Recent examples of recognition and enforcement of Chinese arbitral awards in Russia
The international commercial arbitration in China continues to grow. The official statistics from the most prominent arbitration institutions in mainland China and Hong Kong show a substantial increase in the number of international arbitration disputes (as well as domestic arbitrations).
For example, the China International Economic and Trade Arbitration Commission (CIETAC) handled 1,968 cases in 2015 and 3,615 cases in 2020; thus, the increase is equal to 85%.[1]At the same time, the number of cases handled by CIETAC involving both claimants and respondents who are not resident in China raised by almost 24%.
Economic relations between China and Russia are very active: China is the largest trading partner for Russia, and Russia is an important trading partner for China as well. However, surprisingly, Russian courts do not often hear cases on recognition and enforcement of foreign arbitral awards rendered by arbitral tribunals seated in China.
In 2019 – 2022, our Russian law firm – Nektorov, Saveliev and Partners (NSP) represented:
1) two companies of Zoomlion group (China) in three cases on recognition and enforcement of CIETAC arbitral awards; in this case, we succeeded at the Supreme Court of the Russian Federation;[2]and
2) Zhefu Holding Group Co, LTD (Zhefu) in a case on recognition and enforcement of an arbitral award rendered by the Beijing Arbitration Commission (BAC); notably, this case is the first and, so far, the only case in Russia of recognition and enforcement of a BAC award.
Thus, we would like to share our experience with readers in this article.
Zhefu is a Chinese supplier of hydraulic power equipment. The BAC arbitration concerned a dispute between Zhefu and OOO Elektrostroy Sirius, a Russian company, on the collection of a debt under a hydro-power equipment supply contract. Under this contract, Zhefu was obliged to supply certain equipment for the construction of a small hydroelectric station in Zaragizh settlement, the Kabardino-Balkar Republic, Russia, and to supervise the installation and commissioning of that equipment.
The total contract price was equal to 240 million rubles, of which only 50% was paid to Zhefu by its Russian customer. The latter refused to pay the remaining amount, claiming that the equipment was of improper quality.
In the course of the arbitration Zhefu (represented by King & Wood Mallesons, Beijing office) successfully proved that the equipment was delivered in accordance with the terms of the contract, and the supervision and commissioning works were performed in full; hence, the buyer shall pay their price in full.
BAC correctly evaluated the evidence. In particular, the arbitrators did not take a formal approach and accepted the protocols of complex testing and acceptance of equipment as proper evidence of contract performance, as well as the publication on the website of the end customer of news about the start of operation of its Small Hydroelectric Station, equipped with goods supplied by our client – Zhefu.
Eventually, on 22 April 2020, the BAC arbitral tribunal granted Zhefu’s request for arbitration and ordered the buyer to pay to the claimant the principal debt amount (122 million rubles), penalties and arbitration costs.
However, the buyer did not pay under the arbitral award voluntarily. That is why Zhefu (represented in Russia by NSP) filed its application for recognition and enforcement of the BAC award. The application was filed with the Arbitrazh Court of Amur Region (case No. A04-8942/2021).
The Russian court assessed whether the respondent had been duly notified of the BAC arbitration proceedings. The Russian court correctly stated, with reference to the legal findings of the Supreme Court of the Russian Federation in the Zoomlion case (above): the fact that notice had been sent to the address indicated by the respondent in the contract constitutes a proper notification of the party.[3]All notifications in the BAC arbitration proceedings had been sent by DHL. Moreover, the Russian court took into account the fact that during the BAC arbitration the respondent sent a reply (although in Russian, whereas the arbitration was conducted in Chinese) to Zhefu’s request for arbitration. This fact additionally demonstrates that the respondent had been duly notified about the ongoing arbitration.
As a result, in January 2022, the Russian court granted Zhefu’s application for recognition and enforcement of the BAC arbitral award in full.[4]This ruling of the Russian court has entered into force; thus, the BAC award can now be enforced in Russia.
It should be noted that the trade turnover between Russia and China is growing steadily.[5]Therefore, we believe that the number of cases handled by Chinese arbitration institutions, in particular the BAC, the HKIAC, and the CIETAC will increase. We hope that the Zoomlion and the Zhefu cases will serve as good recent examples for Russian courts in further cases on recognition and enforcement of arbitral awards originating in China.
Aram Grigoryan, Associate
Ilia Rachkov, Partner, MCIArb
Nektorov, Saveliev & Partners, Moscow
[1]Statistics are available on the official CIETAC website: http://www.cietac.org/index.php?m=Page&a=index&id=40&l=en.
[2]Recognition and Enforcement of the CIETAC awards in Russia // Arbitration in China. No. 8 (12), 2019 (in Russian).
[3]Paragraph 17 of the Review of cases related to the functions of assistance and control in respect of arbitration courts and international commercial arbitrations approved by the Presidium of the Supreme Court of the Russian Federation, dated 26 December 2018.
[4]Ruling of the Arbitrazh Court of Amur Regionin case No. А04-8942/2021,dated 29 December 2021.
[5]URL: https://tass.ru/ekonomika/13424783.