Key takeaways:
- In a recent case involving the enforcement of a foreign arbitral award, the Shanghai Maritime Court confirmed its jurisdiction over an offshore company respondent with its principal place of business in China (see Oriental Prime Shipping Co. Limited v. Hong Glory International Shipping Company Limited (2020) Hu 72 Xie Wai Ren No.1).
- Under Chinese law, the place of the respondent’s domicile and the place of its property are the two connecting factors for determining the jurisdiction in cases of recognition and enforcement of foreign arbitral awards.
- Following confirmation of its jurisdiction by the Shanghai High People's Court, the Shanghai Maritime Court issued a ruling on 26 Feb. 2021, granting recognition and enforcement of the LMAA arbitral award.
In the case of Oriental Prime Shipping Co. Limited v. Hong Glory International Shipping Company Limited (2020) Hu 72 Xie Wai Ren No.1 ((2020)沪72协外认1号), the Shanghai Maritime Court held that where the respondent, an offshore company, has its principal place of business in China, the Chinese court has the jurisdiction over cases concerning the recognition and enforcement of foreign arbitral awards under the New York Convention.
In recent years, it has been increasingly common for respondents to be registered outside of China while their principal personnel and business operations are located within China. This has led to a growing number of jurisdictional issues concerning the recognition and enforcement of arbitral awards in China. This case may illustrate the attitude of Chinese courts towards this matter.
Ⅰ. Case overview
The claimant is Oriental Prime Shipping Co. Limited, a company registered in the British Virgin Islands, and the respondent is Hong Glory International Shipping Company Limited, a company registered in the Republic of the Marshall Islands.
On 21 Sept. 2018, the claimant and the respondent entered into a charterparty, which provided that any dispute between the parties would be settled by arbitration before the London Maritime Arbitrators Association (LMAA).
Subsequently, a dispute arose between the parties regarding the performance of the charter contract, and the claimant applied to the LMAA for arbitration.
On 10 Oct. 2019, an arbitral tribunal composed of arbitrators Charles Baker and Stuart Fitzpatrick issued a final award, ruling that the respondent should pay the claimant a rent of USD 90,790.28, along with relevant expenses and interest.
On 1 Apr. 2020, the claimant applied to the Shanghai Maritime Court for recognition and enforcement of the arbitral award.
To contest the court’s jurisdiction, the respondent argued that the claimant had no right to apply to the Chinese court for recognition and enforcement of the arbitral award, because it was incorporated in the Republic of the Marshall Islands and had no principal place of business or any property in China,.
On 13 July 2020, the Shanghai Maritime Court ruled on the matter and dismissed its objection to the jurisdiction. Thereafter, the respondent appealed the court’s decision to the Shanghai High People’s Court.
On 21 Jan. 2021, the Shanghai High People’s Court issued a final ruling (2020) Hu Min Xia Zhong No. 110 ((2020)沪民辖终110号), upholding the trial court’s decision.
The Shanghai High People’s Court reasoned that: (1) the arbitration award expressly indicated that the respondent was “carrying out business in Shanghai, China”; (2) the charter confirmation letter entered into by the claimant and the respondent during the transaction also expressly records that the respondent’s address was Room 1203, 12th Floor, Ruifeng International Building, No. XXX, Yangshupu Road, Shanghai, China.
Accordingly, the Shanghai High People’s Court held that the respondent’s principal place of business was located in Shanghai, China. Under Chinese law, a legal person or other organization is domiciled where its principal place of business is located, i.e. the respondent’s domicile is in Shanghai. Therefore, the Shanghai Maritime Court had jurisdiction over the case.
Following confirmation of its jurisdiction by the Shanghai High People's Court, the Shanghai Maritime Court issued a ruling on 26 Feb. 2021, granting recognition and enforcement of the LMAA arbitral award.
Ⅱ. Court views
The Shanghai Maritime Court has published on its website an article written by Judge Qiu Hao (邱浩) on this case, titled “Determination of Court Jurisdiction in Cases Involving Offshore Companies under the New York Convention” (纽约公约项下涉离岸公司案件的法院管辖权确定). In the article, Judge Qiu Hao expressed his views on the case.
We present his views as follows:
1. Jurisdiction rules for the recognition and enforcement of arbitral awards
(1)New York Convention
The New York Convention itself does not contain a uniform rule on the jurisdiction of the courts for the recognition and enforcement of arbitral awards. According to Article 3 of the Convention, jurisdiction for the recognition and enforcement of arbitral awards shall be determined in accordance with the procedural law of the forum (the country where the court is located). Therefore, the governing law of the jurisdictional rules is Chinese law.
(2) Chinese legal framework
In the year following China’s accession to the New York Convention, China’s Supreme People’s Court (SPC) issued the “Notice on Implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Acceded to by China” (关于执行我国加入的〈承认及执行外国仲裁裁决公约〉的通知), which provided that courts in the following locations shall have jurisdiction: “......2. the place of its principal place of business, where the award debtor is a legal person; 3. the place of its property, where the award debtor has no domicile, residence or principal place of business in China but has property in the territory of China.”
The Chinese Civil Procedure Law and the Special Maritime Procedure Law (海事诉讼特别程序法) further confirm that the place of the respondent’s domicile and the place of its property are the two connecting factors for determining the jurisdiction in cases of recognition and enforcement of foreign arbitral awards.
In addition, if neither the place of the respondent’s domicile nor the place of its property is located in China’s mainland, in accordance with the SPC’s “Provisions on Several Issues Concerning the Trial of Judicial Review of Arbitration Cases” (最高人民法院关于审理仲裁司法审查案件若干问题的规定), as long as there is a connection between the foreign arbitral award and the case pending in the court, the seized court may also have jurisdiction over the case involving the recognition of the foreign arbitral award.
2. Determining the location of the principal place of business
If the registered address is inconsistent with the location of the principal place of business, how will the courts determine the location of the principal place of business?
Judge Qiu Hao held that the parties can provide evidence from the following aspects: (1) documents issued by official institutions; (2) lease contracts, as well as payment receipts and invoices for rent, property management fees, and water and electricity fees; (3) tax payment receipts; (4) addresses recorded in business contracts and business cards of company employees, and addresses stated in public websites, emails, or promotional materials; and (5) on-site investigations.
3. The particularity of offshore companies
Judge Qiu Hao further held that if the respondent is an offshore company registered overseas, the Chinese courts could have a lower standard in determining the location of its principal place of business.
The standard that ought to be applied by the Chinese courts is that it is sufficient if there is evidence of a certain degree of connection between the place of the court and the respondent.
This is because appropriately lowering the standards for determining the place of the principal place of business of offshore companies may prevent the offshore companies operating in China from evading legal supervision and disrupting the fair trade environment in the market through their status as foreign companies.
Contributors: Meng Yu 余萌
