Do not lightly try the fifth “foreign element”

To provide assurance for the development of the free trade zones, the Supreme People’s Court issued the Opinions on Providing Judicial Assurance for the Development of Free Trade Zones at the end of last year. The Opinions mention that, “if wholly foreign-owned enterprises (WFOEs) registered in free trade zones provide among themselves that commercial disputes are to be submitted for arbitration abroad, the relevant arbitration agreement shall not be found invalid solely on the grounds that the dispute has no foreign elements”.

Whether a contract has foreign elements is of major importance to whether the arbitration agreement is valid, to whether a foreign arbitration institution may be selected and to whether an arbitration award can be recognized and enforced by a Chinese court. What is of the greatest relevance to the Opinions is probably the case in which Siemens International Trading Limited, Shanghai applied for the recognition and enforcement of a foreign arbitration award.

In the case, Siemens and Golden Landmark entered into a contract and provided that contractual disputes be referred to the Singapore International Arbitration Centre for resolution by arbitration. After a dispute arose in the course of performance of the contract, the parties did go into arbitration in accordance with the contract. Pursuant to the final arbitration award, Golden Landmark bore a payment obligation towards Siemens, but it only partially performed the award.

Michael Wang is an associate at MHP Law Firm