Possible Available Recourses For A US Registered Company Outraged By A Chinese Arbitration Commission’s Award China

Question:

Dear Mr. Wang:

We are a company registered in New York, USA. Our company and a company registered in Mainland China signed a purchase contract in 2000. Both parties agreed that the Chinese company is to sell a machine to our company at a fixed price. But the machine sold to us is non-functional. It does not run, it never ran. Therefore, our company refused to pay the rest of the price of the machine. The Chinese company applied for arbitration to a Chinese Arbitration Commission in Beijing in March 2009. The Arbitration Commission issued a arbitral award in December 2009 and ruled that our company shall pay the Chinese company the rest of the price and related loss. We are outraged by the decision of the arbitrators. Please advise what recourse is available to our company.

Thank you,

Frank

January 15, 2010

By Mr. Wang Xuanjun, Attorney at Law, Yingke Law Firm, Beijing, China

Dear Sir,

As per the information mentioned by you, I think that there are many available recourses to your company, followings are some possible available recourses:

I. Your company may apply for cancellation of the Arbitral Award.

Since your company did not accept the Arbitral Award, your company may apply for cancellation of the Arbitral Award with following main conditions:

1. The application by your company shall be submitted to the intermediate People’s court in Beijing at the place where the Chinese arbitration commission resides, according to the provision by Article 58 of Arbitration Law of the People’s Republic of China;

2. Your company shall provide evidences to substantiate one or more of followings, according to the provision by Article70 of Arbitration Law of the People’s Republic of China and byArticle 258 of the Civil Procedure Law of the People’s Republic of China:

(1) The parties (your company and the Chinese company) have not stipulated any clause regarding arbitration in the contract between the parties or have not subsequently reached a written agreement on arbitration;

(2) The respondent (your company) is not duly notified of the appointment of the arbitrators or the arbitration proceeding, or the respondent fails to express his defense due to the reasons for which he is not held responsible;

(3) The formation of the arbitration panel or the arbitration procedure is not in conformity with rules of arbitration; or

(4) The matters decided by arbitration exceed the scope of the arbitration agreement or the authority of the arbitration institution.

If your company provides evidence to prove that the arbitral award made by the Chinese arbitration commission involves any of the above circumstances, the People’s court in mainland China shall, after examination and verification by a collegial bench, rule to cancel the Arbitral Award:

3. The application by your company shall be submitted within 6 months after the date on which your company received the Arbitral Award, according to the provision by Article 59 of Arbitration Law of the People’s Republic of China. If your company decides to apply for cancellation of the Award, the application shall be submitted as early as possible.

II. Your company may apply for non-performance of the arbitral award to the People’s court, if the Chinese company applies for the enforcement of the Award to related People’s court in mainland China where the Chinese company found your company's property in mainland China.

When your company applies for non-performance of the arbitral award to the People’s court, your company shall provide evidences to substantiate one or more of followings, according to the provisions by Article 71 of Arbitration Law of the People’s Republic of China and by Article 258 of the Civil Procedure Law of People’s Republic of China:

(1) The parties have not stipulated any clause regarding arbitration in the contract between the parties or have not subsequently reached a written agreement on arbitration;

(2) The respondent is not duly notified of the appointment of the arbitrators or the arbitration proceeding, or the respondent fails to express his defense due to the reasons for which he is not held responsible;

(3) The formation of the arbitration panel or the arbitration procedure is not in conformity with rules of arbitration; or

(4) The matters decided by arbitration exceed the scope of the arbitration agreement or the authority of the arbitration institution.

If your company provides evidence to prove that the arbitral award made by the Chinese arbitration commission involves any of the above circumstances, the People’s court shall, after examination and verification by a collegial bench, order non-performance of the award.

III. Your company may apply for non-performance of the arbitral award to the competent authority, if the Chinese company applies for recognition and enforcement of the Award to competent authority in USA or other country where the Chinese company found your company's property, according to Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention1958) or according to other related treaty.

China and USA are all member countries of New York Convention 1958. It is quite possible for the Chinese company to apply for recognition and enforcement of the Award to competent authority in USA where your company is registered and your company’s property locates.If the Chinese company applies for the enforcement of the Award to competent authority in USA, your company may apply for non-performance of the Award according to provision by Article V of New York Convention 1958 or according to provision by related laws of USA ( which I am sure you can find).

For your reference, please find provision by Article V of New York Convention 1958 as follows:

《Convention on the Recognition and Enforcement of Foreign Arbitral Awards 》

"Article V

（1）Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

(2) Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public policy of that country."