Jurisdiction: China | First Quarter 2025 Edition

The enforcement of arbitration awards under the ICSID Convention presents unique challenges and opportunities in China. As a signatory to the ICSID Convention, China is obligated to recognise and enforce awards rendered by the International Centre for Settlement of Investment Disputes (“ICSID”). However, the practical application of these obligations, particularly concerning the execution of awards against state assets, involves navigating a complex legal landscape. This article examines China's legal framework for enforcing ICSID awards, exploring key aspects such as the role of Chinese courts, state immunity considerations and the methods available for executing ICSID awards.

ICSID Convention Enforcement in China

The enforcement of ICSID arbitration awards in China operates under a complex framework that includes both international obligations and domestic laws. While China is a party to the ICSID Convention, no specific national legislation has been enacted to implement its provisions. Nevertheless, as a ratified treaty, the ICSID Convention forms part of Chinese law, making it unnecessary for China to introduce separate legislation.

Arbitration under ICSID Convention

Investment treaty arbitration, typically known as investor-state dispute settlement (“ISDS”), resolves disputes between foreign investors and host states concerning alleged breaches of investment protection agreements. The majority of such cases are heard under the ICSID Convention, which provides a neutral forum for resolving such disputes. Unlike other arbitration systems, ICSID arbitrations do not have a designated seat and national courts have limited jurisdiction over the proceedings.

Under Article 54 of the ICSID Convention, contracting states are obligated to recognise and enforce ICSID awards as binding, treating them as final judgments. The execution of these awards, however, remains subject to the laws of the state where enforcement is sought and specific national laws may affect how the awards are executed.

State Immunity and Enforcement

One of the key issues in enforcing ICSID awards in China is the doctrine of state immunity. While the ICSID Convention shields awards from review by national courts, it does not waive a state's immunity from execution. This means that enforcement of an ICSID award against state assets in China could be challenged by the host state's claim of sovereign immunity. China's approach to state immunity has evolved, particularly with introducing the Foreign State Immunity Law in 2024, which adopted a restrictive immunity model. This shift allows for exceptions where foreign state assets are used for commercial purposes, enabling the enforcement of ICSID awards against such assets.

Enforcement Mechanisms

The enforcement process in China begins with an application to the relevant court. Typically, a party seeking enforcement of a foreign arbitral award may apply to the Intermediate People's Court (“IPC”) in the jurisdiction where the debtor is domiciled or where the assets are located. While no specific court is designated for ICSID cases, general provisions for enforcing foreign arbitral awards are expected to apply.

The enforcement application must include the original or a certified copy of the ICSID award and any necessary translations, along with an identification certificate and power of attorney. The court will then decide on the recognition and enforcement of the award, subject to any objections raised by the party against whom enforcement is sought.

Grounds for Refusing Enforcement

Although Chinese law does not provide explicit grounds for refusing enforcement of ICSID awards, the country’s courts will follow international treaties and the principle of reciprocity in handling such applications. Under the ICSID Convention, ICSID awards are typically enforceable without objection, provided that the relevant procedures are followed.

Freezing Assets and Execution

If a debtor fails to comply with the award, the applicant may seek an asset preservation order to freeze the debtor’s assets. This order is subject to the applicant providing security. Once an award is recognised, the court may issue an execution order that can include actions such as seizing or selling the debtor’s assets, including funds, stocks and other properties.

China's Changing Approach to State Immunity

Until recently, China adhered to the doctrine of absolute state immunity, meaning foreign states were immune from both jurisdiction and execution in Chinese courts. However, with the enactment of the Foreign State Immunity Law in 2024, China has shifted to a more restrictive immunity model, which allows for exceptions in cases where foreign states engage in commercial activities. This law enables Chinese courts to recognise and enforce ICSID awards against foreign state assets used for commercial purposes.

Conclusion

The enforcement of ICSID arbitration awards in China remains a complex process, influenced by both international treaty obligations and domestic laws. While China has ratified the ICSID Convention, the lack of specific national legislation leaves some uncertainty regarding the practical application of enforcement procedures. However, recent developments in state immunity law suggest a more flexible approach, particularly in cases involving foreign state assets used for commercial purposes. As such, enforcement of ICSID awards in China is expected to be increasingly feasible, with a clearer path forward for parties seeking to execute these awards.

Hong Kong has introduced a legal framework for third-party funding in arbitration, marking a significant development in commercial dispute resolution in the region. This article outlines the regime governing TPF in Hong Kong, its historical background and how it compares to other leading arbitral jurisdictions in Asia.

Historical Context

Historically, the doctrines of maintenance and champerty in common law prohibited third-party funding in both litigation and arbitration. Maintenance referred to the act of a third party intermeddling in a lawsuit in which they had no interest. At the same time, champerty involved agreements where a third party financed litigation in exchange for a share of the proceeds. These doctrines were initially intended to prevent the commercialisation of legal actions and to curb meddling in court matters for personal gain. While many jurisdictions have abolished these doctrines, they continued to pose challenges in Hong Kong until recent reforms.

Reform of Third-Party Funding in Hong Kong

Hong Kong faced uncertainty regarding the application of these doctrines to arbitration until the law was reformed in 2018. Prior to that, court decisions created confusion. The case Cannoway Consultants Ltd v Kenworth Engineering Ltd (1994) suggested that champerty did not apply to arbitration, while Unruh v Seeberger (2007) left the issue unresolved. In response to this uncertainty, the Hong Kong Law Reform Commission (“LRC”) conducted a review of TPF in arbitration. Following public consultation, the LRC recommended that TPF should be expressly permitted in arbitration, subject to certain safeguards.

The LRC’s recommendations were incorporated into the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016, which passed into law on 23 June 2017. The amendments to the Arbitration Ordinance (AO) provided a clear legal basis for TPF in Hong Kong, with the relevant provisions coming into effect on 1 February 2019.

Key Provisions of the TPF Regime

Under the current legal framework, third-party funding is permitted for arbitration proceedings seated in Hong Kong. However, the system incorporates several safeguards to ensure ethical and financial responsibility among funders. These safeguards are outlined in the Code of Practice for Third-Party Funding of Arbitration, which funders must adhere to.

One key requirement is the obligation to disclose the funding arrangement to the other party and the tribunal at the outset of the arbitration. Funders are also required to maintain adequate capital and financial resources and they must establish procedures to manage potential conflicts of interest. Furthermore, funders cannot control the arbitration or interfere with the funded party’s legal strategy.

The law also includes provisions on confidentiality, ensuring that the strict confidentiality obligations governing arbitration proceedings do not extend to TPF disclosures. Importantly, while the tribunal has no power to make an adverse costs order against a third-party funder, the court retains the ability to do so.

Comparison with Other Asian Jurisdictions

Hong Kong's TPF regime stands out in Asia as one of the more developed systems for funding arbitration. While some other jurisdictions, like Singapore, have also established frameworks for TPF, Hong Kong’s comprehensive regulations, which include a detailed Code of Practice, provide clear guidelines for the conduct of third-party funders. These measures have positioned Hong Kong as a leading arbitration and dispute resolution jurisdiction in Asia.

Outcome-Related Fee Structures

In addition to TPF, Hong Kong has also introduced the concept of outcome-related fee structures (“ORFSA”) for arbitration, effective from 16 December 2022. This allows lawyers to offer conditional fee agreements, damages-based agreements and hybrid agreements in arbitration, providing another option for managing arbitration costs. Unlike TPF, ORFSA agreements do not involve third-party funders, but they offer clients flexibility in how they manage the costs of their arbitration.

Conclusion

The TPF regime in Hong Kong has evolved significantly, making it a more attractive jurisdiction for arbitration funding. With clear regulations, ethical standards and financial safeguards, Hong Kong offers a robust framework for third-party funding in arbitration. This development strengthens Hong Kong’s position as a global arbitration hub, encouraging both local and international parties to use arbitration as an effective means of resolving commercial disputes.

The South China International Arbitration Center (Hong Kong) (“SCIAHK”) has announced that its updated Arbitration Rules came into force on 31 March 2025. These new rules, known as the SCIAHK Rules 2025, will apply to all cases accepted on or after that date. For cases accepted before this deadline, or if the parties agree otherwise, the SCIAHK Arbitration Rules 2022 will remain applicable.

A key update in the SCIAHK Rules 2025 is the enhancement of the expedited procedure under Article 23A. The revised procedure introduces a new Appendix 5, which outlines more detailed provisions for expedited arbitration. As before, this procedure will apply when the value of the claims does not exceed the threshold set by SCIAHK or if the parties agree to proceed with an expedited process.

The most notable change is the reduced time frame for rendering an award. Under the updated rules, the award must be issued within three months from the constitution of the tribunal, a significant reduction from the previous six-month deadline. Extensions to this timeline will only be permitted if all parties agree.

Appendix 5 also sets out several procedural adjustments. The tribunal is required to consult with the parties within 15 days of its constitution to agree on procedural arrangements and timeframes. Disputes will primarily be decided based on written submissions and documentary evidence, though the tribunal may hold a hearing (limited to one day) if it deems it necessary. The tribunal also has the authority to limit the production of documents and determine which witnesses, including experts, should testify.

Additionally, the tribunal is encouraged to use technological tools as needed to conduct proceedings, including for remote communication and virtual hearings. Both the tribunal and the parties are expected to act with urgency to ensure the process remains expedited.

The SCIAHK Rules 2025, like their 2022 predecessor, are based on the UNCITRAL Arbitration Rules 2013, with updates that reflect recent developments in international arbitration practices. These changes aim to streamline the arbitration process and enhance efficiency, ensuring that disputes are resolved promptly while maintaining fairness.

The new rules represent SCIAHK’s continued efforts to align with global best practices in arbitration and provide a modern framework for resolving commercial disputes in China.

On 14 February 2025, the Supreme People's Court (“SPC”) issued a significant judicial interpretation entitled

“Official Reply on the Issues concerning the Validity of the Adoption of Hong Kong or Macao Law as the Applicable Law of Contracts or the Designation of Hong Kong or Macao as the Seat of Arbitration by Hong Kong or Macao-Invested Enterprises Registered in the Mainland Part of the Guangdong-Hong Kong-Macao Greater Bay Area”.

This judicial interpretation clarifies the choice of governing law and seat of arbitration for contracts involving Hong Kong or Macao-invested enterprises in mainland cities of the Guangdong-Hong Kong-Macao Greater Bay Area (“GBA”). This interpretation, which came into effect immediately, represents a milestone in the resolution of commercial disputes within the GBA.

The newly issued interpretation allows Hong Kong or Macao-invested enterprises—enterprises that are either wholly or partially invested by entities or individuals from the Hong Kong Special Administrative Region (“Hong Kong”) or Macao Special Administrative Region (“Macao”)—to select Hong Kong or Macao law as the governing law and designate Hong Kong or Macao as the seat of arbitration for disputes, under certain conditions. This flexibility is provided for disputes in mainland cities within the GBA, subject to compliance with Chinese national laws and public interests.

The SPC’s clarification affects enterprises in Shenzhen and Zhuhai, where the parties may choose Hong Kong or Macao law as the applicable law for their contracts, provided it does not violate mandatory national laws or public policy - such as bypassing foreign exchange controls. Additionally, in any of the nine GBA cities - Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing - enterprises can select Hong Kong or Macao as the seat of arbitration for dispute resolution, even if there are no direct Hong Kong or Macao elements in the case. This marks a notable shift, as such arbitration agreements will no longer be invalid simply because they lack foreign-related elements.

This judicial interpretation aligns with broader efforts to support the development of the GBA and promote the region’s role as a hub for international arbitration. It also mirrors the document jointly issued by the SPC and the Ministry of Justice on 14 February 2025 entitled

“Opinion on Fully Leveraging the Functions of Arbitration to Serve the High-Quality Development of the Guangdong-Hong Kong-Macao Greater Bay Area”.

The clarification also aligns with the Draft Amendment to the Arbitration Law, further confirming that the seat of arbitration determines the procedural law governing the arbitration and the nationality of the arbitral award. These developments highlight China's commitment to refining its arbitration framework and enhancing the region’s commercial dispute resolution capabilities.

This update is a significant development for businesses in the GBA and international parties engaging in commercial activities in the region, offering greater flexibility and certainty in dispute resolution.

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