On 7 June 2022, the Supreme People’s Court published 10 national classic maritime cases from 2021. Of these 10 cases, one recognised and enforced a London Maritime Arbitrators Association (LMAA) arbitral award against an offshore company registered in the Marshall Islands. This indicates Chinese courts’ determination to honour international conventions and show a more open and friendly attitude to recognise and enforce foreign arbitral awards.
On 21 September 2018, the owner (the applicant) and the charterer (the respondent) signed a time charter party, which stipulated that all disputes would be submitted to arbitration in London, in accordance with English law and LMAA terms.
After a dispute arose over the performance of the charter party, the applicant resorted to arbitration of the LMAA. Later, on 10 October 2019, two arbitrators appointed by the applicant and the respondent respectively reached mutual consent and entered the final arbitral award without a third arbitrator, as permitted by applicable laws and rules.
The LMAA arbitral award stated the following:
- The applicant was entitled to the full amount that it claimed and to the corresponding interests.
- All the respondent’s counterclaims were dismissed.
- The respondent would bear its own costs, as well as the applicant’s subsequent costs in relevance with the award according to English Arbitration Act 1996. The tribunal reserved the right to adjudicate disputes over such costs.
- The respondent would bear all arbitration costs and, if the applicant paid these costs first, the applicant was entitled to indemnification from the respondent with corresponding interests.
- The award, signed and issued in two originals, was the final award on all disputed matters and the tribunal reserves jurisdiction over the outstanding matters between the parties.
Since the time that the two parties were served with the arbitral award, the respondent had not yet fulfilled its obligations under the arbitral award. Therefore, the applicant applied to Shanghai Maritime Court for recognition and enforcement of the arbitral award against the respondent.
Jurisdiction challenge
In this case, the respondent raised a jurisdiction challenge to Shanghai Maritime Court arguing that, as it was a foreign company registered in the Marshall Islands, it had neither set up its principal place of business, nor had any property in China. Therefore, the Chinese court had no jurisdiction over the case according to article 11 of Special Maritime Procedure Law of China:
Article 11 of Special Maritime Procedure Law of the PRC:
When the parties apply for enforcement of maritime arbitral award, apply for recognition and enforcement of a judgement or written order of a foreign court and foreign maritime arbitral award, an application shall be filed with the maritime court of the place where the property subjected to execution or of the place where the person subjected to execution has its domicile.
However, the jurisdiction challenge was dismissed by both Shanghai Maritime Court and Shanghai High People’s Court.
The Court held that, although the respondent was an offshore company registered overseas, the respondent had principal place of business in Shanghai for two reasons and, accordingly, as the respondent domiciled in Shanghai, the Shanghai Maritime Court had jurisdiction over this case. These two reasons were as follows.
First, the arbitral award clearly stated that “The Charterers are a corporation registered in the Marshall Islands, carrying out business in Shanghai, China”. Further, the arbitral award did not mention that the respondent had a place of business or carried out business in areas other than Shanghai. Based on the respondent’s identity described by the arbitral award, it could be determined that the respondent had a principal place of business in Shanghai.
Second, the respondent’s address specified in the fixture note was also in Shanghai. The respondent provided an entrustment agreement to prove and argue that it had entrusted a third party to carry out the business under the time charter party and, therefore, the address specified in the fixture note was the address of the third party rather than the respondent’s office address. However, the court was not convinced and held that the entrustment agreement could not overrule the description of the respondent’s place of business in the arbitral award and the fixture note, considering the association or business cooperation relationship between the respondent and the alleged third party.
Based on the above, the court found that the respondent had a principal place of business in Shanghai. Thus, the Shanghai Maritime Court had jurisdiction over this case according to article 11 of Special Maritime Procedure Law of China.
Recognition and enforcement of LMAA arbitral award
The Shanghai Maritime Court first confirmed that the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) would apply, since the arbitral award was entered after the dispute had been submitted to arbitration in London, according to the time charter party, and both China and Britain are contracting states of the New York Convention.
According to article 5 of the New York Convention, recognition and enforcement of a foreign arbitral award may be refused in the two situations:
- if the party against whom the award is invoked requests and furnishes proof of procedural issues listed in paragraph 1, article 5 (eg, an invalid arbitration agreement); or
- if the court investigates initiatively and finds that the dispute is not capable of settlement by arbitration or recognition and enforcement of the award will violate the public policy of the forum, as specified in paragraph 2, article 5.
In this case, the respondent did not furnish proof of procedural issues listed in paragraph 1, article 5. Although the respondent raised arguments about costs incurred by the arbitration, such costs were a pending issue not covered by the award. The tribunal reserved the corresponding jurisdiction as stated in the award, and thus the Court would not adjudicate this issue.
Further, the arbitral award settled a dispute arising from performance of a time charter party (ie, a commercial contractual relationship between equal subjects). Therefore, the two contracting parties were entitled to settle the dispute by arbitration, and the LMAA arbitral award did not violate public policy of China.
In conclusion, the Court recognised and enforced the LMAA arbitral award based on article 5 of the New York Convention and Chinese laws.
As commented by the Supreme People’s Court, this case clarified that, where an offshore company’s place of registration and principal place of business are in two different places, the offshore company will be regarded as domiciled in the principal place of business.
Further, the Supreme People’s Court commented that this case followed the New York Convention’s spirit to facilitate the recognition and enforcement of arbitral awards among the contracting states, and this case reflected Chinese courts’ determination to honour the international conventions and demonstrate a friendly attitude to support international judicial assistance mechanisms in the field of arbitration.