A partial award is a special form of commercial arbitration award rendered by the arbitral tribunal for certain disputed issues before a final award.
Based on a foreign-related arbitration case administered by the Shanghai International Economic and Trade Arbitration Commission/Shanghai International Arbitration Centre (SHIAC) concerning a joint venture contract, the author proposes a “2 + 1” framework for initiating partial awards.
This framework incorporates both procedural and substantive requirements, namely, that the commencement of a partial award shall be by request and is necessary, while also satisfying the condition that the awarding criteria have matured in substance.
By looking at this real case, the author provides guidance for commercial entities, legal representatives and arbitrators in deciding whether to apply for or render a partial award, improving the quality and efficiency of commercial arbitration proceedings.
Case summary
The first claimant, second claimant and respondent entered into a joint venture (JV) contract, agreeing to establish a foreign-invested JV company to jointly develop and construct a large-scale entertainment project in China. The JV contract specified the obligations of parties to subscribe the registered capital and provide financing.
The claimants filed for arbitration on the grounds that the respondent:
(1) Failed to make payment of the registered capital in time;
(2) Refused to make up for a shortfall after the parties increased total investment after consultations; and
(3) Failed to provide the project company with loans in accordance with the JV contract, constituting breach of contract.
The claimants made the following arbitration claims to:
(1) Confirm the JV contract is rescinded;
(2) Rule that the respondent shall transfer equity interests in the project company to the claimants in proportion to their respective contributions at the assessed price, based on the principle of fair market set out in the JV contract;
(3) Rule that the respondent shall pay the claimants’ liquidated damages;
(4) Rule that attorney fees of this case shall be borne by the respondent; and
(5) Rule that arbitration fees of this case shall be borne by the respondent.
In response, the respondent argued that it performed its obligation of the subscription of registered capital in accordance with the JV contract, but the claimants failed to provide financing assistance to the project company in accordance with the JV contract. Also, the project company led by the claimants rejected the respondent’s request to attend company meetings.
Under such circumstances, the respondent was unable to provide any financing. Therefore, the respondent maintained that the claimants constituted breach of contract, and should bear all arising losses.
After the hearing, the arbitration tribunal held that the second claim raised by the claimants was related to the status of ownership of equity interest of the project company, while the first claim was related to the status of the validity of the JV contract between the parties. Also, the two claims were related to each other, together constituting the main issues in this case, and were the basis for dealing with the remaining arbitration claims.
Therefore, on the application of the parties, the arbitral tribunal decided to make a partial award on the claimant’s first and second claims, and then make a final award on the remaining claims based on the partial award.
Framework of initiation
Considerations of the arbitral tribunal in deciding to render a partial award usually include two tiers comprising “procedural” and “substantive” aspects.
First, from the viewpoint of procedural elements, according to article 62 of the 2024 SHIAC Arbitration Rules, the following two procedural elements need to be satisfied for initiating a partial award:
- On the application of the parties. This means partial awards have to be rendered by parties’ request. If the parties do not apply for a partial award on their own initiative, it is not appropriate for the arbitral tribunal to make a partial award;
- The arbitral tribunal considers it necessary. The requirement of necessity needs to be satisfied for a partial award. To determine necessity, an arbitral tribunal shall consider various factors such as the urgency of the matter, efficiency of the arbitration proceedings, protection of the rights of parties, and even social impact. Typical circumstances of necessity include:
(1) When part of the claims involves public interests. For instance, cases concerning construction arrears usually involve the appraisal of construction cost and quality. Since this is usually time consuming, such cases closely relate to the actual rights and interests of construction workers. In those cases, the arbitral tribunal may, for the sake of public interest, first make a partial award towards the undisputed amount. This not only helps to timely relieve pressure on parties’ concerns to pay workers’ wages, but also reduces the risk of social problems and assists in advancing the arbitration proceedings.
(2) When part of the claim is a prerequisite to the decision on other claims. For instance, the validity of the contract between parties may be a prerequisite for the tribunal’s subsequent ruling on liability for breach of contract and the amount of damages. A partial award on such claims helps improve the quality and efficiency of the arbitration procedures, avoids unnecessary delay in the project due to uncertainty of the contract validity, and reduces losses incurred to the parties.
In terms of substantive elements, an important prerequisite for rendering a partial award is that conditions are matured for award of the partial arbitration claim. Common circumstances include:
(1) When part of the claims is obviously groundless. When part of the claimant’s arbitration claims are obviously groundless and do not implicate other claims, the arbitral tribunal may make a partial award to dismiss such claims in advance. For example, where a party makes an arbitration claim that is obviously beyond the jurisdiction of the arbitral tribunal – or the claim itself is not substantively arbitrable and the party concerned is unwilling to amend or withdraw such claims before the hearing – the arbitral tribunal may consider dismissing such claims by making a partial award after the hearing.
(2) When part of the arbitration claims are not materially in dispute and the facts are ascertained. When there is no or little dispute between parties on the substance of some of the arbitration claims, and the facts in respect of those claims are ascertained, the arbitral tribunal may make a partial award on such claims first so as to enhance efficiency of the arbitration proceedings.
Observations
The legal basis for partial award made by the arbitral tribunal lies in article 55 of the Arbitration Law, which states that “in arbitration proceedings, if a part of the facts involved has already become clear, the arbitration tribunal may first render an award in respect of such part of the facts”.
Accordingly, the arbitral tribunal could render certain types of awards before rendering the final award, which point to three types of awards – interim awards, partial awards and early dismissals – with a decisive effect.
Functionally speaking, a partial award is different from an interim award because a partial award has a final effect while an interim award does not. A partial award is also different from early dismissal in that after the arbitral tribunal has made a decision in favour, or partially in favour, of the application for early dismissal it still needs to convert content of the early dismissal decision into an award.
In practice, it should be noted that some parties confuse the concepts of those awards, or refer to the arbitral tribunal a matter that requires an interim award rather than a partial award.
In addition, in rendering a partial award, the arbitral tribunal shall also be mindful of the following: (1) whether the subject matter of the partial award is beyond the scope of arbitration; and (2) whether the partial award is clear and enforceable, in order to avoid the award being set aside or not enforced in the future.
Overall, the essence of whether an arbitral tribunal shall render a partial award lies in whether such an award is beneficial to protecting the rights and interests of the parties, facilitates settlement of disputes, and improves the efficiency of the arbitration process.
Li Tingwei is a senior case manager in the research department of the Shanghai International Arbitration Centre
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