Wednesday, 11 July 2012

B.C. Court Finds Enforcement of Arbitral Awards in PRC “Irregular”

The B.C. Supreme Court has recently granted a Mareva injunction on the grounds that enforcement of an arbitral award in the People’s Republic of China (“PRC”) could be problematic, in BlueHorizon Energy Inc. v. Ko Yo Development and Guangan Lotusan Natural GasChemical 2012 BCSC 58. 

The case arose out of the plaintiff’s contract with two Chinese defendants to dismantle a methanol and ammonia plant in Kitimat, B.C., for shipment to the PRC.  A dispute arose in the course of dismantling the plant, the agreement was terminated, and the dispute was referred to arbitration.  At this point the plaintiff had performed about three million dollars worth of work, for which it had not been paid, and a further four million dollars of work remained under the contract. The plaintiff brought a motion for a Mareva injunction restraining the defendants from moving parts of the dismantled plant out of Canada, or requiring them to post security, on the grounds that the defendants have no assets in Canada, and enforcement of an arbitral award in the PRC would be problematic (despite the fact the PRC is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards).  Based on expert evidence from a Hong Kong lawyer, the court found that “enforcement of arbitral awards in the PRC is irregular” (para. 47). 

The evidence before the Court regarding enforcement of foreign arbitral awards in the PRC – which consisted of  several articles written by experts in arbitration --  provided some anecdotal evidence of controversial refusals to enforce, but did not clearly show a strong tendency to refuse enforcement, particularly on improper or controversial grounds.  One article said enforcement is sometimes delayed for months or longer.  Another said that Chinese law gives the local courts (which are responsible for enforcement) discretion not to enforce even an award that has been confirmed by the Supreme People’s Court, but no examples of the exercise of this discretionary power were disclosed. 

    There was also an article that surveyed twenty refusals of enforcement between 2000 and 2009 (most but not all of which were awards against Chinese parties) on grounds recognized in the New York Convention or because the limitation period for enforcement had expired.  However, there was no evidence as to the proportion these refusals represent in the total number of foreign arbitral awards presented for enforcement in the PRC, nor was there evidence that such refusals are more common in the PRC than in other countries. 

Another article stated that under Chinese law the public policy exception to enforcement (which in the PRC legislation is referred to as “social and public interest”) may be wider than in other countries.  However, another article showed that the application of this defence to enforcement reflects a pro-enforcement philosophy.

The finding in the Blue Horizon case about enforcement may help those who seek alternatives to enforcement of arbitral awards in the PRC.  However, courts outside B.C. would not likely grant a Mareva injunction on the same facts as in Blue Horizon.  The requirements for a Mareva injunction in B.C. are not as stringent as in other parts of Canada.   B.C. law requires only that the plaintiff present a strong prima facie or arguable case on the merits, and that, having regard for all the circumstances, the granting of the injunction be just and equitable.   Unlike in Ontario, B.C. law does not require evidence of fraud or impropriety. 

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