How Foreign Invested Enterprises will get Benefitted by the New SPC Interpretations

Arbitration is on the rise in China over the last few years. China’s Supreme People’s Court (SPC) recently issued two pieces of judicial interpretations. China has signed bilateral arrangements on mutual recognition and enforcement of arbitral awards with Hong Kong special administrative region (SAR) (2000) and Macao SAR (2007). China is a contracting state to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention).

For Chinese parties or Foreign Invested Enterprises (FIEs) that are regarded as Chinese entities, the New SPC Interpretations are a positive development. The most important aspect of these Interpretations is the removal of the distinction between the different types of arbitrations in the judicial review process. Previously, only foreign-related or foreign awards were subject to this review system ie where the Intermediate People’s Court refuses to enforce or annul an award then it must obtain approval from the High People’s Court (who have jurisdiction to hear cases submitted by the Intermediate People’s Court).

Since the adoption of its Arbitration Law in 1994, the SPC has made numerous pronouncements to guide the lower courts on the application of the Arbitration Law, including on such issues as the court’s jurisdiction over interim measures, the handling of jurisdictional challenges, and setting aside and enforcement of awards. The New SPC Interpretations became effective on 1 January 2018 and aim to strengthen the arbitration regime in China.

People attached with the China commercial law firms are of the opinion that compared to domestic awards, foreign and foreign-related awards appeared to enjoy special protection under PRC law. Shareholders of limited liability companies have additional safeguards against being deprived of the opportunity to exercise their rights of first refusal. The transferor can also prevent the other shareholders’ exercise of the right of first refusal by discontinuing the sale, provided that it remains liable to compensate the rights holder for losses reasonably incurred, and its liability to the buyer under the relevant sale agreement is unaffected.

The Investigation Interpretation provides that there are three main sources that may be used to locate enforceable assets of a judgment debtor: sources provided by the judgment creditor, reports from the judgment debtor, and online or on-site investigations conducted by the court.

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