of the Supreme People’s Court on the Application of the <Civil Procedure Law of the People’s Republic of China>,” the court held that the review could be conducted by reference to the provisions for judicial review of foreign-related arbitration cases and confirmed its jurisdiction. After review, the court found no grounds for refusing recognition and thus ruled to recognize the Hong Kong arbitral award.
III. Significance of the Case
This case achieves a closed loop for cross-border dispute resolution, moving from a substantive victory in Hong Kong arbitration to the procedural implementation of award recognition in the Mainland. For situations where the respondent is an offshore company with no domicile or assets in the Mainland and lacks traditional Mainland jurisdictional connecting points, this case provides groundbreaking ideas for expanded application and practical experience, offering a path that can be followed for the recognition of arbitral awards in similar cross-border commercial disputes.