Permission to Say No? by Yujing Zhang
Imagine a system in which a trial court cannot refuse to enforce an arbitral award on its own. Before saying no, the court must send its proposed decision up the judicial hierarchy for review, sometimes all the way to the highest court in the country. China has used versions of that system for three decades. It is known as the prior reporting system.
For readers accustomed to a model in which a first-instance court decides and an unhappy party appeals, the structure is unusual. But it was created to solve a concrete problem: local courts sometimes protected local enterprises by refusing to enforce arbitral awards, while those refusals could be final and unappealable. China responded by centralizing the power to say no.
Why Centralize Refusal?
The problem became internationally visible in the early 1990s. Revpower, an American subsidiary of a Swedish parent company, obtained an award of approximately US$4.9 million from the Stockholm Chamber of Commerce against a Shanghai state-owned enterprise. Enforcement stalled amid local opposition, and the episode later appeared in U.S. congressional hearings concerning China’s compliance with its treaty obligations.
In 1995, the Supreme People’s Court responded by requiring lower courts proposing certain negative decisions in foreign-related arbitration matters to report upward before the decision could take effect. The system later expanded and became more formalized. Under the current structure described in Zhang’s chapter, proposed negative determinations involving foreign-related awards require Supreme People’s Court approval, while proposed negative determinations involving domestic awards generally are reviewed through the Higher People’s Court level. The result is not an ordinary appeal. Review occurs before the lower court may issue the negative decision.
What the Gatekeeper Achieved
Centralized review gave the Supreme People’s Court repeated opportunities to address recurring questions under the New York Convention and Chinese arbitration law. Over time, its replies became a de facto body of guidance for lower courts. Among other things, the Court narrowly construed the public-policy exception, treated the arbitral seat rather than the administering institution’s headquarters as central to an award’s nationality, and confirmed that foreign arbitral institutions could administer arbitrations seated in China.
The institutional logic is straightforward. If the principal danger is local capture or inconsistent treatment of arbitration, central review can constrain both. A local court remains able to enforce an award or uphold an arbitration agreement, but a proposed negative decision receives scrutiny from a higher level before it becomes effective. The system therefore favors consistency and arbitration-friendliness over ordinary first-instance autonomy.
The Costs of Centralization
The same design also creates costs. Delay is the most obvious. The reporting rules impose time limits on lower courts at some stages, but Zhang notes that no binding deadline governs the Supreme People’s Court’s own review. One study of ninety-eight published replies from 1995 through 2015 found that fewer than half were issued within 180 days, nearly one-third took more than a year, and some exceeded two years. A mechanism intended to protect arbitration can therefore undermine one of arbitration’s principal attractions: speed.
Transparency presents a second problem. The process ordinarily moves through internal court reports containing factual findings, legal analysis, and a proposed disposition. The parties do not necessarily see how the case is characterized as it moves upward, and the judges conducting the upper-level review may never hear directly from them. The system thus produces centralized consistency through a process that gives the affected parties less participation than an ordinary appeal would provide.
It also complicates the usual relationship between trial and appellate courts. The lower court develops the record but may lack final authority to issue the proposed negative ruling; the reviewing court exercises decisive authority without functioning as a conventional appellate tribunal. Finality, participation, and accountability are therefore allocated differently from the way many legal systems ordinarily structure judicial review.
A Broader ADR Design Question
The prior reporting system makes unusually visible a tradeoff that exists in many systems. Centralized oversight can promote consistency and reduce the risk that local interests will distort enforcement. The price may be delay, opacity, and reduced autonomy for the court that actually heard the matter. Most systems make some version of this tradeoff without naming it so directly.
Zhang argues that reform need not mean abandoning central review. More targeted changes could preserve its gatekeeping function while reducing its costs: deadlines for upper-level review, notice when a case is reported, a limited opportunity for the parties to make submissions, and more systematic publication of reviewing decisions. The point is to retain the protection against erroneous or locally influenced refusals while making the process more transparent and procedurally regular.
For the broader ADR community, China’s experience poses a useful design question: when courts supervise arbitration, how much consistency should be purchased through centralization, and what procedural costs are acceptable in return? The prior reporting system represents one unusually clear answer. The next post turns from judicial oversight to the institutions themselves and asks what it means for an arbitration institution to be genuinely independent.
About the author
Yujing Zhang is an LLM candidate at the London School of Economics and Political Science.
This post draws on Yujing Zhang, “The Prior Reporting System as Gatekeeper: Critiques and Challenges in China’s Arbitration Enforcement,” in Richard Bales & Dan Xie, eds., The Cambridge Handbook of Arbitration in China (Cambridge University Press, forthcoming spring 2027). The submitted chapter is available on SSRN.
