Application of Korea Line Corporation for recognition and enforcement of foreign arbitration award

[Basic facts]

On 5 August 2018, Korea Line Corporation (“KLC”) as shipowner and Grand China Shipping (HK) Co. Ltd. (“GCS”) as charterer signed the Charter Party for the chartering of M/V “K Daphne”. A Performance Guarantee was issued in favor of KLC by HNA Group Co., Ltd. (“HNA”) to guarantee GCS’s performance of its obligations under the said Charter Party. The cross-border guarantee provided by HNA had not been reviewed and approved by the relevant administration of foreign exchange of the P.R.C. Dispute arose during the performance of the Charter Party. On 13 January 2016, the tribunal formed by Mr. Timothy Marshall, Mr. Patrick O’Donovan and Mr. David Farrington rendered the Final Arbitration Award in London regarding the dispute between KLC and HNA over the Charter Party dated 5 August 2008 and the Performance Guarantee for M/V “K Daphne”, ruling that HNA shall pay KLC an amount of USD77,830,179.46 and interests accrued therefrom. As HNA failed to fulfill its payment obligation ruled under the Final Arbitration Award, KLC applied with this Court for recognition and enforcement of the Final Arbitration Award. During the examination of the case by this Court, KLC applied for property preservation against HNA in an amount of RMB560 million and provided security accordingly.

[Ruling]

Upon examination, this Court rendered the Civil Ruling of (2016) Q72 XWR No.1, approving KLC’s application for property preservation. HNA was dissatisfied with the Ruling and applied for reconsideration. Upon examination, this Court held that there was no legal basis to make a property preservation application during the trial of recognition and enforcement of foreign arbitration award, and hence rendered the Civil Ruling of (2016) Q72 XWR No.1 (1) to revoke the aforesaid Ruling and rejected KLC’s application. On 15 August 2017, this Court rendered the Civil Ruling of (2016) Q72 XWR No.1 (2), holding that the circumstances provided for in Article 5 of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards where the recognition and enforcement of award could be rejected should not apply to the subject Final Arbitration Award and the application for recognition and enforcement of the Final Arbitration Award does not violate the reservations announced by China when it acceded to the said Convention. Hence, this Court ruled to recognize and enforce the Final Arbitration Award. In the meantime, the parties reached an out-of-court settlement agreement.

[Significance]

The Chinese judiciary showed a good image before the world by fully implementing the international conventions in a fair and equitable manner during the hearing of case. This is a major case involving foreign elements. The foreign litigant KLC was concerned about unfair treatment by the court and sought for assistance from the Korean Embassy. However, upon hearing the case, the Court rejected KLC’s application for property preservation by firmly upholding the State’s judicial sovereignty. Meanwhile, the Court strictly followed the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the idea of “facilitating enforcement” contained therein to cautiously examine the rejection of a foreign arbitration award by a public policy, and eventually ascertained that the unapproved cross-border guarantee did not constitute a violation to China’s public policy and hence approved the recognition and enforcement of the foreign arbitration award. In this case, the lawful rights and interests of both parties were equally protected, and the decisions made by this Court were unanimously accepted by both parties. Further, this case has filled the lacunae in respect of property preservation during the examination of application for recognition and enforcement of foreign arbitration award. While there are existing laws prescribing the recognition and enforcement of foreign arbitration award, no applicable law has been made for property preservation during the examination of application for recognition and enforcement of foreign arbitration award. The Court holds that property preservation during the examination of application for recognition and enforcement of foreign arbitration award shall be deemed an international judicial assistance. Given that no applicable law is made in this respect, the international conventions to which China and the country where the arbitration award was rendered are parties or the reciprocity agreements between the two countries shall be applied. In the absence of such basis, the application for property preservation shall be dismissed.