A PRC lawyer friend recently brought to our attention a decision from the Supreme People’s Court in 2004, which illustrates the importance of appointing the right expert in a PRC arbitration.
In this case, the parties were in dispute over issues of cost engineering and construction quality. They submitted the case to arbitration before the Foshan Arbitration Commission (the “Arbitral Tribunal”). Article 44 of the Arbitration Law and Article 56 of the Foshan Arbitration Regulations provided that, when an issue arises which requires expert opinion, the parties may agree on the appointment of an expert jointly, or alternatively, leave it to the determination of the arbitral tribunal. The Arbitral Tribunal appointed De Zheng Certified Public Accountants LLP (“De Zheng CPA”) as the expert and made an award based on its valuation report. Dong Jun Real Estate subsequently challenged the enforcement of the award on the ground that there was procedural irregularity in that the Arbitral Tribunal had relied on the findings of De Zheng CPA as the expert, who lacked the requisite qualifications and which thereby rendered the award unenforceable.
The issue before the Court was whether there had been procedural irregularity in the arbitration proceedings, which constituted a breach of procedural rules concerning foreign arbitration under the PRC Arbitration Law, such that the award was unenforceable.
The Guangdong Intermediate People’s Court was of the view that the award should not be enforced. According to the “reporting-up” mechanism for the enforcement of foreign related awards, such view was submitted to the Guangdong Higher People’s Court for consideration, which rejected the application for enforcement. The Guangdong Higher People’s Court gave the following opinion:-
The above opinion was further submitted to the Supreme People’s Court for approval, pursuant to the “reporting-up” mechanism mentioned above. The Supreme People’s Court concurred with the Guangdong Higher People’s Court that the arbitral award should not be enforced, for the following reasons:-
The Supreme People’s Court decision serves as a reminder for parties and arbitral tribunals to take care when appointing experts for arbitrations, especially for foreign parties who may not be aware that the scope of business of an enterprise is highly regulated in PRC. It is important to pay attention to the type of business to which the expert issues relate. If it is regulated by PRC law or is not within the scope of business set out in the enterprise’s business licence, the enterprise may not be qualified to act as expert in arbitrations. It should be noted that the decision dealt with a tribunal appointed expert whose role, as we understand it, may not be regarded as the same as expert appointed by the parties under PRC law. Whether and how the same principle will apply to party-appointed experts remains to be seen.