XIAO Yongping

Senior Professor of Humanities and Social Sciences, Wuhan University

Director of the National High-End Think-Tank Institute of International Rule-of-Law Studies, Wuhan University

Where a sanctioned Chinese party brings a civil action before a Chinese court under Article 12 of the Anti-Foreign Sanctions Act of PRC (AFSA), while the same parties had previously concluded an arbitration agreement in their underlying commercial transaction, no consensus has yet been reached among Chinese courts and academics as to how such foreign discriminatory restrictive measures affect the application of Article V(2) of the New York Convention. I propose three points for discussion.

First, the bifurcated review structure established by Article V(2) of the New York Convention provides the basic analytical framework for this issue. Subparagraph (a) concerns arbitrability and is designed to draw the jurisdictional line between arbitration and judicial adjudication. Its focus is whether the dispute falls within the property rights and interests over which the parties may freely dispose, and operates as a statutory threshold examined by the court ex officio without requiring a party request. Subparagraph (b) concerns the public policy reservation, which applies only at the stage of cross-border enforcement or recognition of the award and focuses on whether giving effect to the award would violate the forum State’s fundamental legal principles, sovereign security, or core economic interests—thus operating as an ex post regulation of the award’s local effect. The two subparagraphs perform separate functions and should not be substituted for one another or mixed across stages.

Second,arbitrability is the normative basis for a Chinese court to decide whether to exercise judicial jurisdiction. Because the New York Convention does not itself define arbitrability, the scope of arbitrable disputes is referred to domestic law. As to commercial disputes involving foreign unilateral sanctions, the view that they are automatically non-arbitrable—across the board and regardless of the dispute’s nature—is untenable. I propose to split the matter into (i) commercial disputes affected by foreign sanctions and (ii) tort claims for damages brought under AFSA Article 12 for implementing or assisting in implementing foreign discriminatory restrictive measures: the former are arbitrable, and the latter are not. Accordingly, where a sanctioned party files an infringement/tort claim before a Chinese court under Article 12, the existence of an arbitration clause in their earlier underlying contract does not bar the court; the court may take jurisdiction on the ground that the claim is non-arbitrable.

Third,the public policy clause of the New York Convention does not preclude each contracting State from judging the matter under its own law. Even if a sanctions-related commercial dispute is arbitrable, an award rendered on such a dispute may still be refused recognition and enforcement where the foreign unilateral measure constitutes a discriminatory restrictive measure against Chinese parties, and the trading partner relies on that sanction to refuse performance, suspend or rescind the contract; or—without expressly invoking sanctions—terminates the transaction for other than normal commercial reasons, provided that the act is deemed to implement or assist in implementing the foreign discriminatory restrictive measure, which not only harms the legitimate rights of the Chinese private party but also threatens the security of relevant industrial and supply chains or other national security interests of China. In such cases, the enforcing court may rely on the public policy reservation in Article V(2)(b) to deny recognition and enforcement of the award.