You have two options: to apply for setting aside the arbitral award, or to apply for non-enforcement of the arbitral award.
Pursuant to Article 57 of the PRC Arbitration Law, the arbitral award shall be legally effective from the date on which it is made.
So, what are the available remedies for the party who is unsatisfied with the arbitral award?
There are two major remedies: one is to apply to the court for setting aside the arbitral award, and the other is to apply to the court for non-enforcement of the arbitral award.
1. How to apply for setting aside an arbitral award?
The arbitral award cannot be set aside by the arbitration commission internally in a similar way to the internal supervision of court decisions, but can only be set aside by the court.
In accordance with Article 58 of the Arbitration Law, a party may apply for setting aside an arbitral award to the intermediate people’s court in the place where the arbitration commission is located if he/she can produce evidence to prove that the arbitral award involves one of the following circumstances:
(1) there is no arbitration agreement;
(2) the matters decided in the award exceed the scope of the arbitration agreement or are beyond the arbitral authority of the arbitration commission;
(3) the formation of the arbitral tribunal or the arbitration procedure is not in conformity with the statutory procedures;
(4) the evidence on which the award is based was forged;
(5) the other party has withheld the evidence which is sufficient to affect the impartiality of the arbitration; or
(6) the arbitrators have solicited, or accepted bribes or engaged in malpractices for personal benefits or perverted the law when rendering the award.
The court shall rule to set aside the arbitral award if the court verifies upon examination that the award involves one of the circumstances set forth in the preceding paragraph.
In addition, where the court holds that the award goes against the social and public interests, it shall rule to set aside the award.
The party concerned has no right to appeal against the ruling made by the court in accordance with the law on setting aside the arbitral award or dismissing the application of the party concerned.
However, it is worth noting that, in practice, the success rate in setting aside an arbitral award is very low. There have been very few cases in which Chinese courts ruled to set aside an arbitral award so far.
2. Application for non-enforcement of an arbitral award
If the application for setting aside the arbitral award is “an active attack” of the unsatisfied party, the application for non-enforcement of the arbitral award may amount to “passive defense”.
In accordance with Article 237 of the PRC Civil Procedure Law (CPL), where a party fails to perform an arbitral award, the other party may apply for enforcement to the competent court. The court to which an application is made shall enforce the award. Where the party against whom the application is made produces evidence that the arbitral award falls under specific circumstances, after examination and verification by a collegiate panel formed by the court, non-enforcement of an arbitral award shall be ruled.
It should be noted that the circumstances under which a court will rule to refuse to enforce an arbitral award are almost the same as the six circumstances above where an arbitral award will be set aside.
More importantly, if a court intends to set aside or to refuse to enforce an arbitral award, it shall submit the ruling to the court at the next higher level, i.e., a high people’s court, for approval. If it involves a foreign-related arbitral award, it shall be reported to China’s Supreme People’s Court (SPC) for final approval.
Such mechanism is designed to restrain local courts to set aside or to refuse to enforce the arbitral award, which means that it will be difficult for a higher court to agree on setting aside the arbitral award.
If the court rules not to enforce the arbitration award, the parties may apply for arbitration again based on the written arbitration agreement reached between the parties, or file a lawsuit with a court.
That being said, however, in practice, it is also uncommon for a court to rule to refuse to enforce an arbitral award.
Chinese courts support the pro-arbitration trend. Therefore, the judicial review of arbitral awards is conducted mainly in terms of formalities, which means that it will be very difficult for the parties to get the arbitral award altered or reversed.
Contributors: Guodong Du 杜国栋