In acquisition agreements there is one important provision that fails to draw the attention that it deserves, namely, the provision on the dispute resolution method. According to the author’s experience, in many commercial acquisitions in which disputes arose, the choice of an arbitration institution or a court as the means of dispute resolution was originally made based on a feeling rather than reason. However, whether an effective award rendered by an arbitration institution, or an effective judgment rendered by a court, its realization requires enforcement by a court if the party bearing the obligation of implementing the same fails to do so at its own initiative. This article summarizes the major differences in the course of enforcement.

EXTRATERRITORIAL ENFORCEMENT

With respect to arbitration awards rendered by arbitration institutions, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) was formulated internationally in 1958, with the UK, US, Japan, France, Germany, etc., all being contracting states. China approved accession in 1987. The New York Convention expressly specifies that, “When signing, ratifying or acceding to this convention, or notifying extension under article X hereof, any state may on the basis of reciprocity declare that it will apply the convention to the recognition and enforcement of awards made only in the territory of another contracting state.” That is to say that, as long as the parties select arbitration for the resolution of disputes, an application may be filed in a contracting state for the recognition and enforcement of an effective award rendered by an arbitration institution of the other contracting state.

As for judgments rendered by the courts of different countries, although the Convention on the Recognition and Enforcement of Foreign Judgements in Civil and Commercial Matters was adopted at the Hague Conference on Private International Law in February 1971, to date only a small number of countries have acceded, and China is not a member. The actual effect that it has had is minimal. Currently, the majority of treaties that govern the recognition and enforcement of foreign judgments internationally are bilateral treaties.

For Hong Kong, which has extremely close commercial relations with China, the difference in treatment afforded to the enforcement of arbitration awards and court judgments is quite large. Concerning arbitration awards, in 2000 there was the Arrangement of the Supreme People’s Court Concerning Mutual Enforcement of Arbitration Awards Between the Mainland and the Hong Kong Special Administrative Region which expressly provides that, “Where a party fails to perform an arbitration award rendered on the mainland or in the HKSAR, the other party may apply to the relevant court of the place where the respondent is domiciled or where its property is located for enforcement of the award.” In contrast, regarding court judgments, the Arrangement on the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements Between Concerned Parties implemented from 2008 limits its scope of application: “Where a mainland court or a HKSAR court renders an enforceable final judgment, in a civil or commercial case, governed by a written jurisdiction agreement requiring the payment of an amount, the concerned party may apply to a mainland court or a HKSAR court for recognition and enforcement thereof in accordance herewith.” Court judgments not governed by a choice of court agreement and those not involving the payment of an amount fall outside the scope of those that are enforceable extraterritorially. So extraterritorial enforcement of an arbitration award is more convenient than that of a court judgment, making it easier to realize the concerned party’s rights and interests.

CRIMINAL PUNISHMENT

“Difficulty in enforcement” is a persistent ailment plaguing judicial affairs in China, which has to be resolved by intensive judicial enforcement. This includes pursuing the criminal liability of judgment debtors that have the capacity to implement a judgment or ruling but fail to do so, namely, “If someone has the capacity to implement a judgment or ruling of a people’s court but refuses to do so, he shall, if the circumstances are serious, be sentenced to fixed term imprisonment of not more than three years, criminal detention or a fine” as specified in article 313 of the Criminal Law. This crime has been called the “crime of non-implementation”.

The Interpretation of the Standing Committee of the National People’s Congress of Article 313 of the Criminal Law states that, “The ‘judgment or ruling of a people’s court’ specified in article 313 of the Criminal Law means a lawfully rendered people’s court judgment or ruling that contains enforcement content and that has become legally effective. A ruling rendered by a people’s court for the purpose of lawfully enforcing a payment order, effective mediation statement, arbitration award, notarized creditor claim document, etc., constitutes a ruling as contemplated by said provision.”

Pursuant to the above-mentioned provision, if a judgment debtor with the capacity to implement an arbitration award refuses to do so, the “crime of non-implementation” cannot be directly applied to pursue his or her criminal liability, rather, it is only possible for the judgment debtor to be prosecuted for the “crime of non-implementation” if, after the court has rendered, for the purposes of enforcing the arbitration award, a ruling to take enforcement measures, he or she breaches such ruling.

For example, if a court renders a ruling to place the vehicles or the plant of the judgment debtor under seal, but the judgment debtor ignores the ruling and continues to violate the law, it is only at such time, where he or she has breached the court ruling, that he or she can be found to have committed the “crime of non-implementation”.

concord_qr_codeOn the other hand, if the judgment debtor has not breached the court ruling, there is absolutely no means available to pursue his criminal liability. In contrast, in an effective judgment rendered by a court, if a judgment debtor with the capacity to implement such judgment refuses to do so, then the “crime of non-implementation” can be directly applied to pursue his criminal liability.

From this it can be seen that where extraterritoriality is not involved with respect to property available for enforcement, the enforceability of a court judgment is greater than that of an arbitration award, and is more conducive to the realization of the concerned party’s rights and interests.

Moon Yan is a partner at East & Concord Partners